Nigeria’s Minister of Finance and Coordinating Minister of Economy, Wale Edun, has revealed the seven key reasons why at least 800 companies shut down in 2023. The reasons include market instability, which led to a volatile business environment, making it difficult for companies to operate effectively. Unfulfilled promises and breaches of contract also contributed to the shutdown, as companies were left with unmet expectations and broken agreements. Foreign exchange market issues, including a lack of liquidity and fluctuating exchange rates, made it challenging for companies to access the foreign exchange they needed to operate.
General economic instability, including rising Inflation and a decline in GDP growth, also played a role in the shutdown. Broken promises and a lack of adherence to promises by the previous administration further contributed to the challenges faced by companies. Finally, the lack of a favourable business environment, including inadequate Infrastructure and a complex regulatory framework, made it difficult for companies to thrive. The shutdown of these companies has had a significant impact on the economy, with the Manufacturing Association of Nigeria (MAN) reporting that 767 manufacturing companies ceased operations in 2023, and another 335 companies were financially distressed.
Factors that contributed to economic difficulties of these firms.
The association attributed this to economic difficulties such as exchange rate volatility, rising inflation, and a worsening Investment climate. Some of the notable companies that have shut down or left Nigeria include multinational companies like ExxonMobil, Shell, and Chevron, which have reduced their operations or divested from the country due to unfavourable business conditions. Local companies like Dunlop Nigeria Plc, Michelin Nigeria Plc, and Vitafoam Nigeria Plc have also shut down due to difficulties in accessing foreign exchange and rising production costs.
Other companies like Cadbury Nigeria Plc, Dangote Flour Mills Plc, and UAC of Nigeria Plc have struggled to stay afloat due to the harsh economic conditions. The economic challenges facing Nigeria are reflected in the country’s GDP growth rate, which dropped to 2.9% in the first quarter of 2024, according to the Nigeria Bureau of Statistics (NBS). The non-oil sector, which contributed 93.62% to the nation’s GDP in Q1 2024, was slightly lower than the previous year.
Govt is working on several initiatives to address the issue.
However, the government is working to address these challenges and create a more favourable business environment. Edun emphasized that the current administration is committed to attacking inflation and eventually leading to lower interest rates, making it easier for Investors to operate in the country. The government is also working to improve the foreign exchange market and address the issue of broken promises and lack of adherence to contracts. In addition, the government has implemented several initiatives to support businesses and stimulate economic growth.
These include the establishment of the Nigerian Export-Import Bank (NEXIM) to provide financing for exporters, the creation of the Nigerian Investment Promotion Commission (NIPC) to attract foreign investment, and the launch of the Economic Recovery and Growth Plan (ERGP) to diversify the Economy and promote sustainable growth. Also, the government has taken steps to address the issue of power supply, which has been a major challenge for businesses in Nigeria. The government has invested in the development of new power plants and the upgrade of existing ones, and has also implemented policies to encourage Private Sector investment in the power sector.
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In all, the shutdown of 800 companies in Nigeria is a significant economic challenge, but the government is working to address the underlying issues and create a more favourable business environment. With a concerted effort, Nigeria can recover from this economic setback and attract new investments to drive growth and development. The government’s initiatives to support businesses, stimulate economic growth, and address the Power Supply challenges are all steps in the right direction. Moreover, the government’s commitment to addressing the issues of market instability, unfulfilled promises, breaches of contract, foreign exchange market issues, general economic instability, broken promises, and lack of adherence to promises is crucial to restoring investor confidence and promoting economic growth.