The rise in uncertainty in Nigeria’s macroeconomic environment is on course to further dampen business activities, with some more firms seen closing up shop this year.
Unstable macroeconomic indicators have affected the medium and long-term plans of many businesses, a situation experts said could drive down profitability, lead to more job losses, low tax revenue, threaten the survival rate of many businesses or trigger more exits of multinationals.
“All strategic planning exercises done by Nigerian companies for 2024 in the fourth quarter of 2023 are all now rubbish. Nobody planned for this. We are in unknown territory now and anything can happen,” Osaretin Asemota, an entrepreneur, said on social media platform X last month.
Since the beginning of the year, several kidnapping cases have been reported in six states and Abuja, the nation’s capital. The deadly operations of terrorists and bandits across five of the six geopolitical zones have reportedly left no fewer than six persons dead, 60 kidnapped, and goods worth millions of naira destroyed.
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The naira, on Monday, reached a record low of over 1,500 against the US dollar in the face of a severe dollar shortage in the official and parallel markets.
“Everything is going from bad to worse. No company, whether small or micro, can plan or project for the future now because they plan on stable indices. But how can they plan when they are not sure of what the dollar, the interest rates of the banks, or the inflation rate will be tomorrow,” said Femi Egbesola, national president of the Association of Small Business Owners of Nigeria.
According to him, many companies that seem to be alive today are sick and most of them are not making profits. “Many companies will still shut down because they cannot plan. About 10 million businesses have closed shop.”
Egbesola believes the current situation warrants the declaration of a state of emergency because businesses are employers of labour. “And when they have been adversely affected, the economy will also be negatively impacted too.”
BusinessDay analysis of the financial statements of 11 manufacturers on the Nigerian Exchange Limited showed that four of them – International Breweries Plc, Cadbury Nigeria Plc, Morison Industries Plc and Neimeth International Pharmaceuticals Plc – posted a combined loss of N89.8 billion in 2023.
In 2022, three of them reported a total profit of N0.72 billion, while International Breweries posted a loss of N21.6 billion. Fidson Healthcare Plc, May & Baker Plc and GlaxoSmithKline Consumer Nigeria Plc reported a combined after-tax profit of N4.81 billion, down from N6.47 billion.
“A business is not a day-by-day thing but a strategic one for both medium to long term. So, you plan against the medium term or you plan on the exposures on what is happening in the market and where it is going,” George Onafowokan, managing director/chief executive officer at Coleman Technical Industries Limited, said.
He said a lot of instability and inconsistency in the currency coupled with insecurity creates a problem for many businesses. “You will limit what you have been able to do or limit your exposure. The erosion of working capital for businesses, especially for manufacturers, is happening massively.”
The Federal Government’s tax revenue from local companies in Nigeria declined by 36.4 percent within three months, according to the National Bureau of Statistics (NBS).
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BusinessDay analysis from the NBS’ latest Company Income Tax report shows that tax revenue reduced to N651.6 billion in the third quarter of 2023 from N1.02 trillion in the previous quarter.
Over the past eight years, Africa’s biggest economy has slumped into two recessions owing to the collapse of oil prices, disruptions caused by the COVID-19 pandemic and an inability of the government to reform the economy.
In Q2, the Tinubu administration implemented bold reforms including the removal of petrol subsidy and naira devaluation to boost revenues for the welfare of its citizens.
But the reforms have increased inflationary pressures to the highest in at least 20 years and weakened the purchasing power of consumers, even as businesses grapple with higher operating costs.
According to the NBS, headline inflation rose to 28.92 percent in December from 28.20 percent in the previous month. Food inflation, which constitutes 50 percent of the inflation rate, rose to 33.93 percent from 32.84 percent.
The liberalisation of the foreign exchange regime weakened the naira from 463.38/$ to 889.86/$ as of December 15. At the parallel market, the naira depreciated to 1,186/$ from 762/$.
The World Bank’s latest Nigeria Development Update report revealed that rising inflation and sluggish growth in Africa’s biggest economy increased the number of poor people to 104 million in 2023 from 89.8 million at the start of the year.
Before the NBS adopted a new methodology for labour statistics, unemployment had quadrupled to 33.3 percent as of Q4 2020 from 8.2 percent in Q2 2015. It was put at 4.1 percent in Q2 last year, down from 4.2 percent in the previous quarter.
Despite the reforms, foreign investments into Nigeria dropped to $654.7 million, the lowest level since the statistics bureau started collating the data in 2013.
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The poor macroeconomic conditions have pushed many young people to seek opportunities to travel abroad, fuelling a massive brain drain that is hurting the labour quality in the country.
“Nobody would have planned for an exchange rate of N1,500/$1. Your survival capacity is your flexibility in revising your plans to emerging conditions. So, most people are going back to the drawing board because whatever the plan that was made in November and December has been overtaken by events,” said Gabriel Idahosa, president and chairman of the council of Lagos Chamber of Commerce and Industry.
BusinessDay reported last month that businesses pin hopes on stronger naira and economy with expectations of improved FX liquidity playing a pivotal role in stimulating foreign inflows.
Last month, the latest monthly Purchasing Managers’ Index by Stanbic IBTC Bank showed the headline index rose to 54.5, the highest in 13 months, from 52.7 in December.
Analysts at CardinalStone projected that the official naira rate could touch N1,000.0/$ by 2024, with an anticipated annual depreciation of 4.0 percent between 2026-2030.
Afrinvest Limited, in its outlook report, said it was “cautiously optimistic” about the economy, based on robust liquidity dynamics and positive inflation-interest rate- expectations.
“Based on our scenario models, GDP growth, inflation and FX rate would average 3.0 percent, 22.1 percent and N918.89/$1 in 2024 blue-sky case, while the average outcomes could deteriorate to -1.5 percent, 24.7 percent and N1.057.19/$1 should policy fatigue and external risks mount,” the report said.
But the naira depreciated to 889.86/$ as of December 15 to 1,534.4/$ at the official market on February 12. At the parallel market, it weakened from N1,186/$ to N1,498.0/$.
“Two events are likely to play out for businesses whose inputs or liabilities are dollar-denominated. Some will shut down operations amidst the uncertainty in the FX markets. The sophisticated and competitive ones are likely to begin to budget and price their products in dollars to mitigate the impact of FX instability,” Temitope Omosuyi, investment strategy manager at Afrinvest Limited, said.
He said this is not good for Nigeria’s growth outlook, as economic activity could further deteriorate. “The economy is becoming smaller in dollar terms, resulting in lower per capita income. This could suggest that the market is now less attractive.”
The prevailing dollar backlog, coupled with external challenges amidst global economic uncertainties, casts a shadow of uncertainty over Nigeria’s economic horizon, analysts at Comercio Partners Research said in a report on Tuesday.
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“As Nigeria charts its course through these economic headwinds, the path forward remains uncertain. The nation stands at a pivotal juncture, where the interplay of inflationary pressures, tightening measures, liquidity dynamics, and currency challenges will shape its economic destiny in the coming months,” they added.
The CBN on Monday adjusted the exchange rate for calculating customs duties at the nation’s seaports to N1,444.6/$, the fourth time this year, from N1, 417.6/$.
In 2023, the rate increased by 125.4 percent to N952/$1 from N422.30/$1. This made importers pay more import duty for the clearance of their goods.
Businesses are yet to recover from the shocks of the first naira devaluation resulting from the sudden unification of the exchange rate which has driven the official exchange rate to about N1,500/$, according to Muda Yusuf, chief executive officer of the Centre for Promotion of Private Enterprises.
“It is a double jeopardy for the investors across sectors, especially those in the real sector. This action will further fuel inflation as production and operating costs escalate. The vulnerable segments of the population will be further impoverished as cost-push inflation gets exacerbated,” he added.
Adeola Adenikinju, president of the Nigerian Economic Society, said: “When managing reforms, you must be able to own the narrative and let people know that you know what and where you are going and back whatever you are saying with demonstrative actions that support your native.”
He said people will now be looking at short-term decisions, not the long-term ones because “nobody is sure of how the long-term will be”.
“Business decisions cannot be made on short-term ones because the long-term ones are key investment decisions that drive employment, productivity and growth,” he added.
