Businesses bear brunt of reforms as losses pile in 1 year

Nigerian businesses have been hurt by the bold reforms introduced by Bola Tinubu’s government as their losses surged the most since his assumption of office.

The removal of the petrol subsidy and the liberalisation of the foreign exchange regime which was implemented in the second quarter of 2023 has driven down profitability, led to more job losses, lowered tax revenue, and threatened the survival rate of many businesses or triggered more exits of multinationals.

Femi Egbesola, national president of the Association of Small Business Owners of Nigeria (ASBON) said one year of Tinubu has been “the toughest year for us in business in our history of doing business in the country”.

“It’s been an avalanche of one challenge to the other,” Egbesola said.

He noted that over two million businesses have died during this past year adding that many businesses have decided to relocate from Nigeria to other countries, including big businesses.

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“This is the year that we had the highest debt profile, and there are so many bad loans across boards in financial institutions, and many of these loans may likely not recover because those businesses are dead,” Egbesola stated.

The latest financial statements of 13 listed consumer goods firms show that seven of them- International Breweries Plc, Cadbury Nigeria Plc, Nigerian Breweries Plc, Nestlé Nigeria Plc, Dangote Sugar Refinery Plc, Champion Breweries Plc, and Guinness Nigeria Plc posted a combined loss of N388.6 billion.

Of the six remaining companies, three which include BUA Cement, Lafarge Africa Plc and Nascon Allied Industries Plc reported a decline in their earnings by 37.6 percent, 65.2 percent, and 24.9 percent respectively.

The remaining three posted an increase in profit. They include BUA Foods Plc, Unilever Nigeria Plc, and Dangote Cement Plc which posted a combined profit of N171.9 billion, up from N152.6 billion.

Despite the decline in earnings, the manufacturers’ combined revenue rose 79 percent to N2.27 trillion from N1.27 trillion.

Last May, the Tinubu administration implemented bold reforms including the removal of petrol subsidy and naira devaluation to boost revenues for the welfare of its citizens.

However, the reforms have increased inflationary pressures to the highest in at least 28 years and weakened the purchasing power of consumers, even as businesses grapple with higher operating costs.

Egbesola further stated that the government ought to have fixed all indicators that will give businesses a soft landing before the reforms.

Following the liberalisation of the foreign exchange regime, the naira has weakened 65 percent against the US dollar at the official market in one year, after two defacto devaluations by the CBN in its push towards a market-determined rate.

Data compiled from the FMDQ Securities Exchange Limited showed that the value of the naira fell to N1,339 per dollar as of May 27, 2024, from N463 quoted in May 2023.

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Adeola Adenikinju, president of the Nigerian Economic Society said the major reforms have had a significant impact on the poor and those on fixed income salary earners.

He added that salary earners have witnessed significant contractions in their income with no real compensatory packages in place to mitigate it.

“The government should have also done better when communicating with the people by frequently and regularly providing directions, stopping rumours, and giving hope to people, ” Adenikinju said.

“The government also needs to cut down its expenditure across all tiers of government,” the Economics professor said.

The naira devaluation put more pressure on the margins of companies already dealing with double-digit inflation rates and the weak purchasing power of cash-strapped consumers.

These among others were the reasons some multinationals had to leave the country.

Within a year, giant multinationals like Procter & Gambles, GlaxoSmithKline Consumer Nigeria Plc, and Sanofi have left the country with many limiting their presence in the country on the back of the weak naira.

Though the reforms have increased the revenues of big manufacturing companies, it has equally seen many shutdowns given the challenging business environment.

The exodus of multinationals exiting the country is premised on the difficulty the firms face in getting their money back home due to the scarcity of dollars in Nigeria’s economy.

The naira’s slump over the past year, along with rising prices, is also slashing the profits of conglomerates.