High and increasing energy costs, forex scarcity, and insecurity are major concerns for major players in the Nigerian economy for the first six months of the year.
This was disclosed by Dr. Muda Yusuf, Founder/CEO, Centre for the Promotion of Private Enterprise, CPPE, in a statement viewed by Nairametrics titled, “Half Year Economic Review”.
Dr Yusuf stated that manufacturers continue to grapple with the problems of high cost of logistics, access to foreign exchange, access to raw materials and the effect of excise duty on alcoholic or non-alcoholic beverages which is impacting demand for their products.
What the CPPE boss is saying
Dr Yusuf stated that the biggest concerns of economic players in the first six months of the year include:
High and increasing energy cost
He said, “Investors across sectors in the economy are concerned about the high and increasing energy costs especially the cost of diesel which has gone up by over 300%, the cost of aviation fuel which has gone up by another 300%, the cost of gas which has increased by over 100%. The cost of PMS is still moderately tolerable because of the subsidy regime that is still currently being provided by government.”
He added that the frequent collapse of the national grid makes it even more difficult for many businesses to continue to sustain their operations, as costs have become elevated, profit margins are being eroded, purchasing power is weakened and business sustainability is at risk.
Acute Scarcity, Foreign Exchange and Currency Depreciation
He warned that businesses have suffered serious dislocations as a consequence of foreign exchange liquidity challenges, volatility and the depreciation of the currency which have severely affected businesses across all sectors of the economy as the sharp depreciation of the exchange rate and the parallel market which is over 300%, have worsened the profitability of investments.
“Costs of operation and production have gone up from between 30-100% as a result of the exchange rate crisis.
“Many players in the economy now resort to the patronage of the parallel market at very prohibitive cost, with very little access existing on the official window,” he said.
On implications of the foreign exchange crisis for the Investors, he said:
- High cost of production because of the high import dependence of our manufacturing sector for imported raw materials.
- High operating costs across businesses in practically all sectors of the economy
- Low sales and turnover because of the increase in price and effect on demand.
- Erosion of profit margins because not all the additional costs can be passed on to consumers.
- Increases business continuity risk for some segments of manufacturing.
- The severity of impact varies across sectors depending on the degree of business exposure to imports.
He added that challenges facing Nigerian manufacturers include, access to sugar and resins. Sugar is used in many of the beverage Industries such as bread and the like. Resins are used for purposes of packaging materials. These are also critical inputs for practically all manufacturing sectors.
“Manufacturers also continue to grapple with the problems of high cost of logistics, access to foreign exchange, access to raw materials and the impact of excise duty on alcoholic or non-alcoholic beverages which is impacting demand for their products,” he said.
He warned that ECOWAS since nations including Benin Republic have been imposing prohibitive transit taxes and levies on transit goods passing through its borders, it is making many of these cross-border businesses very unproductive and very unprofitable.
“We appeal therefore to the authorities in Nigeria and Benin Republic to resolve whatever issues there is on this matter.
“This does not portend a good omen for our economic integration and the larger issue of the African Continental Free Trade Area because over 80% of trade is by road and if a fellow African country continues to pose this kind of challenge and this kind of impunity to our transit cargo then it gives a great cause for concern,” he added.
What you should know
- Nairametrics reported this month that the Naira massively declined by N29 in the second quarter of 2022, making it the second worst quarter decline of the naira since Q3 2023.
- The Naira has remained stable at around N420/$ in the Investors and Exporters market, meanwhile, in the black market, it is heading towards N650/$1.
$1 is 650 time’s 100=65000.