A report by Standard Bank’s Africa has underscored how naira devaluation and the removal of fuel subsidies have diminished business confidence in Nigeria.
The Africa Trade Barometer is an annual publication that evaluates the business landscape across ten African countries, analyzing factors such as macroeconomic stability, trade openness, access to finance, and infrastructure to provide insights into business conditions across the continent.
According to the report, which surveyed 2,258 businesses across 10 African countries, Nigeria recorded the most significant drop in business sentiment, reflecting the challenges posed by volatile exchange rates and inflation.
The report states: “Business confidence across the ten SB ATB markets has remained stable despite challenging economic conditions, with the average confidence index rising slightly from 58 in May 2023 to 59 in August 2024.
“Five countries saw increased business confidence, while three remained unchanged, and two experienced declines. Ghana recorded the most significant improvement in its business confidence index, jumping from 47 to 55, driven by expectations of stronger economic growth and improved forecasts for 2024 and 2025.
“Meanwhile, Nigeria saw the most significant decline, with confidence dropping due to currency volatility and the removal of fuel subsidies, leading to inflation and higher living costs.
“Overall, optimism about business growth, customer demand, and economic recovery remains prevalent, with 80% of surveyed businesses expecting revenue growth.
“However, concerns over high taxation and inflation persist across all markets, reflecting ongoing challenges as governments pursue fiscal reforms and debt management strategies.”
Accordingly, the Central Bank of Nigeria’s decision to liberalize the exchange rate system in June 2023 caused the naira to lose 36% of its value, aggravating dollar shortages in the economy. Thus, businesses are struggling to access the foreign currency needed for imports, leading to increased operational costs and disruptions in cross-border trade.
The report added that many businesses have also faced difficulties obtaining trade credit due to currency instability, creating liquidity constraints.
The removal of fuel subsidies, another key policy shift highlighted in the report, has further compounded the economic challenges.
The report explains that subsidy removal led to higher fuel prices, driving inflation and eroding consumer purchasing power. Businesses surveyed in Nigeria reported increased operational costs, especially in logistics, making it harder to maintain profit margins.
“Nigeria experienced the largest decline in business confidence among surveyed businesses. This was primarily due to the significant depreciation of the naira.
“The primary driver of this was the liberalization of the exchange rate by the central bank to consolidate the multiple exchange rate systems into a unified market. This aimed to let supply and demand dictate the rates. However, in June 2023, the naira fell further by 36% in the official market, showing notable devaluation amidst dollar scarcity and market unrest.
“Efforts to stabilize the naira were further compromised by the removal and later partial reinstatement of the fuel subsidy, which stoked inflation and sparked nationwide protests over increased living costs.”
Despite these difficulties, the report reveals that businesses remain cautiously optimistic about future growth, with many hoping that ongoing economic reforms will stabilize the macroeconomic environment.
The report noted: “Countries such as Uganda, Ghana, Tanzania, Angola, South Africa, and Nigeria are expected to see improvements in real GDP growth in 2024 and into 2025.”
The Stanbic IBTC Purchasing Managers’ Index (PMI) for September showed that business conditions in the country continued to remain weak at 49.8, a below-50 reading for the third consecutive month.
According to the report, the cost of inputs for businesses rose at the sharpest rate in six months as output decreased for the month. The report noted that the weakness of the naira for the month, coupled with an increase in petrol prices, exacerbated transportation and logistics costs, which were passed on to consumers.
Furthermore, the PMI report published by the Central Bank of Nigeria (CBN) showed that for business activities in September 2024, the composite PMI reached 50.7, indicating an expansion in economic activities for the second consecutive month.
This means that while the report by Stanbic IBTC showed contraction, the CBN report indicated expansion for September 2024.
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