The Nigerian economic landscape is a paradox. Despite being rich in human and material resources, people and businesses continue to face multiple challenges, even as key economic metrics continue to decline.
In the past year, around eight top multinational companies across various sectors have either exited the country or announced their intentions to leave.
Given the current strain across sectors, particularly the recurrent financial losses that telcos have suffered since last year and their outcry for government support, one wonders what the consequences would be for the already strained economy if such companies were to throw in the towel.
The economy operates as a middle-income, mixed economy, and an emerging market. It has an extensive range of sectors including manufacturing, financial services, communications, technology, and entertainment, all of which contribute to its status as the 32nd-largest economy in the world in terms of nominal GDP.
Although it now stands as the fourth-largest economy in Africa, it continues to play a significant role in providing goods and services for the entire West African region.
Nigeria, ranking 14th globally in oil production, is rich in other natural resources, which makes it attractive for potential investors looking to explore this largely untapped market.
The investments are crucial for the economy’s vitality, emphasizing the need for continued investment if the returns on these investments are desired. Yet, despite these assets and potentials, Nigeriaâs economy is in distress.
Businesses are struggling. This is evident in the alarming number of companies withdrawing from the country.
These exits are symptomatic of deeper economic issues. The inflation rate in Nigeria has skyrocketed to its highest level in years, marking a significant economic challenge for the country. With an inflation rate of 33.95%, an interest rate of 26.25%, and persistent foreign exchange challenges, the business environment in Nigeria is becoming increasingly untenable.
This surge in inflation has been accompanied by a substantial depreciation of the naira, which has reached unprecedented lows, primarily due to acute shortages of the US dollar. These economic pressures not only affect businesses but also have severe consequences for the broader Nigerian economy and its people.
As a result of these challenges, the prices of essential goods and services have experienced a sharp increase, impacting the daily lives of Nigerian citizens. Necessities such as food, cooking gas, medicines, fuel, and public transportation have become notably more expensive, placing considerable strain on household budgets and causing financial distress for many.
The situation has been exacerbated by Nigeria’s heavy reliance on imported food and fuel, which has made the country especially vulnerable to the soaring global prices resulting from the Russia-Ukraine conflict.
These economic difficulties emerged just as Nigeria began recovering from a recession induced by the COVID-19 pandemic in 2020, posing additional obstacles to its economic revival.
As highlighted in the 2023 State of Enterprise (SoE) report, Nigerian entrepreneurs are facing severe challenges. These challenges include high operational costs resulting from foreign exchange, fuel shortages, the removal of fuel subsidies, exchange rate reforms, unreliable electricity supply and a decline in the perception of opportunities.
This decline is reflected in the reduced score of 0.64, down from 0.80 in 2022, indicating a notable shift in business optimism. Despite businesses remaining optimistic about the future, the decline in the perception of opportunities reflects a less hopeful outlook compared to the previous year.
Additionally, the enabling business environment pillar again received the lowest score of 0.36, suggesting the growing complexities of conducting business in Nigeria.
According to the Manufacturers Association of Nigeria (MAN), the increased electricity tariffs have resulted in the closure of over 300 companies and the loss of 380,000 jobs within just two monthsââ.
The tariff hike, which saw rates jump from N68 to N225 per kilowatt-hour for certain customer bands, has significantly increased operational costs for businesses, leading to widespread closures and job lossesââ.
The governmentâs economic policies, particularly the removal of electricity subsidies and the hike in foreign exchange rates, have played a significant role in these developments.
