The July 2024 Central Bank of Nigeria (CBN) Business Expectation Survey has shown that businesses are increasingly worried about the naira’s likely depreciation in the near future. Many businesses believe that the Naira will continue to weaken over the next three months, with expectations for depreciation remaining high. However, there is some optimism that the currency could start appreciating after six months. This expectation is further driven by recent trends in the foreign exchange market, where the dollar is steadily approaching ₦1,600 despite seeming efforts by the CBN to stabilize the naira through continuous foreign exchange interventions. Respondents could not help but forecast higher borrowing costs and persistent inflation, which currently stands at 34.19%—a rate considered too high by many survey respondents.
Moreover, businesses are rather cautious about future economic conditions, expressing a positive outlook as to business activities and employment prospects, particularly in the agricultural sector, perceived to be the real driver of economic growth. Other sectors, like industry and services, are eyeing expansion with varying degrees of confidence. While the naira faces depreciation and high inflation, businesses will have an extension plan across sectors; the Agriculture sector is likely to grow the most. These expansionary plans are presently facing severe challenges from high borrowing costs and Inflation if not addressed.
Borrowing costs expected to further rise due to inflation rates.
Again, the outlook for the Economy of Nigeria remains mixed, with companies sizing up their prospects in terms of the challenges and opportunities that may materialize within a few months. Companies factor in a depreciated naira, given the pressure that continues to mount on the foreign exchange market, as likely to be the most profound in impacting such aspects as the cost of importation, inflation, and stability at large. This is happening despite interventions, such as the CBN selling foreign exchange to Bureau De Change operators and the introduction of the Retail Dutch Auction System (RDAS).
In addition to grappling with currency depreciation, companies are facing persistently high inflation rates, which, despite a slight reduction in July, still hover just above 33%. This decrease from a peak of 34.6% offers little comfort as inflation remains significantly higher than what most businesses can comfortably manage. Consequently, many expect borrowing costs to rise further, which is another major obstacle for businesses that are aiming to expand or invest in the current economic climate.
Expansion plans of industries, with agriculture at the forefront.
On the bright side, businesses stay rather optimistic regarding their expansion and employment plans. In fact, the agricultural sector is bound to lead both in expansion and employment, which is consistent with its critical role in the Economy of Nigeria. The optimistic expectation spills over into other sectors like construction, manufacturing, and services, most of whom also anticipate growth and increased employment opportunities. This optimism implies that despite the challenges, businesses are still able to find a way to navigate the economic terrain and look out for opportunities to grow.
However, the success of these expansion plans hinges on how effectively the government and The Central Bank of Nigeria (CBN) can manage the challenges of currency depreciation and inflation. Implementing robust policy measures to stabilize the naira and control inflation will be crucial in sustaining the optimistic outlook expressed by the business community. This will not only ensure that business expansion plans come to fruition but also keep Nigeria’s Economic Growth trajectory on track, fostering a more stable and resilient economic environment.
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Essentially, the outlook for business in Nigeria remains cautiously optimistic against the backdrop of an increasingly volatile economic environment. While currency depreciation, high inflation, and an ever-increasing cost of borrowing will remain a challenge, there is a general belief that effective policy interventions will help circumvent all issues. The Central Bank of Nigeria must, therefore, work in tandem with fiscal authorities to smoothen the foreign exchange market and rein in Inflationary Pressures so that such positive trends in expansion and employment generation are maintained. These steps will ensure a policy environment that will make doing business easier, hence creating jobs and enhancing resilience for the economy to sustain long-term growth.