A new report by Pricewaterhouse Coopers Nigeria (PwC) says there are likely to be more difficulties for Nigerians due to the removal of fuel subsidy and floating of the foreign exchange market by the federal government.
In its Nigeria Economic Outlook report for August 2023, the professional services conglomerate stated that Nigeria’s business environment would be tough as a result of higher costs of operation and lower revenue as the impact of fuel subsidy removal and floating of the forex market takes a toll on consumer spending.
“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), the report said.
“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.”
The report further stated that it impacts other sectors of the economy as transportation costs are expected to rise just as the floating of the naira will drive up the costs of imported raw materials.
“Finance costs [are] to increase due to exchange rate losses from higher interest payments incurred on exposure to foreign currency denominated loans,” the report said. “These losses are on account of the currency devaluation.”
PwC noted that although the increases may have a negative impact, they could provide incentives to corporates to explore local sourcing or backward integration in the medium term.
The report said that economic reforms, including FX market liberalization, have the potential to attract foreign investments and drive capital inflows in the long term.
“However, in the short run, investors may take a cautious “wait-and-see” stance, possibly due to the lack of additional reforms aimed at bolstering business and economic fundamentals” adding that “an increase in inflation could lead to a reduction in real yields or returns on investments.”
