Nigeria will struggle to achieve proposed N1trn economy, says analysts

By Uzezi Samuel

Financial analysts at FSL Securities Limited have said that the country will not able to achieve the proposed N1 trillion economy with current forex crisis which has seen the naira dropped to an all-time low of N1,534.39 per dollar, accompanied by a staggering 64.69 per cent drop in forex turnover to $89.61 million.

The unprecedented depreciation observed marks the lowest point in the historical performance of the naira, highlighting the severity of the prevailing economic challenges

Speaking in his economic review and outlook for the 2024 presentation tagged ‘Navigating the Tides’, Victor Chiazor noted that with the free fall of the naira, the value of the 2024 budget size was below $30 billion which was against the value in 2022 and 2023.

“I think we are depending too much on Nigeria’s Budget, looking at 2022 and 2023, the value of the Nigerian budget was above $40 billion but the current budget in terms of dollars was below $30 billion following the devaluation of naira.

“Being policy consistent will help the private sector to drive the economy because the government alone can’t achieve the proposed N1 trillion economy even in the next 10 years,” he said.

He added that the year 2024 will see the federal government struggle with the current elevated debt levels as its current debt-to-service ratio remains significantly high.

On the equity side, he said the equities market will likely struggle to achieve the performance reported in 2023 but will be dominated by domestic players as the market expects foreign investors’ interest in the market to be low.

“The visibility of the fiscal authority is expected to improve in the year. Monetary policy for 2024 is expected to remain mixed as it will continue to monitor unfolding events and decide whether to adopt an expansionary policy or contractionary monetary policy,” he said.

Chiazor said the high-interest rate environment is expected to reduce the level of capital raising exercise by the private sector and may slow private sector activities.

“On the back of a high base effect, we expect the inflationary trajectory to begin to significantly ease from the second half of 2024, but may quickly reverse if oil prices soar.

“At the current level of interest rate, businesses and even individuals with significant loan exposure will be affected. This is expected to negatively impact the profit margins of companies.

“Foreign direct investments are expected to remain low on the back of security challenges, foreign exchange uncertainties, and issues around policy inconsistencies,” he said.

Chiazor said that government borrowing is expected to continue, and at a higher interest rate as it continues to raise capital to fund its budget deficit.

He added that more transparency is needed around the issue of fuel subsidy and this needs to be immediately managed by the new government, to avoid a total collapse of the country’s fiscal space.

EU report says forex crisis, regulatory bottlenecks, others hampering businesses in Nigeria

A recent survey focusing on the operational environment for European Union (EU) companies in Nigeria has identified the forex crisis, regulatory bottlenecks, power supply issues and many others as among challenges affecting businesses activities in the country.

The survey, conducted by Commercium Africa in cooperation with the European Business Chamber (EUROCHAM) Nigeria, also highlighted the complex landscape foreign companies must navigate in the country.

The top challenge identified by EU businesses is related to foreign exchange. The volatility of the Nigerian Naira and the challenges associated with accessing foreign currency create a host of problems for companies looking to engage in international trade or repatriate profits. This has been cited as the most critical issue impacting business operations in Nigeria.

Security concerns are the second most significant challenge, according to the survey of EU companies in Nigeria. The unpredictable security situation, which includes civil unrest, banditry, kidnapping and criminal activities, poses risks to personnel, operations, and investments, necessitating increased spending on security measures and sometimes leading to business disruptions.

Taxation issues are the third most pressing concern for EU businesses operating in Nigeria. The complexities and uncertainties surrounding the tax system, including handling multiple taxes and navigating regulatory changes, have created a cumbersome and often unpredictable environment for financial planning and compliance.

Nigeria’s infrastructure deficit is the fourth-ranked challenge. EU companies face difficulties due to inadequate transportation networks and other infrastructural shortcomings. This affects the movement of goods and services and has broader implications on the cost and ease of doing business.

Identified as the fifth most significant challenge, corruption continues to hinder the operational landscape for EU businesses in Nigeria. Practices such as bribery and extortion add an unwelcome layer of complexity and cost to everyday business dealings, undermining trust and increasing the risk factor associated with conducting business in the country.

Regulatory bottlenecks, which come in sixth place, are a significant impediment for EU companies in Nigeria. The complex and often time-consuming regulatory procedures slow down business operations and increase costs, reducing the overall efficiency and competitive edge of businesses trying to navigate the red tape.

Ranked seventh, Nigeria’s inconsistent and often unreliable power supply presents a notable challenge for EU businesses. Frequent power outages have led to alternative energy sources, increasing operational costs. This has affected overall productivity, compelling companies to seek costly backup solutions to maintain steady operations.

These challenges underscore the need for ongoing reforms in Nigeria’s business environment to improve foreign investors’ ease of doing business and bolster the country’s attractiveness as a destination for international trade and investment.