Lack of access to foreign exchange and the continued depreciation of the naira have increased the cost of operations for businesses including the Information and Technology companies, according to economic experts.
They said the development had made the cost of production to rise by 30 – 100 per cent.
According to experts at the Centre for the Promotion of Private Enterprise, output has declined significantly in many industries because of challenges accessing raw materials due to the scarcity of foreign exchange, with many players restoring the patronage of the parallel market to run their businesses.
In its Half Year Economic Review, signed by its founder and Chief Executive Officer, Dr Muda Yusuf, the center said, “Many businesses have suffered serious dislocations as a consequence of foreign exchange liquidity challenges, volatility, and the depreciation of the currency.
“These have severely affected businesses across all sectors of the economy. Costs of operation and production have gone up from between 30-100 per cent as a result of the exchange rate crisis. Output has declined significantly in many industries because of the challenges of accessing raw materials due to the scarcity of foreign exchange.
“Many players in the economy now resort to the patronage of the parallel market at very prohibitive cost, at very little access exist on the official window. The sharp depreciation of the exchange rate and the parallel market which is over 300 per cent has worsened the profitability of investments. The capacity to retain employment and the capacity to create new jobs have been greatly endangered because of the foreign exchange crisis.”
It added that the uncertainty around foreign exchange policy has negatively impacted Foreign Direct Investment, Foreign Portfolio Investment as well as other capital inflows into the country.
It stated that the multiple exchange rates and the huge parallel market premium in the forex market are a downside risk to investment growth and attraction of foreign capital into the economy.
According to the centre, foreign investors are currently struggling to repatriate their profits, dividends, and income away from the nation which is also affecting investors’ perception, and reputational and nation risk issues.
Speaking on inflation, it said exchange rate depreciation, high energy cost, increasing financing of the deficit by the Central Bank of Nigeria, the problem of insecurity which is affecting agricultural production, and high cost of logistics are increasing inflation in the nation which increased to 18.6 per cent in June.
It explained that this increasing inflation is taking a toll on businesses, increasing production costs, elevating operating costs across sectors, reducing profit margins, and reducing turnover and sales for businesses.
Speaking about the fiscal future of the nation, the centre said, “Debt service to revenue ratio for the first four months of the current year is over 100 per cent.
“The implication of this is that the actual revenue of government over the period is not sufficient to service debt. Therefore, financing of the operations of government – personnel cost, overhead cost, capital expenditure and even part of the servicing of the debt will have to come from additional borrowing. These portends severe vulnerabilities for the Nigerian economy.
“The fiscal outlook is clouded by elevated downside risks in the near term, driven largely by the huge burden of financing petrol subsidy, fiscal leakages, and unsustainable public debt trajectory. The outlook poses significant risks to macroeconomic stability amid heightened inflationary pressures, depreciating currency and increasing exchange rate volatility.”