PwC Nigeria’s financial analysts predicted that the effects of the government’s most recent economic changes will result in increased business expenses and decreased revenue for Nigerian companies.
Nairametrics reported that the analysts who made this claim in a paper titled “Nigeria Economic Outlook” claimed that the medium-term real economic growth may be slowed by ongoing inflationary growth and increase in the cost of living.
“Consumer spending may be negatively impacted by the high inflation rate (food inflation of 25.3% and core inflation of 20.3%) as well as the high price of fuel (which increased by 140% when subsidies were removed).
“The immediate impact of input costs and a loss in discretionary income are the major reasons why business revenues could fall in disposable incomes.”
The report stated that the cost increases for transportation, food, energy, and imports could reduce consumer spending on non-discretionary items.
The paper also claimed that long-term capital inflows might be increased and foreign investments attracted gradually as a result of economic reforms including the opening of the FX market.
A rise in inflation, it continued, is likely to result in lower real rates or returns on investments.
According to the report, rising prices for imports, transportation, food, and energy could reduce consumer spending on non-discretionary items.
High FX rates could raise manufacturing costs and have a detrimental effect on a company’s profitability.
Short-term business revenue declines may be caused mostly by the direct effects of rising input costs and declining disposable incomes.
Concerns about insecurity and the consequences of climate change in the nation’s food-producing regions contributed to a 25% increase in food inflation in June compared to the same month last year.
Due to the rising energy prices, transport costs also climbed by 25% over the previous year.
According to the research, structural issues and currency devaluation were the main causes of other inflation in important categories such as apparel and footwear, home furnishings, housing, and utilities.
The research stated that the cost of imported raw materials is anticipated to increase due to the naira’s floating rate and that since the policy’s adoption, the naira value has fluctuated between N472- N771/$ from an average of N463/$ in May before the policy announcement.
“Although this may have a negative effect, in the near future, it may encourage corporations to investigate local sourcing or backward integration.
The general price increase brought on by the elimination of subsidies may have an impact on other SG&A costs like marketing, logistics, utilities, etc.
Due to the 25 basis point increase in the MPR rate to 18.5% in July 2023, borrowing costs (in Naira) may continue to be high.
“Finance expenses will rise as a result of higher interest payments from exposure to loans denominated in foreign currencies and exchange rate losses. The currency devaluation is to blame for these losses,” according to the paper.
“Adjust pricing and pack architecture to cater to shifting consumer habits using Revenue Growth Management analysis, adapt products to accommodate changing demand dynamics by substituting expensive raw materials, use 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.”
