Key issues Nigerian businesses should worry about

Insecurity, inflation, and foreign exchange pressures are key issues Nigerian businesses – small and large corporates – should worry about in the New Year, Muda Yusuf, CEO, Centre for the Promotion of Private Enterprise (CPPE), exclusively told BusinessDay.

The macroeconomic condition is a very important component of the business environment as it impacts a great deal on investors’ confidence. It has implications for cost, profit, competitiveness, and the sustainability of investments, he said.

As of January 2021, headline inflation was 16.47 percent and rose to a peak of 18.17 percent in March, and decelerated incrementally to 15.40 percent in November 2021. However, headline inflation has been on the increase on a month-on-month basis from January to date, albeit at a reducing rate. Meanwhile, food inflation has been consistently higher than headline inflation and core inflation for the most part of the year.

“They should worry about issues of security. They should worry about issues of exchange rate, about inflation, because there is nothing on the horizon to show that some of these problems will go away within the next one year,” Yusuf said.

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It is better to assume that these are constant variables, he said, saying, “You will need to develop your business strategy on how to cope with those variables. Because we cannot pack up our businesses because there are problems, as an entrepreneur we just have to manage whatever risk there is in the environment.”

Inflationary pressure remains a major cause for worry both for businesses and the households as it remains elevated, he said.

According to Yusuf, the challenge of forex to investors in the outgoing year was multidimensional. The forex challenge was a major predicament that investors had to grapple with in 2021.

The dimensions of the dilemma are as follows: the sharp depreciation of the naira over the last one year, the liquidity crisis in the forex market, which manifests in the acute shortage of forex in the official window, and volatility of the exchange rate that creates considerable uncertainty and unpredictability for investors.

Godwin Emefiele, Governor, Central Bank of Nigeria (CBN), said the business environment remained optimistic given the sustained policy interventions in the economy.

Overall, the business confidence index is projected to rise significantly from -9.2 index points at end-August to over 37.7 index points in November 2021, and surpass 57.6 index points by mid-2022. Following the pickup and continued strengthening of domestic economic activities, many firms expressed optimism about the direction of future developments both in the near-term and the short-term.

To address the problem of rising prices, the Nigerian government will need to address key structural issues of infrastructure deficit, insecurity, transport cost, and exchange rate depreciation, FSDH Research says in a report.

The report says implementing reforms to improve competitiveness, fixing the insecurity challenges, and making forex available to businesses will boost output, enhance investment into key sectors and improve trade.

“Unless these reforms are implemented, investment inflows will remain subdued in 2022,” the report states.