In this interview with Oluyinka Onigbinde, the Director General, Lagos Chamber of Commerce and Industry, Dr. Muda Yussuf speaks on the impacts of COVID 19, CBN policies on the nation’s economy and other sundry issues.
“Before we talk about economic recovery, we will be talking about first or second quarter of 2021”
How will you describe the impact of COVID 19 on importers and exporters?
First, there was a major disruption in the supply chain industry and many businesses, because many of the inputs that our industries use are imported raw materials, machineries, spare part and so on and so forth. So the COVID 19 disrupted the flow of those inputs and some of the exporting countries actually stopped export, so many goods were not able to come in, therefore many businesses could not produce and that affected production.
Secondly, the COVID 19 pandemic had macro effect from the point of view of the exchange rate and the inflow of foreign exchange; just as you know, you need foreign exchange for you to do imports and because of the COVID 19 effect on commodities prices, it led to a collapse of oil prices and inflow of foreign exchange. It affected our foreign reserve, it affected our exchange rate and it also affected the maritime sector, because the maritime sector is about international trade and international trade is about international currency and your capacity to provide international currency depends on how much of the foreign currency you have. So the collapse of oil price affected international trade, because on the liquidity in the foreign exchange market and the effect that it had on exchange rate depreciation; as we speak now exchange rate is about N465 in the open market and the official rate is about N386 there about, then there is also a major problem in liquidity. I have spoken to a lot of manufacturers who applied for money let’s say about $100,000, but said they will be lucky if they get $10,000 which is just about 10% percent of their demand and some don’t even get at all. So we have such a major problem around foreign exchange and many of these can be traced to COVID 19 pandemic.
But what’s the situation of things now?
It’s not getting better, the situation is that forex liquidity is still a very big problem, a lot of manufacturers are complaining now and you can even see the impact in the prices of goods in the market, then of course there is problem of exchange rate depreciation because a lot of people cannot get forex to do official window, they have to resolve to parallel market that affects the cost of doing business in the country and it is also affecting the volume of trade, because the higher the volume of imports, the lower the volume of trade and that has adversely affected the maritime sector.
Can you describe the impact of border closure on importers and exporters?
Well, the border closure has had both positive and negative effect, the positive impact being that it led to reduction in smuggling, because the testimonies we had from those who are in the poultry product for instance and those who are in rice production that normally face serious competition from smuggled products said the demand for their products have increased, which means the influx of these smuggled products have reduced. But on the flip side, you will find out that all the trade that takes place across the border, trade between Nigeria and the West African sub region and even some parts of Africa have been completely disrupted, because 90 percent of trade between Nigeria and ECOWAS are by road, not much is happening by sea; because it is very expensive, cumbersome and time-wasting, so the bulk of the trade is by road, so due to the border closure the trade has been disrupted for over one year, so all the businesses that are driven by trade across the sub region are down completely, we have manufacturers that export across the sub region taking advantage of the ETLS have been stalled, the few of them that tried to export through the sea have been having harrowing experience; sometimes it takes over one or two months for a cargo to move to Ghana or any of the countries, because when a cargo leaves here, they have to go to the shipping hub, the shipping hub maybe in Europe before they now come back to the west African zone, most of them (shipping lines) don’t have a destination from here to Ghana or Gambia or any of these countries, they have to first go to their hub before they come back.
What’s your assessment of the nation’s economy, especially in the third quarter of the year?
The situation has been bad for the economy, as you know, the economy is practically in recession, we had first the problem of the COVID 19, our second quarter figures was a contraction of 6.1%, we have not seen the figures for third quarter most probably it’s also going to be a contraction, and once you have two consecutive contractions in GDP, you are already in recession. Now, on top of that, we had the EndSARS protest, that also brought a lot of draw back to the economy, so we were originally contemplating that the economy will begin to recover from the fourth quarter, but with what has happened with the EndSARS protest, the recession is likely to continue to the fourth quarter, so before we talk about recovery, we will be talking about first or second quarter of 2021.
With the challenges of COVID 19 and other challenges, how optimistic are you about the hosting of the annual Lagos International Trade Fair?
It has been postponed to December, part of the reason is to allow normalcy to return, we believe that by the time we commence the trade fair in December, the level of economic activities would have been restored; confidence would have also returned generally and the security situation would have improved, but we are optimistic, although the fair may not be of the size we used to have, because of the COVID 19 pandemic, but we are very hopeful that it’s going to be a successful fair.
What’s LCCI reaction to the recent addition of more items on the list of items banned from accessing forex for importation?
Generally, that policy has had a very serious adverse effect on trade, it has also seriously affected the economy and also affected the maritime sector. The issue is that we have a trade policy and we have a tariff book. In the trade policy and the tariff book; fiscal policy of the government, it is clearly stated those goods that are prohibited, ideally that is what should be there, but when you now have a parallel action from the CBN also coming up with something that looks like a parallel fiscal policy as to what goods can come in and what goods cannot, because essentially that’s what it means. So it has disrupted a lot of businesses; we have businesses that complain that they can’t find alternatives in terms of local substitutes and it has not been a very good policy, by and large.
What we thought was that the decision as to what goods should be allowed in or should not be allowed in, should be fiscal policy decision and should be left in the realm of fiscal policy. There is a tariff review board in the Ministry of Finance and we have a lot of stakeholders around it that discuss the Pros and Cons before you list an item for import prohibition. So I don’t think the decision of the CBN to prohibit some items is the best policy, I think it is better for the CBN to liaise with the Finance Ministry and the Ministry of Trade and Investment to minimize the shock of this, because it is not in all cases that we have the local capacity to fill these gaps.
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