• Tuesday, July 16, 2024
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Navigating the limits of stress in the Nigerian economy

The key to strengthening Nigeria’s economic position on a global scale: Support for young and women entrepreneurs

The administration of President Bola Ahmed Tinubu, GCFR, marked its one-year anniversary on May 29, 2024, and the usual ritual of one year. An analysis of the economic scorecard of the government by scholars and thought leaders evidenced largely depressed metrics. The administration commenced on a note of bold economic reforms: removing decades-old petrol subsidies that kept prices artificially low, freeing the foreign exchange market to merge all windows, partially removing electricity subsidies, amongst other steps targeted at stabilising the economy and initiating sustainable growth.

Interestingly, the economy saw some sparks of early gains, notably the upgrade of sovereign and credit ratings with Fitch Ratings revising its outlook on Nigeria’s long-term foreign currency issuer default Rating (IDR) to positive from stable and affirming the IDR at ‘B-’; and Moody’s reversal of its downgrade of Nigeria’s government credit rating from junk to Caa1 with a stable outlook. In addition, the equities market recorded a performance of 45 percent in 2023 and 32 percent in 2024 as of June 15, making Nigeria one of the top-performing equities markets in the world.

The bold reforms notwithstanding, their implementation dynamics seem to have spared the vested and connected interests and hurt the economy and the masses so badly. The country is facing skyrocketing inflation at 33.95 percent in May 2024, up from 22.14 percent in May 2023, a record loss of value of the national currency of over 70 percent within a 12-month period, and millions of people are hit by hunger due to rising food prices.

The National Bureau of Statistics (NBS) published GDP growth of 2.98 percent for Q1 2024, down from 3.54 percent in Q2 2023. Respected as Africa’s biggest economy since 2013, Nigeria is projected by the International Monetary Fund (IMF) to drop to fourth place in the continent. The Labour Unions (the Nigerian Labour Congress and the Trade Union Congress) recently shut down the economy as they struck to protest the minimum wage of around $20 a month. As over 80 percent of working-age Nigerians are in the informal sector, where there are no salaries and no unions to push for their welfare, their fate after the ongoing review of the National Minimum Wage remains uncertain.

Recently, we tracked the steady exit from Nigeria, scaling down of operations, and divestments by 75 notable brands in the Nigerian economy from 2020 to H1 2024. The notable corporates are, Standard Biscuits Nigeria Ltd, NASCO Fiber Product Ltd, Union Trading Company (UTC) Nigeria PLC, Deli Foods Nigeria Ltd, Tower Aluminum Nigeria PLC, Framan Industries Ltd, Stone Industries Ltd, Mufex Nigeria Company Ltd, Surest Foam Ltd, Universal Rubber Company Ltd, Mother’s Pride Ventures Ltd, Errand Products Nigeria Ltd, Gorgeous Metal Makers Ltd, Unilever Nigeria PLC, Procter & Gamble(P&G) Nigeria, GlaxoSmithKline Consumer Nigeria PLC, Shoprite Nigeria, Sanofi-Aventis Nigeria Ltd, Equinor Nigeria, Bolt Food & Jumia Food Nigeria, Microsoft Nigeria, Divestment of Oil Companies(Total Energies Nigeria), PZ Cussons Nigeria PLC, Kimberly-Clerk Nigeria, Diageo PLC, etc.

It was discovered that over the five-year period, about 3,000 SMES that feed majorly or directly to and from the major brands were also adversely affected by the closedown of the multinational companies, leading to some of the SMEs scaling down to microbusinesses or shutting down completely.

Sadly, this phenomenon led to the loss of millions of direct and indirect jobs, billions of dollars in tax revenue by the government at the Federal Government (FG) and State Government levels, and the diversion of multibillion-dollar investments and projects from Nigeria to other countries. The mass exodus of companies in Nigeria is firmly believed to be rooted in a heightened spate of business environment challenges such as the foreign exchange crisis, poor power supply and high energy costs, insecurity, port congestion, multiple taxes, poor infrastructure, and the waning confidence of the masses. No doubt, these challenges are daunting and must not be allowed to quench a nation globally reputed for its resilient entrepreneurial spirit.

Nigeria’s more than 220 million citizens are skilled at managing and surviving in tough circumstances: we generate our own electricity and source our own water; we take up arms riding on local vigilantes and defend our communities in the absence of protection by formal security formations; we are at the mercy of enemies of the state—the criminals who continue to seize our relatives and friends for ransom; and we even pave some of our roads from farm gates and factories to the markets.

Amidst these stubborn challenges, we believe that a forward-focused approach offers a strategic template for the government and economic agents to navigate the inherent complexities in the system. The quick win for us all is the government’s commitment to address the key militating crises, especially the FX crisis, energy cost and access, and the spate of insecurity that continues to shove away investors and real investment from the Nigerian economy. Tellingly, Okomo Oil Plc, the biggest oil palm producer in the country, and a few other companies that are heavy on plantation inputs recently threatened to exit the country if the ongoing spate of insecurity at their facilities did not abate.

No doubt, with sincerity of purpose and commitment right from the very top, we may begin to sense some glimmer of tangible positives over a six-month period. In the meantime, the hope for business leaders is to keep searching for and exploring intermittent wins by adopting a feasible combination of the following measures:

The use of relevant financial products: Businesses that face direct exposure to fluctuations in exchange rates may find it beneficial to manage and mitigate their risks through the utilisation of relevant financial instruments, specifically derivatives. Employing hedging products in the form of derivatives can serve as a protective measure, safeguarding businesses from unfavourable movements in exchange rates. This strategic approach aids businesses in enhancing their ability to plan effectively, ensuring a more reliable delivery of value to their customers.

Strategic customer segmentation for optimal resource allocation: A deliberate consideration of customer segments is essential. In a persistently rising cost environment, it may become imperative to make specific choices rather than attempting to cater to a broad audience. A prudent business approach involves evaluating customers based on their lifetime value (LTV) relative to acquisition costs (CAC). Focusing attention on premium customers with a high LTV-to-CAC ratio allows for the allocation of resources to those who contribute most significantly to the bottom line.

Creativity and innovation: Product innovation involves introducing new products or significantly enhancing existing products to make them appealing to customers for continued patronage. A typical example is “sachetisation” – an innovative measure where smaller-sized packs are produced to make the product affordable to consumers. This approach ensures the continued appeal and accessibility of the product to a broader customer base, which therefore increases volumes (and effectively lowers fixed costs over time).

Collaborations and partnerships: Businesses may explore the assessment of their cost profiles as well as the possibility of cost sharing, colocation, and resource sharing to achieve a streamlined structure and sustain efficient value delivery to customers. This evaluation opens up the possibility of outsourcing or establishing partnerships with third-party entities. Through such strategic considerations, businesses could maintain operational efficiency for continued value delivery.

Dr. Vincent Nwani is an Economist and Investment Specialist; Phone: +234-803-382-7944