PwC, a professional tax and advisory firm, has expressed fresh concerns regarding Nigeria’s economy, highlighting issues with high inflation and forex market volatility despite efforts from the CBN to stabilize and attract investors.
In its recent Nigeria Capital market report on August 6, PwC mentioned that investors are cautious due to the uncertain and complex macroeconomic environment in Nigeria, even with the CBN’s efforts to maintain stability.
The fluctuations in the forex market have introduced significant risks and uncertainties for businesses, with the official exchange rate depreciating by 67.8% from May 2023 to May 2024, reaching N1,598.9/$ last week.
The uncertainty surrounding the value of the naira has complicated long-term investment decisions and led to hesitation among businesses, impacting their willingness to commit resources in a depreciating currency environment.
Some companies have seen their shareholders’ funds eroded by FX losses, and a few multinationals have closed operations and left the country.
Rising inflation has adversely affected businesses, particularly small companies facing increased costs of raw materials, rent, logistics, and wages, reducing their profitability and sustainability, exacerbated by weakened consumer purchasing power.
Inflation has surged from 22.41% in May 2023 to 33.95% in May 2024, with food, utility, and transportation costs being the primary drivers. Food inflation stands at 40.6%, utility inflation at 29.6%, and transport inflation at 25.6% according to the NBS.
The CBN has implemented various measures to tackle inflation, such as increasing interest rates significantly and intervening in the FX market, but the impact of these interventions remains limited.
Nigeria’s economic challenges stem from structural issues like overreliance on oil exports, a weak manufacturing sector, inadequate infrastructure, low investment in non-oil sectors, inconsistent policies, political instability, and corruption, making the country vulnerable to internal and external disruptions, particularly with the current insecurity concerns.
To address the economic issues, Nigeria needs to diversify exports significantly, focusing on agriculture, mining, manufacturing, and digital technologies, while promoting import substitution, supporting local industries, improving infrastructure, and resolving issues in the power and logistics sectors.
Action is needed from the government, particularly in implementing tax and fiscal policy reforms, demonstrating prudence in public spending, and prioritizing sustainable economic strategies over short-term fixes.