Nigerian trade group, LCCI sees more hurdles to economic recovery in 2021
By Samuel Bankole
The Lagos Chamber of Commerce and Industry (LCCI) has warned that the Nigerian business environment would be characterized by policy uncertainty in 2021 with low access to foreign exchange due to dollar shortages hurting more businesses and slow down economic recovery.
The country’s most influential trade group said in its economic outlook for 2021 noted that the shortage in foreign exchange available to businesses and end-users will remain one of the biggest hurdles to economic growth in 2021.
The report stated that there will be more pressure on the country’s foreign exchange reserves in 2021 as the Central Bank of Nigeria (CBN) sustain its demand management strategies to conserve forex.
In the light of relatively lower dollar inflows from oil, foreign investment, and diaspora remittances the CBN will continue to ration and restricting access to forex for food imports, the LCCI stated.
“In year 2021, the CBN will most likely maintain and initiate more demand management policy measures to taper growing demand for forex amid weak dollar inflows,” it said.
With imports continuing to outpace exports, trade deficit is expected to widen in excess of N5 trillion in year 2020, thereby putting pressure on forex.
“Looking ahead in 2021, we expect crude oil to sustain its dominance in Nigeria’s export while manufactured imports will most likely dominate the country’s import bill.
“We anticipate sustained trade deficit in agriculture, manufactured goods and raw materials goods in year 2021,” the report stated.
The LCCI said total capital inflows for year 2021 might likely range between $10 billion – $11 billion, below 2018 and 2019’s levels.
The forex policies, security challenges, sustained fiscal & external risks, infrastructure inadequacies, policy credibility concerns and regulatory bottlenecks may keep capital importation subdued in the short-term.
“Foreign Portfolio Investors (FPIs) are concerned about the continual rise in negative real return rate on investment due to rising inflation and inability of FPIs to exchange naira repayments into forex. Given that these issues remain unresolved, we believe FPIs will remain cautious about naira-denominated investment securities in the short term,” Yusuf said.
While the trade group projected that the economy could bounce back by the second quarter of 2021, it noted that there are no quick fixes for the structural issues and the desired regulatory and institutional reforms.
“While recovery to growth trajectory is expected to take full course most likely in second quarter 2021 due to base effect of second quarter 2020 when output contracted steeply by 6.1 percent.
“We expect the pace of recovery to remain subdued within the region of one percent in year 2021 in the absence of shocks.
“In our view, Nigeria’s recovery prospects depend largely on oil price and production level as GDP performance in recent quarters has significantly mirrored trends in both variables,” The LCCI stated.
The group bemoaned the security situation in the country and doubt the capacity of the present administration in the management of the situation.
The LCCI said while the security situation in the country requires new strategies and approaches, it remains unclear what new strategies are in the works.
The LCCI said without bold policy pronouncements, constraints to the ease of doing business including foreign exchange shortage, escalating production costs, high regulatory costs, infrastructure inadequacies, and delayed cargo clearance, will persist into year 2021.