Relaxation of monetary policy yet to impact on economy — LCCI

The Lagos Chamber of Commerce and Industry (LCCI) has noted that the relaxation of monetary conditions is yet to impact on the cost of funds in the economy and predicted that the Gross Domestic Product, GDP will rebound in 2016.
While reviewing the year, 2015, LCCI noted that the business environment was faced with multiple challenges ranging from insecurity in some parts of the country, infrastructural conditions, foreign exchanges crisis, funding issues, inconsistency of policy and the quality of institutions.
In a statement signed by Director General, LCCI, Muda Yusuf, weekend, the chamber, while commenting on the macroeconomic outlook for 2016 stated “ Gross Domestic Product, GDP growth is expected to rebound, though, slowly to about 3.5 % if the right mix of fiscal and monetary policies are put in place to stimulate the economy and attract domestic and foreign investments. While the recovery is expected to be driven by increase in government expenditure, the growth in oil sector may be constrained still by low price and investment drive.
“Meanwhile, the exchange rate volatility is expected to persist fuelling high inflation of about 10-11%. However, correction towards Real Effective Exchange Rate (REER) in the form of exchange rate adjustment is likely in Q1, 2016.”
Analysing the sectoral outlook for 2016, the chamber stated “The targeted N300 billion by the Nigerian banks to boost lending to Small and Medium Scale Enterprises (SMEs) and the agriculture sector in 2016 will boost SMEs development and employment and thus increases non-oil export.
The insurance industry will remain largely underpenetrated with insurance density at about 0.225%.Therefore, significant change in this industry with respect to growth and penetration remains bleak even as the sector is still highly fragmented. The declining GDP is also expected to strain, to a large extend, the performance of this industry.
“Subsidy arrears payment and end of subsidy regime likely to result in improved market efficiency and profitability as downstream sector players explore pricing dynamics to boost investment. The expected deregulation in the downstream sub-sector will be a game changer.”
“With the declining trend of global oil price and its attendant impact on government revenue and foreign reserves, general business outlook will remain tense. Implications on cost of and access to credit will be undesirable. Businesses, especially those with high forex exposure, will continue to face challenges of meeting foreign obligations to suppliers and partners. This will also impact contractual trust and integrity.
Risk of default in financial obligations in both public and private sectors will be high as macro-economic conditions and cash flow remains tight.”
Meanwhile in its review of the 2015, the chamber said “the third quarter, Q3 2015 business environment survey showed that a forex restriction by CBN is one of the costliest policies in Nigeria in recent years. The CBN through its Monetary Policy Committee (MPC) on Tuesday 24th November, 2015 resolved, among other issues, to reduce the Monetary Policy Rate, MPR from 13% to 11 % (which represents the lowest since 2009) as well as the CRR from 25% to 20%. The decision by the MPC to reduce monetary rates was informed primarily by the desire to stimulate the economy. This is against the backdrop of the economic realities as manifested in weak and fragile domestic macroeconomic environment, declining private and public expenditures and the slump in crude oil price. Also, cost and access to fund remained a major challenge for businesses especially MSMEs. Through the year, lending rate of commercial banks including fees and charges ranged between 22% and 34% depending on the customer profile, tenor and collateral quality.”
The chamber further noted that political and economic developments offered mix of notable events which shaped business and economic environment in 2015.