Challenges of businesses and individuals in the second half of the year will worsen as the crisis between Russia and Ukraine continues, with implications for accelerated inflation, declining purchasing power and threatened profitability for firms, among others, experts have said.
The experts unanimously agreed that issues around raw material supply, energy cost, tax obligations, and low product demand will intensify and put more pressure on businesses which will threaten their sustainability and dampen Nigeria’s anticipated economic recovery.
This was discussed at the mid-year economic review and outlook conference organized by the Lagos Chamber of Commerce and Industry (LCCI), where it was also revealed that inflation will continue its upward trend, affecting consumers’ spending pattern and consequently the cash flow of businesses.
“Given the current macroeconomic environment which has brought with it elevated inflation, FX depreciation, and sluggish GDP growth among others, it is expected that businesses will focus on optimizing their working capital while mitigating the risks arising from high inflation levels and FX depreciation,” Chinwe Egwim, chief economist, Coronation Merchant Bank Limited said
She added that the rising costs seen across products and select services due to supply-side constraints have had an impact on inflation figures which have recorded a steady increase and could hit 20.6 percent.
Consequently, the increase in inflation is affecting consumption patterns hence, businesses that produce discretionary items are likely to see profit margins contract in H2 with a possible extension to 2023 as demand for products drops.
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Taiwo Oyedele, African tax leader, PWC Nigeria said Businesses in Nigeria pay over 60 taxes officially and almost 200 taxes unofficially which is detrimental to them as they struggle to operate, adding that the government has continued to introduce policies that are threats to business sustainability.
“Policy-induced uncertainties create impediments to businesses in addition to over-regulation, furthermore government’s limited engagement and consultation mean that most policy changes are not evidence-based or practicable in terms of implementation,” he said.
Oyedele added that as businesses struggle in an unfriendly environment dealing with rising costs and dwindling revenue, the anticipated recovery will drag further, hence he advised that the government needs to take some action to ease the struggles of businesses.
Ben Akabueze, director-general, Budget Office of the Federation said the outlook is dampened seeing that the proposed figures which would have helped Nigeria in its recovery drive have remained below expectation, citing the deficit in oil production and crude oil price, accelerated inflation, increased dollar scarcity, inability to strengthen the naira against the dollar among other things.
Michael Olawale-Cole, president, LCCI, the first half of the year saw significant shocks and disruptions caused by factors such as the war in Ukraine, insecurity, and persistent revenue challenges which affected businesses, threatening manufacturing and agricultural activities.
He said a growth rate of 2.5 was earlier projected for the economy by the chamber, anchored on the assumption of sustained high oil prices, transition to a market-reflective exchange rate system, targeted fiscal interventions, and gradual implementation of reforms in the oil sector.
Now, there are heightened fears of contracting output, constrained production, and recession risks as we navigate the murky waters of 2022, as factors such as rising security tension, lingering liquidity constraints in the currency market, low vaccination rate, and lack of will to follow through with critical reforms are the major downside risks to the country’s near-term outlook,” he said.
Going forward, Olawale-Cole said a blend of fiscal, monetary, and regulatory policies is needed to stabilize prices and stimulate growth to the desired level.
