LCCI Report Affirms Need for Fiscal Authorities to Act

Tuesday, May19, 2020 / 10:36 AM / by CSL Research / Header Image Credit: LCCI

The Lagos Chamber of Commerce and Industry(LCCI) published the report on its recently conducted COVID-19 Impact ReportSurvey. According to the report, about 81.0% of sampled Nigerian businesseswere severely affected by the lockdown measures implemented by the FederalGovernment (FG). A further 17% stated that the measures had a moderate impacton their businesses. This implies a marginal 2.0% had their businessesfunctioning normally. We note the survey sampled Lagos-based businessesconsidering the "commercial and economic importance of the state toNigeria". Across sectors, the survey covered Food Processing, Agriculture,Financial Servies, Professional Services, ICT, Exports, Trade and Freightforwarding.

Furthermore, the report stated that businesses withfocus on non-essential services faced significantly lower demand as consumersprioritised purchase of food and essential items. In a bid to mitigate theimpact of COVID-19 on businesses, LCCI demanded that the Federal Governmentshould grant a 1-year tax relief and also suspend the implementation of the newVAT regime for the rest of the year. These incentives were specificallyrequested for businesses in Healthcare & Pharmaceuticals, Airlines, Manufacturers,Agro-Processors, Hospitality as well as SMEs.

In our view, the LCCI report further affirms the impactof the pandemic on the business community. Prior to the gradual easing of thelockdown measures, economic activities were grounded. The last PMI data (March2020) showed the Manufacturing sector PMI was down to 51.1points whileNon-Manufacturing PMI dipped to 49.2points. Data for April has not been madeavailable by the CBN which makes it difficult to assess the degree of weaknessin economic activities in April (the full month of lockdown). With consumer andbusiness confidence expected to remain very weak, we anticipate aggregatespending would remain underwhelming.

Though the Federal Government and CBN have announced somestimulus packages aimed at easing the impact of the pandemic on businesses, thequantum of the stimulus compared to the size of the Nigerian economy may meanthere would only be a marginal impact. To give perspective, the total amount ofannounced stimulus by both fiscal and monetary authorities is estimated atabout N3.5tn (US$10.0bn), equivalent to just 2.5% of the Nigerian economy. Itis also unclear how funds will be raised for these stimulus packagesconsidering the FG remains significantly pressed for financial resources as oilearnings have been affected by weak oil prices and low demand.

The government clearly needs to implement policies andprovide adequate stimulus packages to jumpstart the economy post COVID-19. Inour opinion, the Federal Government may need to rely on the debt market tosupport its intervention measures and more importantly, fiscal authorities needto come up with clear policies and regulatory changes that will spur business& investor confidence thus providing much needed investments.