Businesses show greater confidence in macro-economy in Q3

The business expectation survey of the Central Bank of Nigeria (CBN) has revealed that the outlook of businesses for the next quarter indicated greater confidence on the macro economy at 47.5 points, as firms expressed less pessimism in the current quarter.

The drivers for this optimism were services with 19.9 points, wholesale/retail trade, 12.2 points, industrial, 11.6 points and construction 5.3 points sectors.

The second quarter of 2017 Business Expectations Survey (BES) was carried out by the CBN during the period May 22 to June 03, 2017 with a sample size of 1,950 businesses nationwide. A response rate of 98.8 per cent was achieved during the reporting quarter, and covered the services, industry, wholesale/retail trade and construction sectors.

At-1.5 index points, respondents’ overall confidence index (CI) on the macro economy in second quarter 2017 was less pessimistic, when compared with the level recorded in second quarter 2016. This was driven by the opinion of respondents from industrial (-1.2 points), wholesale/retail trade (-0.6 points) and construction (-0.5 points) sectors.

The outlook by type of business in the current quarter was driven by import-oriented businesses (-1.8 per cent), neither import nor export kind of businesses (-0.2 per cent), and both import-and export-related businesses (-0.1 per cent), while the sole driver by size of business was the small sized business (-3.2 per cent).

Analysts attributed the positive outlook of businesses to some of the recent government policies including foreign exchange policies introduced by the CBN.

Ayodeji Ebo, managing director, Afrinvest Securities limited said this is expected on the back of the improved Purchasing Managers Index (PMI) data published in the last three months which shows that the economy has been on the recovery mode.

“This can largely be attributed to the improved forex supply by the CBN in the last four months as well as the several initiatives by the fiscal authorities towards improving ease of doing business in Nigeria. The combination of these factors may have led to the positive outlook on the economy”, he said in an emailed response.

Ebo said the Confidence Index (CI) will further improve investor sentiments towards Nigeria, hence boost foreign inflows (portfolio and direct investments). “We expect the monetary and fiscal policies will consolidate on these recent gains”, Ebo added.

In his emailed response, Taiwo Oyedele, head of tax and regulatory services, PWC, said “I think some steps that have been taken by the government are helping to restore business confidence. These include the Economic Recovery and Growth Plan but more importantly the concrete steps taken in the past couple of months by the Presidential Enabling Business Environment Council”.

Oyedele said the investors and importers forex market introduced by the CBN and the recently constituted Industrial Policy Council are also a confidence booster. “These actions need to be sustained and further enhanced to fully restore both domestic and foreign investors in the economy”, he added.

Uche Uwaleke, Associate Professor and Head, Banking and Finance department Nasarawa State University said the report truly reflects macroeconomic performance over the period from a severe economic contraction that was officially confirmed at the end of the second quarter of 2016 to a less severe drop in real GDP growth rate recorded in the first quarter of 2017. Also, headline inflation has retreated from 18.72 percent in January this year to 16.25 percent in May with forecasts of a further drop in the coming months. By the same token, the spike in the services sector confidence in the next quarter has to do with improvements in forex liquidity, relative stability in exchange rate as well as access to forex by Deposit Money Banks.

“The finding regarding the industrial sector is consistent with other measures of manufacturing activity such as the Purchasing Managers’ Index which, unlike in 2016, has been above 50 basis points this year. Also, stock market performance which was in the negative territory last year posted positive returns in Q2 of 2017. Overall, the CBN confidence index on the economy confirms that the recession bottomed out last year and that the economy is now on the part of recovery”, Uwaleke said in response to BusinessDay questions.

 

HOPE MOSES-ASHIKE