LCCI Projects 1% GDP Growth for Nigeria in 2021

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* Calls for structural reforms

Dike Onwuamaeze

The Lagos Chamber of Commerce and Industry (LCCI) has projected that the Nigerian economy will grow by one per cent in 2021.

The projection was contained in the LCCI’s, “Economic and Business Review for Year 2020 and Outlook for Year 2021,” released yesterday by its Director General, Dr. Muda Yusuf.

LCCI also urged the federal government to implement structural reforms in order to arrest the current recession and foster economic resilience in 2021.

The LCCI added that recovery from current recession will depend on the performance of oil prices in the international market and local crude oil production level in 2021.

The chamber stated that the growth outlook for 2021 would take full course most likely in the second quarter, due to the base effect of the second quarter 2020, when output contracted steeply by 6.1 per cent.

It said: “We expect the pace of recovery to remain subdued within the region of one per cent 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.

“It is instructive to note that Q2-2017 growth recovery was facilitated by rebound in international oil prices rather than government’s intervention efforts. We see a similar type of recovery in year 2021. However, shocks, including resurgence in COVID-19 pandemic and significant oil price volatility, are the major downside risks.”

The chamber also forecasted that the outlook for business environment in 2021 will not be bright as there are no quick fixes for the structural issues and the desired regulatory and institutional reforms.

The LCCI warned that constraints to the ease of doing business like foreign exchange shortage, escalating production costs, high regulatory costs, infrastructure inadequacies and delayed cargo clearance would persist into 2021 if there is no bold policy pronouncements in terms of structural adjustments of the economy.

“These constraints will be more profound on businesses in the real economy. While most MSMEs will struggle to survive in year 2021 amid unfavourable economic conditions, we expect most large corporates to demonstrate resilience in the coming year.

“We expect the economy to return to the path of positive growth in the second quarter of 2021 and this would expectedly impact on the macroeconomic environment, which may ease some of the critical economic conditions currently impeding economic growth,” the report added.

The LCCI also expected headline inflation to remain high in 2021 as combinations of food supply shocks, foreign exchange policies, higher energy costs, foreign exchange scarcity and heightened insecurity in major food-producing states would continue to mount pressure on domestic consumer prices.

“We believe a broad-based harmonisation of fiscal and monetary policies towards addressing the identified structural constraints will significantly help to moderate inflationary pressure in the medium term,” the report said.

The chamber also forecasted that the commencement of the African Continental Free Trade Area (AfCFTA) from January 2021 and the porosity of the country’s land borders would make Nigeria a destination for imported food products and exposed it to the risk of resurgence of smuggling of agricultural products in absence of adequate border monitoring measures.

It projected that the fortunes of the manufacturing sector would be dimmed in 2021 despite the succour the reopening of the land borders and the enlarged market due to the AfCFTA should provide.

According to the report, the recovery of the sector in 2021 would be dampened by critical challenges such as foreign exchange scarcity and inconsistent forex policies, inefficient transport infrastructure, high production cost, weak consumer demand and the new competitiveness pressure foisted by the AfCFTA.

The chamber also projected that Nigeria would amass N34 trillion national debt by the end of 2020, contrary to the federal government’s expectation of N32 trillion debt.

It added that the foreign components of the Nigeria’s debt portfolio would increase in 2021 if the spread of COVID-19 persists.

“Looking forward, a resurgence of COVID-19 pandemic in year 2021 may propel the federal government to take on more (concessionary) borrowings to fulfill fiscal obligations. Additionally, a potential foreign exchange adjustment in a bid to ease pressure on the local currency (naira) might possibly expand Nigeria’s external debt portfolio and total debt stock in year 2021,” it said.