The Lagos Chamber of Commerce and Industry predicts a further decline in crude oil price in the international market which will negatively affect Nigeria’s economy
| By Anayo Ezugwu | Sep 21, 2015 @ 01:00 GMT |
THE Lagos Chamber of Commerce and Industry, LCCI, has predicted a further crash in crude oil price currently trending at a six-year low of $40 per barrel. Prices may crash further when Iran begins to enjoy its international pardon by pumping more oil into the already saturated market. Remi Bello, president, LCCI, during its 2015 third quarter press conference, warned that if the crash of oil prices happens, it may further heighten the fiscal challenges presently facing the country.
He said: “With this development, we are expecting further downwards adjustments in the budgetary benchmark of oil price which is pegged at $53 per barrel in the 2015 budget. Further pressure on the value of Naira is expected as the development weakens the supply side of the foreign exchange market.”
The LCCI boss quoted the National Bureau of Statistics, NBS, as saying that Nigeria’s real Gross Domestic Product, GDP, fell to 2.35 percent in the second quarter of 2015, compared to 6.54 percent in the same period last year. It stressed that the country’s economic growth rate for the second quarter represents a 40 percent decline from the 3.96 percent recorded in the first quarter of the year.
He advised that the Central Bank of Nigeria’s, CBN, foreign exchange policy needed to be urgently reviewed to encourage the inflow of autonomous funds into the foreign exchange market, adding that the current tight exchange controls is a major disincentive to the inflow of diaspora funds, export proceeds and other autonomous funds into the economy, thus worsening the foreign exchange crisis. “The CBN needs to be creative in its fight against money laundering in order to minimise disruptions to economic activities. Its current approach has caused considerable disruptions.”
Bello said the stock market in 2015 remains largely bearish with average year-to-date return of -15.71 percent by end of August while depressed international oil market, exchange rate crisis and fears coming from slowing Chinese economy continue to exert negative pressure on the Nigerian equity market. He said the biggest challenge facing investors currently is the disruptions and dislocations caused by the recent foreign exchange policies of the CBN, saying the country is experiencing very difficult times and choices are limited.
“We know that the inflow of foreign exchange into this economy has declined sharply following the collapse of crude oil prices. We appreciate the challenge of scarcity of foreign exchange. Tough choices have to be made. But we have serious reservations over the policy choices of the CBN in managing the current crises. Significant disruptions, distortions and dislocations have been created in the business environment by the CBN as a consequence of denial of access to foreign exchange market for imports of 41 broad categories of products, including critical inputs needed in manufacturing and service sectors,” he said.
According to Bello, the impact of the policy has worsened the business over the last two months, pointing out that several credit lines for Nigerian investors have been lost following the numerous cases of payment defaults to foreign suppliers. “Even reputable blue chip companies have defaulted for the first time in the several years of business relationship with their foreign suppliers. Considerable damage has been done to the image of many companies and the country in the international trade and investment arena. A major confidence crisis has been created for investors. Many ongoing transactions before the issuance of the CBN circular have been stalled. These were transactions under bills for collection for which credit facilities were given by foreign suppliers and for which funds could not be remitted.”