Economic recession: MAN, LCCI, Rewane, others ask CBN to cut interest rate

Everest Amaefule, Ifeanyi Onuba, Stanley Opara, Anna Okon, Ife Ogunfuwa and Femi Asu

The Manufacturers Association of Nigeria, the Lagos Chamber of Commerce and Industry, the Abuja Chamber of Commerce and Industry and other organised private sectors on Thursday called on the Federal Government to drastically slash interest rate in order to stimulate economic recovery.

Professional bodies such as the Chartered Institute of Finance and Control and the Institute of Fiscal Studies of Nigeria and renowned economists including the Chief Executive Officer, Financial Derivatives Limited, Mr. Bismarck Rewane, advised the government to urgently review its policies and spend more to atttract both local and foreign investors to invest in the economy.

CBN Governor, Mr. Godwin Emefiele

The National Bureau of Statistics had on Wednesday released the Gross Domestic Product figures for the second quarter of 2016, whose growth rate slid from -0.36 per cent in the first quarter to -2.06 per cent.

It also released the capital importation report for the second quarter, the unemployment statistics report, the inflation report for the month of July and the labour productivity report for the month of July, all of which painted a negative picture of the Nigerian economy with inflation rising as high as 17.1 per cent from 16.5 per cent, unemployment rate increasing to 13.3 per cent from 12.1 per cent and investment inflows dropping to its lowest levels at $647.1m from $710m.

But speaking to one of our correspondents in a telephone interview on Thursday, the President of MAN, Dr Frank Jacob, said the interest rate should be reduced from over 22 per cent to five per cent.

This, he added, would enable manufacturers to borrow for productive purposes.

He said, “Some of the requests that we’ve been making from the government should be looked into. To reflate this economy, they need to reduce the interest rate on loans to five per cent.

“They can also create a special window for manufacturers to source foreign exchange and make it readily available for them as and when they are needed. And of course, the issue of infrastructure should be addressed, especially power and road.”

Reacting, the Director-General, Nigeria Employers’ Consultative Association, Mr. Olusegun Oshinowo, said most nations that had been in recession embarked on prudent spending as a way out.

He said, “We have to be able to identify critical sectors of the economy that have impact on other sectors, such as infrastructure which is about road, rail, air and sea transportation. This sector makes for easy movement of goods and services from one location to the other and should be given a lot of attention by the government.

Chief Executive Officer, Financial Derivatives Limited, Mr. Bismarck Rewane

“The government should also settle domestic debts. People who have worked for government should be paid. The focus should also be on social infrastructure with initiatives like the National Health Insurance Scheme and others being empowered to promote health care in the nation.”

The Director-General, LCCI, Mr. Muda Yusuf, said what was important was to inspire the confidence of investors and called on more investment in infrastructure, adding that there was a need to fast-track the implementation of the 2016 budget so that funds could be released into the system for infrastructure development.

Another solution, according to the LCCI DG, was on the trade policies and the various tariffs, which he said the government needed to review downwards to drive down costs in the manufacturing sector.

“The rising inflation is cost-driven inflation owing to duties paid by manufacturers who import critical raw and packaging materials. The government should review the shipping charges and charges imposed by terminal operators so that the cost of manufacturing can go down.”

The President, Nigeria Employers’ Consultative Association, Mr. Larry Ettah, warned that the imposition of excessive taxes and levies on businesses is not the best solution to recession.

Rather, he said the role of government regulatory agencies should be to make the business environment conducive for organisations to thrive and create jobs.

While speaking at the 59th Annual General Meeting of NECA in Lagos on Thursday, Ettah said, “We believe that it is okay if regulators regulate but we are averse to a situation where there is overreach of regulation. In which case, you are not trying not to look at the spirit of regulation, which was really to encourage businesses to survive but to see regulation purely from revenue generation perspective.”

The Executive Director, Corporate Finance, BGL Capital Ltd, Mr. Femi Ademola, said the high yield on treaury bills had made banks to be lazy as they now preferred to channel their funds to invest in the T-bills rather than for productive activities.

He said if the CBN could reduce the interest to about eight per cent, more funds would be made available to stimulate economic activities.

He said, “The government needs to start working now by implementing its programmes particularly the capital components of the budget. This is the time for both the monetary and fiscal authorities to come together to stimulate economic activities.

“On the monetary side, the CBN needs to reduce the interest rate from the current rate to eight per cent. Enough of fighting inflation because the inflation that the CBN is fighting is not induced by too much of money in circulation but it’s a structural issue that is outside the control of monetary policy.”

Rewane, in a telephone interview with one of our correspondents, said, “The hole is much deeper than we thought we were initially; so, it is only when you know how deep the hole is, then you know how to climb out of it.

“How do you climb out of recession? You climb out of recession by investing, spending and wooing and courting investors to bring them into the country. That is imperative.”

He said part of what sank the country into recession was the sharp drop in the production of oil.

Rewane said, “If the oil and gas production doesn’t come back up; if we do not bring down interest rate, as long that the central bank thinks that it is going to push up interest rate, this economy will not recover. They have to bring down interest rate immediately.”

“The earlier they do that, the better for everybody. When you do that, the currency will drop some more. But it doesn’t matter. The lower the currency, the more the investors will come in.”

The Monetary Policy Committee of the CBN had at the end of its last meeting raised the monetary policy rate (benchmark interest rate) to 14 per cent from 12 per cent.

The Chairman of the Board, Nigerian Economic Summit Group, Mr. Kyari Bukar, said, “One of the fundamental things that I strongly believe in is that to get out of recession, government has to spend. Liquidity has to be in the economy.

“You don’t spend for the sake of spending; you invest. So, the capital side of the equation needs to be enhanced, even if it means in the short term, we are going to borrow, we have to spend on infrastructure that will be catalysts or enablers for many of the things that we need to grow our economy and get us out of this recession.”

A professor of financial economics at the University of Uyo, Akwa Ibom State, Leo Ukpong, said, “Definitely, we need a clear economic policy. It is bad economic policy that led to a recession, and to get out of it, we need a good economic policy.”

“I think the first thing that the government has to do is to design policies that will keep people in employment. We must have a very strong short-term and long-term economic growth policy. Short term is to start implementing the budget, especially the part that has to do with construction and privatisation.”

Leo said the CBN should reduce the benchmark interest rate “so that businesses can borrow and stay alive”, adding, “I think the central bank has to rethink its interest rate policy.”