FX, inflation top issues keeping CEOs up at night

Foreign exchange instability, inflationary pressures, and security bottlenecks are key issues Nigerian business leaders will focus on in 2025 and beyond, PwC’s outlook report has shown.

According to PwC’s 2025 Nigeria Budget and Economic Outlook report, concerns over debt sustainability, funding, and monetary policies are also prominent issues for consideration in 2025.

In 2024, households and businesses in Nigeria face mounting economic headwinds as high inflation drives up the cost of goods and services, particularly in food, transport, and utilities, with a severe impact on consumers’ purchasing power and running costs for businesses.

The depreciation of the naira created additional strain, raising the cost of imports and consequently the price of final goods and services.

Inflation increased from 29.9 percent in January 2024 to 34.6 percent in November 2024 driven by food, transport, and utilities inflation which grew Y-o-Y by 39.2%, 29.3%, and 28.9% respectively.

However, the CBN inflation perception survey for households and businesses showed that inflation is expected to remain elevated but decelerate marginally over the next 3 to 6 months. Meanwhile, 26 percent anticipated lower inflation by May, up from 20 percent in February 2025.

Given that the official exchange rate depreciated by 77.8 percent from ₦853/$ in December 2023 to ₦1,516.6/$ in December 2024 due to demand and supply imbalance, the high inflation perception was also driven by high energy prices, an increase in transportation cost, and exchange rate pressures and high interest rate among others

Read also: Forex, inflation stoke re-insurance costs

Here are seven top issues that keep Nigerian CEOs up at night:

Broader fiscal policy focus from revenue-centric to growth-oriented

Nigerian business leaders are faced with three major fiscal policy issues: Debt sustainability, monetary policy alignment and achieving macro stability. Debt to GDP of 50.7 percent recorded in October 2024 remains above the 40 percent debt to GDP threshold. The proposed fiscal deficit of N13.8 trillion (3.87% of GDP) in 2025, exceeds the 3% limit set by the 2007 Fiscal Responsibility Act.

Rising bilateral and multilateral debt in Nigeria indicates potential future financial pressure if not matched by economic growth and revenue generation, highlighting significant debt sustainability issues. However, rising government spending also strained liquidity and complicated inflation control. Coordinated monetary and fiscal policies are critical for a stable investment environment in 2025.

Disciplined monetary policy for sustaining the momentum

Foreign exchange stability, price stability, and interest rate are essential monetary issues of focus in 2025. The elevated MPC rates at 27.5% are making borrowing more expensive for businesses and consumers, potentially slowing down the access to credit to accelerate economic growth.

Price stability in Nigeria remains a significant challenge, with inflation at 34.8 percent in December 2024 driven by factors such as food, transport and utilities amongst others.

In 2025, inflation is expected to decline to 26 percent on the back of monetary policy tightening and improving dynamics in Nigeria’s foreign exchange market but it will likely be influenced by monetary phenomenon, supply-side dynamics, cyclical elements, sector-specific inflation, and the effects of inflation rebasing.

Attracting investments (foreign and local)

A moderate increase in remittance inflows, moderate capital inflows, and negative real returns are critical issues in attracting investment in 2025. Despite the Central Bank of Nigeria’s efforts to raise interest rates and combat inflation, the return on investments like Treasury bills is still lower than the inflation rate, leading to negative real returns. This diminishes the appeal of local assets to international investors and may lower capital outflows from Nigeria in 2025.

Additionally, The increase in Diaspora remittances through IMTOs that reached $4.22 billion between January and October 2024, nearly doubling the $2.62 billion from the same period in 2023 and is projected to continue into 2025, driven by improved economic conditions in advanced economies and supportive measures from the Central Bank of Nigeria (CBN).

Consumers’ uncertain pathway to spending recovery, pressured by economic shocks

Consumers may contend with real income erosion, poverty, and limited access to safety nets in 2025. The inflation rate surged to 34.8% in December 2024, significantly reducing the purchasing power of consumers by making their money less valuable.

Existing social safety net programs such as the conditional transfer in Nigeria are often inadequate and may not reach the most vulnerable populations, leaving many without necessary support. The recent increase in minimum wage which only covers 4.1% of the population, highlights the limited impact of this measure on alleviating poverty and providing financial relief to the majority of Nigerians.

Inflationary pressure in 2025 means that consumers may struggle to afford essential goods and services, such as food, housing, and healthcare, severely impacting the overall quality of life.

Stimulating productivity to drive real sector growth

In 2025, a significant funding gap will persist as Nigerian business leaders struggle with high interest rates and funding. Private sector funding remains a key challenge for businesses in Nigeria especially MSMEs due to a high interest rate of 27.25%. Nigerian MSMEs require an estimated $32.2 billion (₦13 trillion) in financing to close the funding gap.

Inflationary pressures continue to significantly impact consumer purchasing power with implications for the demand of non-essential goods from businesses in the real sector. Businesses must create innovative products to deliver value to consumers while keeping costs low and operating efficiently as the CBN attempts to curb the rise in inflation.

Security and social stability

Insecurity has severely impacted agricultural productivity, investor confidence, and business operations, leading to higher food prices, increased food importation, and heightened unemployment and poverty levels.

According to PwC, Nigeria is facing security challenges, with 4,520 violent incidents between January 2023 and March 2024, including 2,329 attacks on civilians and 532 fatalities from kidnappings. The 5,356 criminal incidents and 836 farmer-herder clashes have severely disrupted agriculture and local economies, particularly in rural North-Central and North-West regions.

These security challenges erode investor confidence and divert government resources from crucial development projects, further hindering economic progress. Despite increased defense spending, more efforts are needed to enhance security and restore investor confidence.