The federal government has been called upon to take immediate measures that will lift the economy from its poor state.
An economist and Director General of Lagos Chambers of Commerce and Industry (LCCI), Mr. Muda Yusuf, who made the call, said liquidity should be restored to the foreign exchange market in order to bring back investors’ confidence in the economy. He added that there is a need to review trade policy to enhance disposable income and private sector investment spending.
Yusuf spoke at the seventh annual conference of the Institute of Capital Market Registrars (ICMR) on the theme: “Understanding Monetary and Fiscal Policies in the Management of the Economy– Issues, Challenges, Analysis and the Impact on the Capital Market.”
He said the high cost of borrowing as represented in treasury bill rate and the bonds is crowding out the private sector in the financial market affecting the growth of investment and financial intermediation.
According to the him, the tight monetary policy in form of high cash reserve ratio (30 per cent), liquidity ratio(22 per cent) , monetary policy rate (12 per cent) has led to an increase in interest rate and better returns on investment in the money market.
“This is a disincentive to investment in the capital market. High interest rate is not good for firms in the real sector, many of which are listed on the Nigerian Stock Exchange (NSE). This has implications for Return on Investment (ROI) for those firms and by extension ROI on investment on those equities,” Yusuf said.
The LCCI boss noted that the auto policy is taking a major toll on automobile industry especially those in the business of production, assembly or sales of new cars
“Current import duty regime is aggravating the cost of production and operation across all sectors. This is because the base rate for the competition of duty has increased phenomenally due to the cost of inflation. The exclusion by the Central Bank of Nigeria (CBN) of the famous 41 items from the interbank foreign exchange market is having a very serious effect on both industrial and service sectors,” he added.
Yusuf explained that the Treasury Single Account (TSA) has a major liquidity implication for the economy which also affects the capital market, emphasizing that: “Over 90 per cent of the deposit in the banking system are short term funds of about a year or less. This structure is not good for the real sector investment which is needed to drive the capital market.”
On the way forward, he said liquidity should be restored to forex market while the emphasis on demand management of the forex market should be reduced
“The challenge of high energy cost needs to be addressed very urgently. Exposure of government to domestic debt need to be reduced considerably. There is a need to review trade policy to enhance disposable income and private sector investment spending. There is need to urgently expand the scope of private sector spending in infrastructure. CBN should liberalise the inflow of forex from autonomous sources to the economy. This includes export proceeds remittances and capital importation,” he said.