Financial analysts at PwC Nigeria have foreseen an increase in the higher cost of doing business and lower revenue for Nigerian businesses following the impact of recent economic reforms by the government.
The analysts who stated this in a report tagged ‘Nigeria Economic Outlook’ and seen by Nairametrics said the continued inflationary growth and rise in the cost of living may slow real economic growth in the medium term.
- “Consumer spending may be adversely impacted by the elevated inflation rate (food 25.3% and core inflation 20.3% rates.) and fuel price (140% increase after subsidy removal).”
- “Business revenues may decline in the short-term mainly due to direct impact input costs and reduction in disposable incomes.”
- “Rise in energy, food, transportation and import costs may dampen consumer spending on non-discretionary items.”
According to the report, economic reforms such as the FX market liberalisation could gradually attract foreign investments and boost capital inflows in the long term.
However, in the short run, investors will likely adopt a wait-and-see approach. This may be a result of the absence of further reforms to strengthen business and economic fundamentals.
It added that a rise in inflation will likely reduce the real yields or returns on investment.
Impact on Businesses: The report also noted that a rise in energy, food, transportation, and import costs may dampen consumer spending on non-discretionary items.
- “High FX rates may drive up production costs and impact negatively on firm performance.
- Business revenues may decline in the short term mainly due to the direct impact of input costs and reduction in disposable incomes.
- Food Inflation rose by 25% in June compared to the previous year, compounded by insecurity concerns and climate change effects in the food-producing regions of the country.
- Transportation costs also increased by 25% compared to the previous year, on account of the higher energy prices.
- “Currency depreciation and structural factors drove other inflation in key elements such as clothing and footwear, furnishing and home, housing, and utilities,” the report said.
Economic Outlook: The report noted that naira floating is expected to drive up the cost of imported raw materials adding that the naira value since the implementation of the policy has ranged between N472- N771/$ from an average of N463/$ in May before the policy announcement.
- “Though this may have a negative impact, it could provide incentives to corporates to explore local sourcing or backward integration in the medium term.
- The general rise in prices due to the removal of subsidies may have a trickle-down effect on the various SG&A expenses such as marketing, logistics, utilities, etc.
- The cost of borrowing (Naira) could remain elevated due to the increase in the MPR rate to 18.5% in July 2023 by 25 basis points.
- Finance costs to increase due to exchange rate losses from higher interest payments incurred on exposure to foreign currency-denominated loans. These losses are on account of the currency devaluation,” the report said.
On what corporate organisations be thinking about, PWC advised that to achieve customer growth optimisation, corporate organisations should implement the following strategies:
- “Adjust pricing and pack architecture using Revenue Growth Management (RGM) analysis to cater to shifting consumer habits, adapt products to accommodate changing demand dynamics by substituting expensive raw materials, leverage post-event analytics for promotion decision-making, renegotiate contracts for better terms, and expand distribution through discounters and online platforms to align with evolving consumer buying patterns”.