Business confidence in Nigeria significantly decreases as a result of devaluation and the removal of fuel subsidies, according to a new report from Standard Bank’s Africa Trade Barometer. This annual publication evaluates the business environment across ten African countries, examining factors such as macroeconomic stability, trade openness, access to finance, and infrastructure.
The report, which surveys 2,258 businesses across these countries, indicates that Nigeria experiences the largest drop in business sentiment, highlighting challenges related to volatile exchange rates and rising inflation. It states, “Business confidence across the 10 SB ATB markets remains stable despite challenging economic conditions, with the average confidence index increasing slightly from 58 in May 2023 to 59 in August 2024.”
While five countries report increased business confidence and three remain unchanged, Nigeria’s decline is attributed to currency volatility and the impact of subsidy removal, leading to inflation and higher living costs. The report notes that 80% of surveyed businesses anticipate revenue growth, yet concerns about high taxation and inflation persist, reflecting ongoing challenges as governments pursue fiscal reforms.
The Central Bank of Nigeria’s decision to liberalize the exchange rate system in June 2023 results in a 36% loss of the naira’s value, exacerbating dollar shortages. Consequently, businesses struggle to access foreign currency for imports, increasing operational costs and disrupting cross-border trade. Many companies face difficulties obtaining trade credit due to currency instability, leading to liquidity constraints.
The removal of fuel subsidies further complicates the economic landscape by driving up fuel prices, which contributes to inflation and diminishes consumer purchasing power. Businesses report heightened operational costs, particularly in logistics, making it difficult to maintain profit margins.
The report emphasizes, “Nigeria sees the largest decline in business confidence, primarily due to the significant depreciation of the naira. This stems from the central bank’s liberalization of the exchange rate, which aimed to unify multiple rates but resulted in a 36% drop in the official market.”
Despite these challenges, businesses express cautious optimism regarding future growth, hoping that ongoing economic reforms will stabilize the macroeconomic environment. The report predicts improvements in real GDP growth for countries such as Uganda, Ghana, Tanzania, Angola, South Africa, and Nigeria in 2024 and 2025.
In terms of current conditions, the Stanbic IBTC Purchasing Managers’ Index (PMI) for September indicates continued unfavorable business conditions in Nigeria, recording a reading of 49.8 for the third consecutive month. The report highlights that input costs rise sharply while output decreases. The naira’s weakness and increased petrol prices further inflate transportation and logistics costs, which are ultimately passed on to consumers.
Conversely, the composite PMI published by the Central Bank of Nigeria shows an expansion in economic activities for September 2024, with a reading of 50.7, indicating growth for the second consecutive month. This reflects a divergence in assessments of business conditions, with the Stanbic report indicating contraction while the CBN report shows expansion.
