Leading private sector organisations in Nigeria have charted a roadmap for economic growth in the new year, following the various challenges that constrained businesses’ productivity and growth rate in 2024.
They have, however, asked business owners to brace up for more economic headwinds in 2025, even as the government has promised a business-friendly ecosystem in the coming year.
In separate interactions with Vanguard, the Nigerian Association of Chambers of Commerce Industry Mines and Agriculture (NACCIMA), Manufacturers Association of Nigeria (MAN), Lagos Chamber of Commerce and Industry (LCCI) and Association of Small Business Owners of Nigeria (ASBON) emphasised the need for the government to embark on urgent reforms to address the challenges of the private sector in the new year.
All through the outgoing year, Nigerian businesses contended with high cost of production and declining demands accentuated by poor infrastructure, lack of access to funds or high lending rates, fuel subsidy removal, naira devaluation, increase in electricity tariff, galloping inflation, and shrinking profit margin, amongst others.
The uncertain macroeconomic environment also weakened the investment climate, deterring both local and foreign investments. Persistent high inflation further threatened economic growth by diminishing the competitiveness of domestic industries and stifling expansion.
Inadequate supply and high energy costs emerged as critical obstacles for businesses in the year, with many firms resorting to expensive alternative energy sources to sustain operations amid soaring fuel prices.
Foreign exchange (FX) volatility also drove up import costs, further tightening profit margins and complicating pricing strategies.
High borrowing costs occasioned by continuous hike in the Monetary Policy Rate (MPR) by the Central Bank of Nigeria (CBN) during the year further limited expansion opportunities, especially for manufacturers.
Constrained output
Reflecting the impact of these challenges, the Purchasing Managers Index, PIM report of the CBN indicated contraction in business activities in seven months between January and November.
A PMI reading of above 50 index points indicate expansion while below 50 points indicate contraction.
Also reflecting the impact of the above challenges on businesses, the Manufacturing sector recorded declining growth. According to data from the National Bureau of Statistics, NBS, the growth rate of the manufacturing sector declined to 0.92% in the third quarter, from 1.2% in Q2’24 and 1.49% in Q1’24.
Low confidence in economy
Consequently, business confidence in the economy was negative or low for most part of the year. According to the Business Expectation survey of the CBN, the Business Confidence Index deteriorated from -14.3 index points in January to -33.6 in March. It improved to 21.9 points in April but declined steadily to 0.1 index points in July, before improving to 3.1 points in November.
These challenges, according to analysts, eroded profitability and limited the capacity of businesses to expand.
The country’s real sector struggled with productivity. While the country’s entertainment, telecommunications, and service sectors have shown signs of strong and sustained growth, the manufacturing sector has performed poorly.
The manufacturing sector’s productivity gap is attributed to high import costs, high foreign exchange dependency, low domestication of heavy technology, and high local operating expenses.
Multinationals’ continuous exit
About five notable multinational companies exited Nigeria in 2024, a development attributed to the country’s economic challenges, particularly the declining value of the naira, acute inflation and prohibitive interest rates, and declining consumer purchasing power.
Although small and medium-scale businesses are the most hit by the country’s harsh economic climate, big multinational companies are not spared.
The multinationals that exited Nigeria in 2024 include: Kimberly-Clark (K-C), global giant in marketing of personal care products; Pick n Pay, South African retail company, exited Nigeria after selling its 51% stake in a joint venture with A.G. Leventis; Diageo, a global company in the alcoholic beverages sector, announced its decision to exit Nigeria by selling its 58.02% stake in Guinness Nigeria Plc to Singaporean Tolaram Group; and Holcim, a Swiss building materials giant, which also exited Nigeria in the year after selling its 83.81% stake in Lafarge Africa PLC to Huaxin Cement Co., a Chinese company.
Analysts warn that continuous hike of the monetary policy rates and squeezing banks’ cash reserve ratios will merely choke off private-sector credit and pummel industrial growth.
Major changes needed – MAN
Director General MAN, Segun Ajayi-Kadir, said major changes are needed to stimulate growth in the manufacturing sector, noting that the full implementation of fiscal policy and tax reforms, currently before the National Assembly, is critical to the changes.
He also emphasised the need for CBN to stabilise interest rates and redeem the N2.4 billion forex forwards owed to manufacturers.
“We also look forward to the expansion of the credit facility of the government. The N75 billion that has been disbursed is a start, but we are looking forward to the N1 trillion promised in the stabilisation plan, which should help cushion the impact of access to credit,” he stated.
Ajayi-Kadir noted that the strategy of raising the MPR had persisted for nearly two years without yielding positive results, hence the need for CBN to explore alternative measures to address the underlying causes of inflation, primarily cost-push factors.
He urged the government to adopt measures to tackle inflation, particularly by addressing logistics costs, and to ensure better synergy between fiscal and monetary policies to promote sustainable growth.
“There is the need for a careful evaluation of the effects of these monetary policy actions on both the manufacturing sector and the broader economy.
“Achieving a delicate equilibrium between addressing macroeconomic challenges and fostering the growth and resilience of the manufacturing industry is crucial,” he added.
Most challenging year for MSMEs
President of ASBON, Dr Femi Egbesola, said 2024 seems to be the most challenging year in recent times for micro, small and medium enterprises (MSMEs).
“While we were still grappling with the effects of fuel subsidy removal, floating of the Naira and many others in 2023, 2024 came with many more death dealing blows for the MSME ecosystem.
“This year, we had hyperinflation, hike in electricity tariff and other government levies, electronic money transfer bank charges, increase in fuel price, free fall of Naira, high interest rates due to increase in MPR, and many more, resulting in the ailing and eventual death of a number of businesses.
“In the midst of this, towards the end of this year was the release of the long awaited federal government intervention fund, the proposed national tax bill and a pocket of other interventions, bringing some succour and relief to small businesses,” he stated.
Egbesola, however, said: “Even in the middle of all of this, we are very hopeful of a better and brighter future, starting from 2025.
“We eagerly look forward to stronger collaboration with the government, particularly in areas of policy making and reforms relating to MSMEs.”
Private, public sector collaboration imperative
LCCI President, Gabriel Idahosa, emphasised the need for collaboration between the private and public sectors to ensure growth.
His words: “Businesses must embrace innovation, digital transformation, and sustainability as growth strategies, while collaboration between the private and public sectors is critical to overcoming challenges and attracting investment. We need investments in the telecoms sector to drive the desired digital revolution, oil and gas investments to boost crude production levels, and the power sector to enhance power generation to support economic activities.
“We expect to see some ease in fuel prices in the first quarter as the price wars continue and a possible easing in interest rates in the second quarter of 2025.”
Idahosa added that inflation is expected to ease as monetary policies take effect, with trade, agriculture, and manufacturing poised to drive job creation.
On her part, Director General of LCCI, Dr Chinyere Almona, lamented that the persistent rise in the inflation rate continues to fuel a tense business environment as elevated prices constrain various business operations.
Her words: “With the persistent and unabated rise in inflation, businesses should prepare for more stress from the burden of higher interest rates as we enter the New Year.
“With the raging inflation rate, the unsuccessful attempt of CBN to reduce the currency in circulation, and approaching a high-spending festive period, we are set to contend with even higher interest rates as the expected outcome from the next decisions by the MPC of the apex bank.”
Almona,however, envisages that the implementation of ongoing reform measures will lead to a boost in production in the coming year.
“While we are all confronted with a weak impact of interest rates on curbing inflation, we see a better performance of the reform measures implemented to boost production. Hopefully, we may see more of the impact of these measures on fundamental indicators like inflation, interest rates, and exchange rates.
“We believe the ongoing reforms have the potential to pull through critical deliverables for the economy to return to a growth path and achieve positive levels of the critical economic indicators if sustained,” she stated.
Urgent reforms required to tackle challenges – NACCIMA
Commenting, President of NACCIMA Dele Oye, said the 2024 economic performance was unsatisfactory for the private sector, calling for economic reforms to address imbalances threatening the private sector in the country.
In a statement, Oye noted that all data, metrics and statistics have confirmed that the Nigerian private sector bore fully, the negative burdens of the nation’s current economic reforms, facing very harsh conditions, including high inflation, increased borrowing costs, and currency devaluation.
Oye, who emphasized the urgent need for reforms to avert further economic strain on the private sector as the New Year begins, noted that Nigeria is a country with huge potential, innovative private sector minds, capital and opportunities, and deserves a listening economic team and team players who must recognize the private sector as stakeholders.
His words: “We should agree that the 2024 economic performance was unsatisfactory for the private sector. All data, metrics and consequent statistics confirm that the Nigerian private sector has borne fully, the negative burdens of the current economic reforms.
“While in contrast, the Nigerian Public sector continues to thrive and expand. All economic benefits of the recent economic reforms have been translated to the public sector through high capital transfers and revenues. The private sector faced higher inflation, higher cost of borrowing/repayment for existing loans, the $2.4 billion CBN unpaid forwards, currency devaluation and higher costs in all sectors of the economy.
“This continued imbalance caused by increased public sector expenditure has destroyed value in the private sector due to excessive fiscal deficits which are financed through government borrowing at very high unsustainable interest rates. We are, therefore, making recommendations and suggestions that may be considered in the short to medium term.”
He continued: “Fiscal deficits arise when public sector expenditure exceeds public sector income. The funding of these fiscal deficits through borrowing results in high interest rates and high inflation.
“The solution to high interest rates and high inflation is for the public sector to spend less and to start becoming an efficient productive unit. “We also need to debunk the myth of the government earning more revenue under the pretext of improved productivity. For the avoidance of doubt, payment of customs duties and taxation are not due to improved government productivity.
“These revenues are purely private sector revenues which constitute a transfer of wealth and capital from the productive private sector to an ever-expanding unproductive public sector. The public sector does not own factories nor does it produce any goods and services sold to the customers. Rather it extracts value from the citizens through regulatory fiat. Awarding contracts is not the same as enhancing production.”
FG pledges impactful 2025 for businesses
In the meantime, Minister of Industry Trade and Investment, Dr Jumoke Oduwole, has promised an impactful year for businesses in the country in 2025.
She stated this during a ministerial engagement with members of the National Association of Chambers of Commerce Industry Mines and Agriculture (NACCIMA) in Lagos.
The minister commended the commitment of the private sector to the Nigerian economy over the years.
“We are here to assure you that we are going to work very well together.
2025 has to be an impactful year – a very important year for Nigeria.
“We want to commend your work and your resilience all through 2024 and before,” she said.
Oduwole emphasised that communication and collaboration are what make things work.
“The ministry is here for you, to have a substantive discussion and to include you in the strategic thinking and agenda setting for 2025.
“I promise you that in 2025, one by one, we are going to work on all the issues that you have raised and we are going have actionable and measurable steps.
“NACCIMA is mentioned by name in my mandate as Minister of Industry, Trade and Investment to underscore how seriously President Bola Tinubu takes your matter,” she added.