By Aminu Adamu
Businesses in Nigeria are grappling with mounting challenges exacerbated by economic volatility, as outlined in the recent Nigeria Economic Summit Group (NESG) and Stanbic IBTC report. The NESG-Stanbic IBTC Business Confidence Monitor (BCM) for October 2024 has painted a picture of a business environment in distress, marked by weak performance, rising costs, and an uncertain outlook.
The report highlights that the overall business performance index for October stood at -23.24, indicating a downturn compared to September. Persistent high inflation, soaring interest rates, and Naira instability have been cited as the main culprits behind the challenging business landscape. In particular, inflation is not only elevating operational costs but also eroding consumers' purchasing power, thereby dampening demand and investment.
The NESG noted, "The country’s business operating environment continues to face severe challenges, with several underlying economic issues intensifying. Inflation remains high, eroding purchasing power and raising operational costs. Additionally, the Central Bank of Nigeria’s (CBN) hike in the Monetary Policy Rate (MPR) has led to higher credit costs, further straining business operations."
One of the most significant hurdles highlighted in the report is the instability of the Naira, which has made importing goods more expensive and complicated financial planning for businesses. The currency's volatility has put additional pressure on profitability and pricing strategies, with knock-on effects on export performance. The report stated, “The Naira instability has raised import costs and complicated financial planning, negatively impacting profitability and pricing strategies. Export performance has also been weak, with businesses reporting below-normal export order books, resulting in an export index of -12.65.”
The NESG-Stanbic IBTC BCM report provided a detailed analysis of the performance of various sectors, revealing that all major sectors experienced negative trends:
Agriculture Sector
The agriculture sector, a critical part of Nigeria's economy, was not spared from the downturn, showing a negative business performance index of -30.47. Flooding in key food-producing states, compounded by extended rainfall throughout Q4 2024, led to severe farmland and crop losses. The report noted, “Ongoing flooding in key food-producing states, worsened by prolonged rainfall, resulted in extensive losses of farmland, crops, yields, and grazing areas.”
All sub-sectors within agriculture reported negative outcomes, with the Agro-Allied sub-sector experiencing only a slight decline at -0.99, while the other four sub-sectors suffered significantly.
Manufacturing Sector
The manufacturing sector faced significant setbacks, with its BCM index dropping to -28.72 in October, signaling considerable difficulties. This sector's challenges were compounded by high energy costs, intermittent power supply from the national grid, and increased fuel prices, which have collectively impacted production and logistics.
Services Sector
The services sector, though relatively better, still recorded a decline with a BCM index of -6.19 points, highlighting mild negative performance. The primary challenges in this sector included rising operational costs linked to energy expenses, fueled by frequent grid failures, and ongoing fuel shortages.
Trade Sector
The trade sector’s business performance index was -23.45, indicating a notably difficult operating environment. Within this sector, sub-economic activities varied, with retail recording a slightly negative performance at -14.99, whereas wholesale posted a more pronounced downturn at -31.90.
The business confidence monitor further pointed out that the high cost of credit, driven by the CBN's monetary policy, has added to businesses' woes. “The Central Bank of Nigeria’s (CBN) hike in the Monetary Policy Rate (MPR) has led to higher credit costs, further straining business operations,” the report emphasized. This policy environment has discouraged borrowing and investment, affecting growth and expansion plans across industries.
Underlying these economic pressures are structural challenges that have long impeded business growth. The report noted inadequate power supply, limited access to financing, and insecurity as significant hurdles. These issues are not new but have been exacerbated by current economic conditions. The result has been a business environment where companies struggle to maintain operations, let alone achieve growth.
The NESG report suggested that for any meaningful recovery to occur, there needs to be a focus on stabilizing the exchange rate, addressing inflationary pressures, and ensuring that energy supply issues are managed. Long-term policy reforms aimed at increasing access to financing and improving security were also recommended as essential steps for creating a more conducive business environment.
The findings from the NESG-Stanbic IBTC Business Confidence Monitor underline a period of significant challenge for Nigeria’s business landscape. High inflation, steep interest rates, and Naira instability continue to take a toll on sectors across the economy, from agriculture and manufacturing to services and trade. Without targeted interventions that address these underlying economic challenges, businesses in Nigeria may continue to face a prolonged period of uncertainty and stagnation.