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1. The Many Faces of Nigeria in 2023: Understanding the Economics of Change
2. Report Summary: 2023 Macro Economic Outlook - The Many Faces of Nigeria in 2023: Understanding the Economics of Change

In light of the numerous problems that the operations of Nigerian businesses were confronted with, the year 2022 was far from memorable. While quite a number of the challenges that characterized the business environment were peculiar to Nigeria most derived from the deterioration of the global economic condition with serious ramifications for Nigeria. Businesses were compelled to function in agonizing conditions, made worse by innate institutional inconsistencies, as the country fought to recover from the COVID-19 epidemic, which posed leadership and sustainability difficulties around the world. The Russian invasion of Ukraine when it began in February 2022 not only headlines for the humanitarian concern but because quickly it shifted the focus of business from COVID-19 recovery to sustainability considering the War's indirect consequences. Energy prices increased significantly because of the conflict, with Europe being particularly hard hit.

The breakdown in the global supply chains was further exacerbated by the conflict, endangering the viability of Nigerian businesses especially bakers and confectioners whose cost profile surged on the back of higher costs of flour, sugar, and wheat. Both MSMEs and large corporations continued to be concerned about how the conflict might affect the delivery of critical inputs commodities and energy. It did not help that the Black Grain Initiative which had allowed the exports of wheat, corn, and ammonia collapsed a couple of months after the agreement was signed. GDP grew by 2.97% in 9M 2022, but this is slower than the country’s population growth rate (3.5%), hence the decline in per capita income and lower purchasing power. Businesses, therefore, had to navigate a higher-cost environment while effective demand for discretionary items was declining on the back of higher poverty levels. Judging by important business data releases, 2022 was more challenging than the preceding year. While many more Nigerian businesses opted for privately provided power, the Average power generation (MWh/h) was 4.735 in 2022 as opposed to 4.559 in 2021.  In 2022 alone, the national power grid suffered eight collapses.

Businesses have had to spend billions of Naira for privately generated power in 2022. Diesel/AGO cost N288.09/litre in January 2022 up from N290/litre in December 2021. The price has since risen. As of December 2022, AGO sells for nearly N800/litre. Businesses had to revise their budgets following the variance between the expected and actual cost of fuel, thereby spending more than five times the amount originally budgeted. Without prejudice to the fact that the Federal government is confronted with arguably its worst fiscal challenge in history, the number of taxes levied on the revenue and profits of firms in recent years has been unprecedented. Businesses are required to pay over 50 various taxes, levies, and fees (both legally and illegally). These taxes included Company Income Tax, Stamp Duties, Petroleum Profit Tax, Capital Gains Tax, Value-Added Tax, Personal Income Tax, Withholding Tax, Tertiary Education Tax, One Percent of Payroll Contribution to NSITF, Ten Percent of Payroll Contribution to National Pension Commission, ITF, Levy, National Information Development Levy, Cabotage Levy, Radio and TV Licenses, Police Special Trust Fund Tax Levy, Niger, and One Percent of Payroll. A Mass Exodus of Professionals was witnessed in 2022. Businesses struggled to replace the large number of skilled workers ranging from Doctors, Nurses, Tech experts, and Data Analysts who migrated abroad in search of greener pastures in the year. Companies offered higher remuneration to encourage the remnants staff to stay but, in some cases, companies shut down sections as they could not staff segments of their operations. Also in 2022, Legacy issues related to the ease of doing business persisted. The activity of non-state actors, long dwell time at the ports, difficulty in obtaining licenses and permits, inability to enforce contracts, and lack of critical infrastructure all continued to play out in 2022 (see illustration 13 below).

Illustration 13: CHALLENGES NIGERIAN BUSINESSES FACED IN 2022

Our base case forecast suggests that, in 2023, a variety of factors would be critical in determining the outcome of large and small businesses. First, we believe that while energy and commodity prices may moderate slightly this year, the continued depreciation of the Naira would imply high domestic inflation, with our inflation forecasts showing that the overall CPI growth would come in at 18.6% FY 2023 only slightly lower than the 18.77% FY 2022 firms would continue to cope with the high-cost environment. The likely return to monetary policy neutrality later in the year would also be a risk factor for Nigerian businesses this year. Overall, depressed domestic demand would force businesses to review their offerings to separate segments of their respective markets.

Higher taxes and interest rates would affect the industrial sector and other interest rate-sensitive sectors. Higher cost of electricity would also imply slower growth and slight moderation in inflation. The removal of the subsidy would result in higher pump prices, which could affect Transporters, but we expect that they would pass the same on to passengers. While the devaluation of the Naira would also affect the price of inputs, without any significant improvement in the situation at the ports supply bottlenecks that induce shocks would persist. The Financial sector would however record decent growth on the back of higher interest income as well as interest-related tax concessions. The Agricultural sector would suffer from the flash floods which occurred last year as well as the extant insecurity risks. 

Interest rates are expected to remain high in 2023 and this means that access to finance would be few and far in between. It also would not help that the Federal Government (FG) has elaborate domestic borrowing plans for this fiscal year. The Federal Government looks to borrow N7.04trn by issuing Bonds and Treasury Bills. This Analysts believe would crowd out private-sector borrowing. New commercial paper (CP) issuances would have to be made at higher coupon rates. Last year, the issuance of CPs improved because of the need of many companies to recapitalize and expand their operations, and CPs were preferred by corporate borrowers over traditional bank credit due to their lower cost.

The foreign reserves are expected to flatline in 2023, with the expected commencement of the Dangote refinery, the demand pressure on the reserves would be less but on the flip side, an increase in crude oil production would also bring about an accretion to the reserves but if NNPC remittances to the CBN continue to falter, the reserves may not see any appreciation this year.

Nigeria’s Finance Bill, 2022 proposes new excise duties applicable to Telecommunications and other services.  Import duties of 0.5% are to be imposed on all eligible goods imported, while gains made in the form of convertible currencies would now be fully chargeable to Corporate Income Tax (CIT).  These new levies and taxes would imply the earnings of many Nigerian companies in 2023. Clever business owners would find ways to reduce their companies’ taxable income to pay out less in form of taxes. 

The weeks and months that follow the election would be critical. In that period, a freely and fairly contested election would have produced a winner who may not be popular in sections of the country’s population. Such post-election conflicts as were recorded in Brazil and other emerging economies could affect the Nigerian economy in H1 2022. On the flip side, however, the businesses that have held back new investment till a new government is inaugurated would also be motivated by the election of a President whose policies and programs they consider to be friendly.

With the increasing demand for migrant workers in the United Kingdom, Canada, and other developed economies, Nigerian businesses could be challenged in 2023 with the retention of talent. This is without prejudice to the rising cost of living in the said countries. Analysts say that the pay differential and living conditions would continue to motivate young Nigerians to seek opportunities globally.  Organizations would increase staff salaries to close the wage gap with the global average (see illustration 14 below).

Illustration 14: VULNERABILITIES OF NIGERIAN BUSINESSES IN 2023