High interest rate’ll continue after Sanusi – LCCI

High interest rate regime will continue even when the Governor, Central Bank of Nigeria, Mr. Lamido Sanusi, leaves office at the expiration of his tenure in June this year, the Lagos Chamber of Commerce has said.

Consequently, the LCCI in its ‘2014 Economic and Business Outlook’ advised investors and businesses to seek ‘offshore funds’ as they prepare business models for this year.

High interest has characterised Sanusi’s tenure due to the CBN’s tight monetary policy stance through a slew regulatory requirement.

The President, LCCI, Mr. Remi Bello, said, “Although a change in the leadership of the apex bank is expected to be effected in 2014, significant shift in policy stance may not occur. Investors should, therefore, brace for the perpetuation of a high interest rate regime in 2014 and construct their business models accordingly.”                                                                   He added, “The interest rate regime in 2014 is high and volatile. This demands that highly leveraged investors should be cautious and take full account of this factor.  Offshore funds will be better for business in this environment in 2014. High interest rate regime is also not advisable for long term projects at this time, especially in the real sector.”

The LCCI noted that the prosperity of businesses would depend to a large extent on the capacity to manage risks. As investors and businesses perfect their strategies for 2014, the LCCI said other risk conditions that must be taken into cognisance include inflation risk, risk of fiscal balances, regulatory risk, political risk, risk of capital flow, security risk and policy risk.

According to the LCCI, investors must examine the risk of fiscal imbalances which may result from revenue shortfalls, especially with regard to crude oil output, noting that the budget assumption of 2.39 million barrels per day appears optimistic given the prevailing situation in the oil producing areas.

He said 2014, being a pre-election year, and with current developments in the political space, political risk would be high in 2014.

The chamber stressed exposure to big public sector transactions of long term nature should be undertaken within this context.

The statement also said, “The high infrastructure deficit would persist in 2014. Investors should moderate expectations from current power sector reforms as improvements in the power supply may not happen as fast as expected.  Therefore, business models should continue to be based on the premise of weak infrastructure in 2014 as in previous years.”

While warning investors and businesses of risk of capital flow reversals, the LCCI said, “The economy is awash with an estimated $15bn portfolio inflow, otherwise known as hot money.  Developments in the global and domestic economies will determine whether the funds will remain in the economy.

“However, with the positive outlook for the global economy, the high returns that the domestic economy offers, the risk of the capital flow reversal may the assessed as low in 2014.  Capital flow reversal could have a significant impact on the economy and trigger major dislocations.”

According to the chamber, the purpose of highlighting the risk factors is to enable investors in the economy to have a good understanding of the risk variables and adopt proactive strategies to mitigate them.

It stressed that “the challenges and risks may be daunting, but the opportunities and returns are equally enormous.”

The LCCI further said, “Corruption risk is high, especially for public sector transactions and also present to a lesser degree in some private sector institutions. This is a component of risk that will persist in 2014 and which investors will have to grapple with.

“The security situation in some parts of the country is still a big issue for investors. The situation though moderating, may persist in 2014.  The oil theft and pipeline vandalism are risks that would have to be taken into account as well in 2014 in relevant business decisions. They have significant implications for gas supply to the power stations as well as government revenue.

“Policy inconsistency is a major challenge of the Nigerian economy. Again, for long term investors, this is a risk variable to worry about in 2014. This is often the case with trade policies – tariff, import restrictions, etc.”

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