Market News

NIGERIAN companies are experiencing their worst nightmare in decades. Most are struggling, many are on the brink of collapse, and others are obliterated by the foreign exchange crisis initiated by the Bola Tinubu administration’s decision to liberalise the market in 2023.

That move, combined with petrol subsidy removal, which forms the basis of the government’s economic reforms, has undermined the business environment by driving up costs, lowering demand, stifling margins, hampering access to credit, and eroding business confidence in Nigeria. The country’s economic managers must arrest the situation.

The naira devaluation and inflation doubled the combined operating expenses for 23 blue chip companies to N5.1 trillion in the first half of 2024 up from N2.56 trillion in the 2023 period.

The chairman of the Ogun State chapter of the Manufacturers Association of Nigeria, George Onafowokan, said 16 major manufacturing firms had incurred cumulative losses amounting to N792 billion due to naira devaluation from N460 per dollar in May 2023 to N1,690 per dollar at present.

In February, the naira fell to a record N1,900 per dollar. Nestlé Nigeria and Dangote Cement announced net exchange losses of N263.71 billion and N201 billion respectively in H1 2024 compared with N118.5 billion and N113.6 billion respectively a year earlier.

MAN has bemoaned the severe forex scarcity that makes it nearly impossible for manufacturers to access affordable dollars for essential imports. Businesses heavily reliant on imported raw materials are forced to turn to the parallel market, where rates stood at N1,730 per dollar last Monday. The impact on SMEs and smaller manufacturers has been equally devastating.

Higher electricity tariffs, the poor state of roads, and nuisance taxes contribute to the costs of transporting goods and materials and increasing logistics expenses. Businesses cannot pass on these costs in an inflationary environment that has seen the inflation rate jump from 22.41 per cent in May 2023 to 33.88 per cent in October.

A new report by Standard Bank’s Africa Trade Barometer suggests that business confidence in Nigeria has declined sharply due to the impact of naira devaluation and the removal of fuel subsidies.

The report, which surveyed 2,258 businesses across 10 African countries, indicates that Nigeria recorded the most significant drop in business sentiment, reflecting the challenges posed by volatile exchange rates and inflation. Foreign investors are wary of exposure to Nigeria due to the naira’s free fall.

Wale Edun, the Minister of Finance, said the government saved $20 billion from the two policies. It is dysfunctional economics if government policy sacrifices businesses on the altar of revenue generation.

The real problem is productivity, and this must be addressed. The business environment must be improved especially for manufacturing industries to drive real sector growth, and support job creation and non-oil exports.

Nigeria’s exports have fallen by 30 per cent since 2013 from $92.9 billion to $65.5 billion due to declining total factory productivity and oil production while the trade balance sank 80 per cent from $43.7 billion to $8.8 billion due to rising imports compared to exports.

This requires massive investment in infrastructure especially power, roads, and rail, and direct financial interventions in the form of low-interest loans and tariff rebates on imported machinery and raw materials.

Strengthening the naira requires boosting oil exports.

Recent reports suggest that crude production has risen to 1.8 million barrels per day. This must be sustained with improved security for infrastructure, monitoring, and implementing policies to attract new investments.

Diaspora remittances have remained resilient averaging $20 billion in the last five years and the policy environment should aim to boost this.

The monetary authorities must remain open to strategic interventions in the foreign exchange market. The naira volatility must not be allowed to continue unabated.