A Review of the Nigerian Energy Industry

Investors’ confidence in Nigeria economy nosedives

Nigerian enterprises
Nigerian enterprises

09 March 2015, Lagos – The recent devaluation of the Naira and mounting uncertainty surrounding the elections is already taking its toll on the economy as investors’ confidence in the economy’s performance has ebbed.

A survey conducted by Lagos Chamber of Commerce and Industry among private sector chief executives points to the fact that in the first three months of the year aggregate, Business Confidence Index (BCI) dropped from 30 per cent it posted in the last three months of 2014 to 22.3 per cent in the first quarter of this year.

The BCI survey, Financial Vanguard learned, covered 180 top business executives in 162 companies over the period, 6th – 23rd January, 2015. Only top decision makers — owners, MD/CEOs, directors and other top managers participated in the survey.

The drop in the level of local investors’ confidence in the economy represents 7.7 per cent slack of the confidence level among business operators over the last three months. According to the survey, this is the largest quarter-on-quarter point drop of the BCI score over the last three years. Conventionally, movement of the BCI score by up to five points indicates the presence of significant positive or adverse development in the country’s economic/business environment.

The drop of the BCI scores at this time suggests that business leaders are largely pessimistic about expanding their businesses and investment spending over the next few months. According to the survey result, the factors that mostly lowered the confidence level of business leaders at this time are heightened uncertainty surrounding the general elections, depressed crude oil price in the international market and the volatile exchange rate leading to significant depreciation of the local currency. Over the last few months, business managers and investors have faced heightened anxiety and commercial risks associated with political uncertainty in the country.

Unpredictable political developments have engendered uncertainty among economic agents, increased the risk profile of new contracts and distorted investment plans. Initial commercial plans and investment decisions across the economy have become very fragile, leading to less than optimal operations and delay tactics by companies pending when things will start to normalise.

It said that over the years, Nigeria’s BCI scores over continues to trail below the 50 per cent global business confidence threshold due to the lingering infrastructural and institutional shortcomings. The Q1-2015 BCI survey presented far reaching and very worrisome picture about the state of the economy triggered by profound political uncertainty and oil price fluctuations.

The survey said that operators in the oil and gas industry are mostly disturbed by the uncertainty surrounding delayed passage of the PIB coupled with the adverse developments in the global oil and gas market while the approval delay of the 2015 draft budget, influx and rising patronage of offshore consultants/advisers and political risks in the country were mostly the concern of players in the professional business services sector.

According to the report in the IT/Telecoms sector uncertainty relating to approval and contents of the 2015 budget, security challenges, regulatory issues and 2015 elections top the concerns of players in the IT/telecoms sector while declining patronage due to weak consumer demand, depreciation of the local currency (Naira), e-trade platforms and rising cost of goods/services gives lots of concern to traders

The report said “Business leaders in the financial services sector mentioned that macroeconomic fluctuations, flight to safety due to the general elections, downgrade of sovereign ratings by international rating agencies, policy uncertainty and exchange rate volatility.

According to the LCCI survey “The agricultural sector is mostly troubled by the continued challenges of access to and cost of credit, infrastructure shortcoming, weak agricultural-industry linkages, and transport and logistics constraints. It also said that Manufacturers, both the big players and SMEs, major challenges are 2015 general elections, cost and access to credit, rising cost of production, exchange rate fluctuation, influx of fake and substandard products, regulatory infractions and worsening public power supply. Hotel and Tourism Sector Operators on their part “confirmed that sharp drop in the number of events and conferences occasioned by election uncertainties, lower room occupancy rate and the recent emergence of new entrants into the sector were largely responsible for slower patronage recorded in the sector at this time. Building and Construction it was learned confirmed that election spending, delayed payment of contractors, weaker demand for real estate and increasing security challenges are issues that mostly affected their business and investing activities during the period.

BCI is a leading economic indicator designed to measure the degree of optimism on the state of the economy that business leaders are expressing through their activities of investing and spending. Decreasing business confidence is often a pointer to slowing economic activities because business owners are likely to decrease their investment. The more confident entrepreneurs and managers feel about the business environment, the more likely they are to make new investments, create job and impact the economy.
*Omoh Gabriel – Vanguard

In this article

Join the Conversation