FX volatility plunges Nigeria’s service sector’s performance — Report

The Business Confidence Monitor report has revealed that the Nigerian services sector experienced negative business performance in nine months of 2024 due to foreign exchange volatility and higher costs of operations.

The Nigerian Economic Society Group’s (NESG’s)  flagship survey-based report highlighted that the sector’s BCM index stood at -2.51 points between January and September 2024.

According to the report, the services sector is made up of telecommunications and information services, financial institutions, real estate, broadcasting, professional, scientific and technical services, among other services.

“The services sector has continued to position itself as the primary driver of economic growth in recent times but its performance has remained weak, reflecting the overall condition of business in the country,” the report said.

It added that the weakness was due to rising operating costs, exchange rate volatility, foreign exchange scarcity, rising cost of funds, and a challenging operating environment.

In 2024, the services sector remained Nigeria’s largest contributor to GDP, driven by activities such as telecommunications, finance, real estate, and arts & entertainment, expanding significantly due to rapid urbanisation, a growing middle class, and technological advancements in telecommunications and financial services.

The services sector grew by 5.3 percent in the first half of 2024, up slightly from 4.4 percent in H1 2023.

“The financial sector, which makes up 15.8% of the services sector, saw a remarkable 28.8% increase, while the ICT sector, accounting for 44.5%, expanded by 4.4%. However, other sub-sectors faced challenges, with growth below 2%, while the transport sector contracted by 13.5%, largely due to energy shortages and rising business costs,” the report added.

The BCM report noted that the largest negative contributions to the current business condition were higher prices (-26.14) and constrained access to finance (-21.14), which affected business cash flow (-1.02) and employment (-3.96).

“The weak production level and poor demand conditions also restrained economic activities and contributed significantly to Nigeria’s business climate,” it said.