The Lagos Chamber of Commerce and Industry (LCCI) has put forth a recommendation for the Federal Government to restructure the country’s debt strategy by increasing the issuance of asset-linked debt in comparison to IOUs (I Owe You). The chamber believes that asset-linked debt, which involves variable payments tied to equity market benchmarks, could provide a more favorable approach to debt management as global emerging markets transition toward project equity financing.
This proposal was brought forward during the 2023 Mid-Year Economic Review and Outlook event, jointly organized by LCCI and Cordros Capital. The objective of the event was to identify avenues for business expansion and sustainability in Nigeria and the global marketplace.
In contrast to IOUs, which are informal acknowledgments of debt, the chamber asserted that non-interest-bearing debt, such as asset-linked debt, presents promising opportunities in the context of the evolving landscape of emerging markets. LCCI encouraged the new administration to adopt a borrowing strategy centered on asset-linked debt to mitigate debt costs effectively.
Furthermore, the chamber advocated for the government’s consideration of divesting state-owned real estate assets and shifting focus toward asset-based and equity offerings to enhance revenue generation. LCCI also stressed the importance of comprehensive economic and fiscal planning, as well as improvements in the transportation and energy sectors, as post-election priorities.
The LCCI recommended institutional restructuring within the Central Bank of Nigeria (CBN) and the Nigerian National Petroleum Company (NNPC) Limited to enhance transparency and accountability. The chamber also highlighted the need for liberalizing fuel import licenses and other key activities in the oil and gas sector to attract the desired investment.
LCCI emphasized the significance of optimizing revenue by supplementing taxes with other income streams like rent, fees, dividends, and capital gains. The chamber noted that economies that have effectively leveraged equities have managed to counterbalance the impact of falling commodity prices.
Additionally, the LCCI called on the government to refrain from labeling Bureau de Change (BDC) as a parallel market, asserting that these entities are licensed for official trading. The chamber provided insights into the challenging economic landscape of the first half of 2023, citing factors such as rising interest rates, inflation, foreign exchange volatility, and changes in the oil and gas industry as key contributors to the difficult operating environment.
The outlook presented by LCCI reflected concerns over sluggish economic growth, high levels of public debt, unemployment, and poverty. The International Monetary Fund’s revised growth projection for Nigeria underscored the need for structural reforms to address security issues, policy risks, and persistent inflation.
Opinion:
The recommendations put forth by the Lagos Chamber of Commerce and Industry (LCCI) highlight the pressing need for a strategic shift in Nigeria’s debt management practices. The suggestion to prioritize asset-linked debt over IOUs aligns with the evolving trends in global markets, where project equity financing is gaining prominence. This approach could not only help reduce debt costs but also foster a more sustainable financial landscape by linking debt repayments to market performance.
The call for divestment of state-owned real estate and increased focus on asset-based and equity offerings underscores the importance of revenue diversification. In a time of economic uncertainty and fiscal challenges, exploring new avenues to bolster revenue is crucial for the country’s financial stability and growth.
LCCI’s emphasis on transparency and accountability through institutional reorganization within the CBN and NNPC reflects a commitment to improving the business environment and attracting investment. By advocating for liberalization and addressing opacity in the oil sector, the chamber recognizes the role of a competitive market in driving growth.
Furthermore, the call to optimize revenue through a balanced mix of income sources demonstrates a strategic understanding of how economies can navigate uncertainties. By leveraging equities and other income streams, Nigeria could potentially mitigate the impact of commodity price fluctuations and enhance fiscal resilience.
While the economic challenges of the first half of 2023 are acknowledged, the recommendations and insights provided by LCCI offer a roadmap for policy reforms and strategic initiatives that could help steer Nigeria’s economy toward a more sustainable and prosperous future.