Alhaji Remi Bello, LCCI President
CHIEFTAINS of industries in Nigeria have predicted increase in cost of production in the sector in 2015 due to high interest rate and devaluation of the naira.
Industry stakeholders including, Alhaji Remi Bello, President of Lagos Chambers of Commerce and Industry, LCCI, and his counterpart, Chief Bassey Edem, 1st Deputy President of Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture, NACCI noted that with the unfolding oil price scenario and the consequent exchange rate depreciation, it is plausible to predict higher inflation conditions in 2015. There would be pressures on production and operating costs across sectors. High cost of imports will also be a major factor.
Industry stakeholders including, Alhaji Remi Bello, President of Lagos Chambers of Commerce and Industry, LCCI, and his counterpart, Chief Bassey Edem, 1st Deputy President of Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture, NACCI noted that with the unfolding oil price scenario and the consequent exchange rate depreciation, it is plausible to predict higher inflation conditions in 2015. There would be pressures on production and operating costs across sectors. High cost of imports will also be a major factor.
“The combined austerity measures of the government and tighter monetary policy would put additional pressure on consumer prices. Therefore, we expect inflation rate to cross the double digit mark in the first half of 2015,” said Remi Bello.
He noted that as a result of the import dependent character of the economy, the sharp increase in exchange rate will naturally push up the operating cost of enterprises in the economy. “Many firms are already feeling the heat across all sectors. In the few weeks, naira exchange rate has depreciated by about 11 per cent in the interbank market and over 12 per cent in the parallel market. The impact of the depreciation on operating costs will be very profound in 2015,” he emphasized. He also pointed out that a natural outcome of depreciating exchange of rate in an import dependent economy is inflation. “Cost push inflation will begin to manifest in next few weeks of 2015. This will be driven by high cost of production and high cost of imported finished goods.”
According to him, LCCI also envisaged that businesses driven by government patronage are likely to experience a decline in 2015 given the current government revenue outlook. “Capital projects of governments will reduce drastically and this would affect some segments of the private sector. The unfavourable revenue outlook may result in the suspension of some capital projects. Generally, government contractors would experience a slowdown in tempo of activities in 2015. With declining revenue, the risk of default in payment for jobs executed for government agencies will be higher in the short term. This situation calls for cautious engagement with government contracts at all levels of government. As government revenue contracts, the capacity to meet financial contractual obligations may be difficult. Already some Ministries, Departments and Agencies, MDAs, and state governments are having difficulties in the payment of workers’ salaries. Many of the states are also currently servicing debts having raised funds in the capital market.
With the current developments, many ongoing contracts, especially the medium to large ones, will attract cost variations. Clearly the exchange rate depreciation will alter many cost parameters. This is a new challenge that many contractors and suppliers as well as their clients will have to confront. This will happen in public and private sectors.”
Interest Rate
“The tight monetary policy may continue into the 2015 and this would keep interest rate high in the economy. At its last Monetary Policy Committee meeting, the CBN decided to review upwards the MPR and the CRR on private sector deposit from 12 percent to 13 percent; and from 15 percent to 20 percent, respectively.”
Corroborating this, Chief Edem, also called on businesses to brace up for the challenges ahead, saying, “ if we are concluding 2014 on a faltering note because of falling crude oil prices and devalued naira, we should all be ready for a challenging 2015.”
He disclosed that as a result of the high interbank rate of N185 per dollar and the 13 percent Monetary Policy Rate (MPR) as against 12 percent at the beginning of the year, businesses have reported increased production cost because they are spending money to bring in their raw materials.
“As can be seen, the macroeconomic fundamentals are less stable than they were in the first half of 2014 and this has serious implications on the progress of the real sector of the economy,” he said.
Chief Edem also pointed out that another challenge local industries will face is the ECOWAS Common External Tariff, CET, which will take full effect from January this year. Borders will be thrown open to influx of products from neighbouring countries when the tariff becomes operation,” he said.
- Culled from: http://www.vanguardngr.com
He noted that as a result of the import dependent character of the economy, the sharp increase in exchange rate will naturally push up the operating cost of enterprises in the economy. “Many firms are already feeling the heat across all sectors. In the few weeks, naira exchange rate has depreciated by about 11 per cent in the interbank market and over 12 per cent in the parallel market. The impact of the depreciation on operating costs will be very profound in 2015,” he emphasized. He also pointed out that a natural outcome of depreciating exchange of rate in an import dependent economy is inflation. “Cost push inflation will begin to manifest in next few weeks of 2015. This will be driven by high cost of production and high cost of imported finished goods.”
According to him, LCCI also envisaged that businesses driven by government patronage are likely to experience a decline in 2015 given the current government revenue outlook. “Capital projects of governments will reduce drastically and this would affect some segments of the private sector. The unfavourable revenue outlook may result in the suspension of some capital projects. Generally, government contractors would experience a slowdown in tempo of activities in 2015. With declining revenue, the risk of default in payment for jobs executed for government agencies will be higher in the short term. This situation calls for cautious engagement with government contracts at all levels of government. As government revenue contracts, the capacity to meet financial contractual obligations may be difficult. Already some Ministries, Departments and Agencies, MDAs, and state governments are having difficulties in the payment of workers’ salaries. Many of the states are also currently servicing debts having raised funds in the capital market.
With the current developments, many ongoing contracts, especially the medium to large ones, will attract cost variations. Clearly the exchange rate depreciation will alter many cost parameters. This is a new challenge that many contractors and suppliers as well as their clients will have to confront. This will happen in public and private sectors.”
Interest Rate
“The tight monetary policy may continue into the 2015 and this would keep interest rate high in the economy. At its last Monetary Policy Committee meeting, the CBN decided to review upwards the MPR and the CRR on private sector deposit from 12 percent to 13 percent; and from 15 percent to 20 percent, respectively.”
Corroborating this, Chief Edem, also called on businesses to brace up for the challenges ahead, saying, “ if we are concluding 2014 on a faltering note because of falling crude oil prices and devalued naira, we should all be ready for a challenging 2015.”
He disclosed that as a result of the high interbank rate of N185 per dollar and the 13 percent Monetary Policy Rate (MPR) as against 12 percent at the beginning of the year, businesses have reported increased production cost because they are spending money to bring in their raw materials.
“As can be seen, the macroeconomic fundamentals are less stable than they were in the first half of 2014 and this has serious implications on the progress of the real sector of the economy,” he said.
Chief Edem also pointed out that another challenge local industries will face is the ECOWAS Common External Tariff, CET, which will take full effect from January this year. Borders will be thrown open to influx of products from neighbouring countries when the tariff becomes operation,” he said.
- Culled from: http://www.vanguardngr.com
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