Festus Akanbi, in this review, focuses on issues that dominated Nigeria’s business and economic landscape in 2023
It is crystal clear that a complete postmortem analysis of issues that shaped the business and economic climate in Nigeria in 2023 cannot be undertaken without putting President Bola Tinubu’s maiden address after his inauguration on May 29, into context.
This is because some of the economic reforms which the president gleefully announced at the inauguration, namely the removal of the fuel subsidy and the abolition of a dual foreign exchange system, have continued to trigger developments associated with the emergent high cost of doing business and the attendant falling purchasing power of the people.
The economic reforms ushered in by the new administration surged through the country like a tempestuous whirlwind, stirring hopes and trepidation in equal measure. For some, these changes were a beacon of promise, a sunrise promising a new dawn of prosperity, uplifting spirits with dreams of thriving businesses and abundant opportunities.
Yet, for others, the reforms brought a storm of uncertainty, casting shadows of doubt upon their livelihoods, igniting fears of instability and upheaval. Families huddled closer, their conversations a blend of anticipation and anxiety, as the nation teetered on the precipice of transformation, a symphony of hope and concern echoing through the hearts of its people.
Fuel Subsidy Removal and Spike in Petrol Price
The immediate fallout of the fuel subsidy removal was the rise in petrol prices and the return of queues for products across the country.
The National Bureau of Statistics (NBS), in one of its reports, said the price of petrol in Nigeria increased by 210.31 per cent year-on-year. This means Nigerians, in June 2023, paid an average price of N545.83 for a litre of petrol compared to N175.89 in the period last year. Today, the official pump price of petrol in the country is N620, though it varies by location, ranging from N600 to N700 per litre due to logistics and other factors.
Naira Scarcity
With few days to the end of the year, Nigerians are still faced with a scarcity of naira, prompting organised labour to warn the federal government to urgently resolve the crisis to avoid the economic paralysis that heralded the year.
NLC in a recent statement said it was unacceptable that Nigerians were “spending more time in the banks trying to source for cash not for monies that are not in their accounts but for their own money.”
Nigerians woke up in the new year with the problem of acute naira scarcity following the Naira redesign policy of the previous administration. The CBN announced the redesign of 200, 500, and 1,000 naira notes, and plans to end the use of the old notes by January 31, 2023.
The CBN policy caused widespread chaos nationwide, as frustrated Nigerians staged protests amid poor banking operations.
The President of the Bank Customers’ Association of Nigeria, Dr. Uju Ogunbunka, insisted that the cash scarcity has persisted despite CBN’s assurance.
FX Market Reforms and Free Fall of Naira
Another major development during the year has been the instability in the foreign exchange market as a result of the new policy unveiled by President Tinubu in May.
On June 14th, 2023 the Central Bank of Nigeria (CBN) released a press release announcing it would abandon its controlled foreign exchange system in favour of a free-floating one.
The declaration has been followed by a depreciation of the exchange rate without precedent: on the 14th of June 2023, the CBN’s exchange rate was N464.5 for one dollar. A week later, on the 21st of June 2023, it was N708.2, which represents a loss of one-third of the currency value in one week.
The foreign exchange reform, which allows the naira to trade more freely, has led to the currency depreciating to N885.88 per dollar at the Nigerian Autonomous Foreign Exchange Market (NAFEM). At the same time, the black market rate was N1,200 as of Wednesday.
However, one immediate problem is that the free-floating of the naira has not improved the supply of fx: banks are still restricting the amount of foreign currency that their customers can withdraw from their accounts. Fx is still in short supply.
The crippling effect on the naira was better captured by the World Bank in one of its reports where it described the Nigerian currency as one of the worst-performing currencies in Africa.
It noted that the currency weakened by nearly 40 per cent against the US dollar since a mid-June devaluation.
Company’s Closure and Job Losses
The number of jobs lost in the manufacturing sector rose to the highest in three years for the first half of 2023, according to the Manufacturers Association of Nigeria (MAN).
In MAN’s latest half-yearly review report, the number increased by 108.7 per cent to 3,567 in H1 from 1,709 in the same period of 2022. It also grew by 31.7 per cent to 2,708 in H2 of last year.
The number of jobs created in the sector declined by 32.8 per cent to 6,428 from 9,559 in H1 2022.
“The decline in the number of jobs created in the sector during the period further highlighted the unfriendly business environment resulting from the hasty policies and residual effect of the currency redesign policy that led to the naira crunch,” MAN said.
According to the National president of the Association of Small Business Owners of Nigeria (ASBON), Femi Egbesola, about 25 per cent of manufacturing businesses “has gone under” this year because of the multiple challenges facing Micro, Small, and Medium Enterprises, particularly manufacturers.
Exit of Multinationals
In 2023, at least four multinational manufacturers have indicated plans to exit Nigeria. The companies include Unilever (home care and skin cleansing categories), GlaxoSmithKline, Procter & Gamble, and Sanofi. Jumia Food, a food-ordering platform, says it is stopping operations in Nigeria by December 31, 2023. Bolt Food had earlier taken the same decision. Last month, Equinor Nigeria Energy Company (ENEC), a Norwegian energy corporation, which holds a 53.85% ownership in oil mining lease (OML) 128, including a 20.21% stake in Agbami field operated by Chevron, divested from its Nigerian operations, after three-decade presence in the country’s energy market.
They blame challenged businesses or unconducive operating environments, especially foreign exchange unavailability, difficulty in repatriating their revenues, high cost of raw materials, insecurity, and general high cost of doing business.
Rising Inflation
In November 2023, the headline inflation rate increased to 28.20% relative to the October 2023 headline inflation rate which was 27.33%. In January 2023, the headline inflation rate rose to 21.82% compared to the December 2022 headline inflation rate which was 21.34%. The rising inflation rate and the attendant lending rates are the twin problems scaring away small-scale business promoters from bank loans.
Borrowing Spree
With the problem of dwindling revenue, Nigeria had to continue piling up debt to run the budget. For instance, the Debt Management Office put Nigeria’s total public debt at N87.38trillion at the end of the second quarter of 2023. The figure represents an increase of 75.29 per cent or N37.53trillion compared to N49.85trillion recorded at the end of March 2023.
The high borrowing cost and rising debt are hindering Nigeria’s ability to finance its development agenda. Increasing amounts of public revenue are allocated for debt servicing purposes. In 2022, an estimated 96% of the federal government’s revenue was allocated toward interest payments.
Crude Oil Production
Nigeria’s crude oil output rose to an all-time high of 1.35million barrels per day ((excluding condensates) in September 2023, as the country pumped its highest volume of crude oil so far since this year.
However, the issue of oil theft was an issue. A review of crude oil theft incident reports provided by the Nigerian National Petroleum Company Limited (NNPCL) between May and the second week of October 2023, said that it’s alarming to discover that there have been 4,145 recorded crude oil theft incidents. This staggering number highlights the severity of the issue at hand.
However, the preliminary 2023 average OPEC oil price stood at US$81.86. This denotes a decrease compared to the previous year when an energy supply shortage and sanctions on Russia saw prices reach a decade-high.
New CBN Governor
Also in the year under review, President Tinubu appointed Dr. Olayemi Cardoso as the new Central Bank Governor. His appointment, with four deputy governors, was later confirmed by the Senate. The deputy governors included Emem Nnana Usoro, Muhammad Sani Abdullahi Dattijo, Philip Ikeazor, and Bala M. Bello.
Analysts’ observation is that the new team is still trying to find its rhythm given the fact that some of the issues that preceded their appointments are still haunting their administration. For instance, the bank has not held any Monetary Policy Committee meeting since coming into power and analysts are worried about the implications of such delay.
