AS anticipated, PwC, the skilled tax and advisory agency, has raised recent considerations concerning the uncertainties buffeting Nigeria’s financial system with destructive penalties for investor confidence. Sky-high inflation and volatility within the foreign exchange market have continued defying the raft of measures adopted by the CBN to realize stability and entice buyers.
“Regardless of the hawkish stance by the CBN to take care of stability, Nigeria’s outlook continues to be fairly unsure as buyers stay cautious of a fancy and ambiguous macroeconomic setting,” PwC mentioned in its newest Nigeria Capital market report on August 6.
The FX volatility has launched important dangers and uncertainties into the enterprise setting. The official change charge depreciated by 67.8 per cent from N461.1/$ in Might 2023 to N1,433.8/$ in Might 2024. It sank to N1,598.9/$ final week.
Enterprise leaders observe that uncertainty surrounding the naira’s worth has made long-term funding selections extra complicated and contributed to a big degree of hesitancy to commit substantial sources in an setting the place foreign money depreciation may erode returns.
Some quoted corporations have had shareholders’ funds eroded by FX losses up to now 12 months. A handful of multinationals have closed store and fled.
Rising inflation has hit companies arduous. Small corporations face increased prices of uncooked supplies, lease, logistics, and wages that influence income, making it tougher to remain afloat. The scenario is worsened by weakened shopper spending energy. The typical Nigerian now spends about 60 per cent of their revenue on meals.
Inflation elevated from 22.41 per cent in Might 2023 to 33.95 per cent in Might 2024. The drivers embrace meals, utilities, and transportation. Meals inflation climbed to 40.6 per cent with utility inflation at 29.6 per cent, and transport inflation at 25.6 per cent per the NBS.
The CBN has tried to handle the problem by rolling out inflationary focusing on measures to rein within the highest charge in 30 years. It raised the benchmark curiosity by 800 foundation factors to 26.75 per cent inside a 12 months. It has intervened within the FX market forcing banks to liquidate greenback holdings, bought FX on to BDCs, and cleared all FX backlogs by March 2024. The CBN has revived the greenback retail auctions as demand for foreign exchange surged throughout the summer season holidays.
The influence of those measures stays muted. Whereas the federal government insists the scenario will enhance, most Nigerians don’t share such optimism. Interventions to handle the cost-of-living disaster, corresponding to distributing meals objects as palliative have been a sham. The money switch scheme has been masked in secrecy.
The Taiwo Oyedele committee’s tax and financial coverage reforms haven’t been carried out, and the federal government itself has not demonstrated prudence in public spending.
The issue with Nigeria’s financial system is structural. The overdependence on oil exports, weak manufacturing sector, large infrastructure deficit, low funding in agriculture and different non-oil sectors, random coverage shifts, dangerous politics, and corruption have mixed to make the nation weak to inside and exterior shocks. With insecurity now added to the combination, the outlook stays grim.
Relying largely on oil exports for foreign exchange is dangerous economics as earnings stay unpredictable attributable to fluctuating costs and oil theft.
Nigeria can not spend over $10 billion yearly on meals imports whereas the finances for agriculture stays a paltry N362.9 billion or 1.26 per cent within the 2024 finances.
To revamp the naira, huge and sustained diversification of exports should be explored, with alternatives in agriculture, mining, manufacturing, and digital applied sciences.
There ought to be an aggressive import substitution drive to advertise native manufacturing with incentives for native industries, enhancing infrastructure and the general enterprise setting. The facility sector disaster and the logistics nightmare attributable to dangerous roads and a barely useful rail system should be addressed completely.
Guarantees have little worth. The Tinubu administration ought to take inventory and act.