Nigeria: Businesses need lower interest rates to kick-start recovery
Nigeria’s government needs to help businesses stricken by the economic impact of COVID-19 by reducing interest rates, Chris Okoro, CEO of engineering services company Interlinked Technologies Plc, tells The Africa Report.
Interlinked can’t afford to borrow from banks at interest rates of 20% or more, Okoro says in Lagos. “We expect a reduction in interest rates. Only the government can do it.”
The company, which trades on the Nigerian stock exchange, supplies engineering and technology to sectors including power, oil & gas, manufacturing and infrastructure. It relies heavily on being able to import products from abroad to service clients including the Dangote Sugar Refinery, Shell, Siemens and Lafarge.
The fact that many foreign suppliers were themselves in lockdown hit Interlinked hard. Shipments that usually take two months turned into four months. The company expanded its supply chain and turned to air freight as a solution, but that’s three to four times more expensive than shipping. The result was “very serious shortages” of equipment as well as a lack of expatriate labour for installations, says Okoro.
Meanwhile, restrictions on movement in Nigeria made it much more expensive to move equipment around. Some clients were short of cash and unable to make advance payments. These included government projects relying on public funding says, Okoro. Risk-averse banks, he adds, were not willing to listen.
More tax concessions for businesses are also needed, adds Okoro.
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Nigeria’s Federal Inland Revenue Service (FIRS) has issued a waiver of penalties and interest on some outstanding tax liabilities provided these are settled by 31 December.
The KPMG accounting firm has said that the deadline may come too soon given the double hit from COVID-19 and the EndSARS protests, and that tax authorities should consider extending it.
Okoro takes government claims that the recession will end in the first quarter of next year with a pinch of salt. “There’s not much on the ground to justify that kind of optimism,” he says, adding that nine to 12 months is a more realistic timeline for an end to the recession.
- The Economist Intelligence Unit (EIU) in London predicts that Nigeria will exit recession in 2021, but that foreign-exchange shortages and high and rising inflation will prevent a strong recovery.
- Growth will be limited to 1% in 2021, says the EIU.
“Business has not picked up,” says Okoro. “Levels are still very low.” The company has already called on shareholders to raise about $1m. Okoro will “certainly” have to ask them for more, perhaps another $3m in the second or third quarter of 2021. There’s no indication of whether they will accept that as it hasn’t been put to them yet, he adds.
Okoro has no doubt that Interlinked will survive. He’s confident in the strength of the recovery when it finally comes. The power sector “will kick off very fast,” in 2021.
The country’s first tariff increase in state-controlled prices since 2015 has raised prices more than 50% for many users. That will be a “catalyst” for the power sector, adds Okoro. “A major problem has been solved.”
He is also optimistic about the impact of Nigeria’s agreement with Siemens to overhaul the electricity grid. A lot of the power that is being generated is not reaching the end user and Siemens will help to rectify this in the next 12 months, he says. “The work will be a boon to the power sector.”
Cheaper bank loans for small and medium-sized businesses and further tax relief would strengthen prospects for Nigerian recovery.