CBN survey shows business confidence moderates as firms remain upbeat

Business confidence in Nigeria moderated slightly in June, but firms remained optimistic about the economy as expectations of economic diversification and supportive fiscal policies outweighed concerns over high taxation, insecurity and elevated borrowing costs, the Central Bank of Nigeria’s (CBN) latest Business Expectations Survey (BES) has shown.

 

The survey showed that the Business Confidence Index (BCI) eased to 7.2 points in June from 7.9 points recorded in May, indicating that while optimism softened marginally, businesses continued to expect expansion in economic activity.

 

According to the CBN, respondents’ positive sentiment was driven mainly by economic diversification, cited by 38.3 percent of firms, and expansionary fiscal policy, which accounted for 16.2 percent. More cautious views, however, reflected persistent energy-related challenges, identified by 23.4 percent of respondents, and elevated geopolitical uncertainties at 16.5 percent.

 

The overall outlook remained positive across the agriculture, industry and services sectors. Agriculture recorded stronger confidence, with its index rising to 12.2 points from 9.4 points in May. The industry sector moderated to 10.9 points from 12.5 points, while the services sector slowed to 2.9 points from 4.6 points in the previous month.

 

Businesses also remained optimistic about the next six months, with confidence indices across all sectors staying in positive territory.

 

The survey showed respondents were most confident about business activity and order inflows, as the volume of business activity index and the volume of total orders index recorded the highest confidence levels. Although the financial condition index and credit access index also remained positive, they were comparatively weaker, suggesting financing conditions and access to credit continue to constrain business expansion.

 

Regionally, businesses in northern Nigeria expressed stronger confidence than those in the South during the review month. While respondents in all regions except the South-East and South-South expected improved conditions next month, optimism strengthened across all regions over the three- and six-month horizons, with the North-East posting the highest confidence level.

 

Despite the positive outlook, firms continued to cite structural challenges as major obstacles to growth. High or multiple taxation ranked as the biggest constraint, identified by 73.7 percent of respondents, followed by insecurity at 71.7 percent and high interest rates at 67.0 percent. Other challenges included an unfavourable political climate, high bank charges, poor infrastructure and financial constraints.

 

The survey also showed that businesses expect the naira to appreciate gradually against the US dollar over the coming months. However, respondents anticipate borrowing costs will remain elevated, with borrowing rate indices remaining broadly stable between 20 and 22 points over the near- and medium-term outlook.

 

Meanwhile, average capacity utilisation eased marginally to 55.3 percent in June from 55.9 percent in May, indicating that businesses continue to operate slightly above half of installed capacity despite the positive sentiment.