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HomeBusinessNigerian businesses going through extracting pains, says Rewane

Nigerian businesses going through extracting pains, says Rewane

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Nigerian businesses are presently going through extracting pains due to the worsening state of insecurity as well as structural difficulties, according to Managing Director, Financial Derivatives Company Limited (FDC), Bismarck Rewane.

Rewane, who is also a member of the presidential’s Economic Advisory Council (EAC), said that the spate of insecurity in the country was tapering prospective foreign direct investments (FDI) inflows.

FDIs in Nigeria dipped to a 5-year low by 32.14 per cent to $698.8 million in 2021.
“Political uncertainties making investors tread cautiously. Capital imports dominated by hot money (Foreign Portfolio Investments are 50.6 per cent of total capital imports),” he added.

He pointed out that businesses are gasping under energy cost (diesel, etc.) spike, rise in logistics costs, rise in the cost of importing raw material and capital goods, multiple taxation, new taxes introduced, shortage in forex supply and parallel rate hikes; investment drag due to rising uncertainties, kidnapping, banditry, protests, secessionists agitations; supply chain disruptions, infrastructural decays, tax inefficiencies, forex hassles, among other structural difficulties.

He noted that insecurity was now the main focus of the political debate in Nigeria, saying that failure to contain the insurgency has taken the wind out of the sails of the ruling All Progressives Congress (APC).

“After a well-managed convention, the APC is on a slippery slope. the president is attempting to take a grip; time is eluding the administration and desperate times may call for desperate measures

“The president may have no choice but to clear the cupboard. Too many cabinet members and policymakers are conflicted, eroding the credibility of the administration. The next item on the political agenda is multi-dimensional poverty.

“Poverty is concentrated and worsening in the north-east and north-west zones. The state government finances are dwindling and debts are rising. The APC governors are split into incongruous camps.

“The primaries are almost bound to zone the presidential ticket to the south, therein lies the problem as it is easier to get 50 files into a matchbox than to get the southern groups to agree on a candidate and zone.

“The Peoples Democratic Party (PDP) is also mired in internal squabbles and it is almost certain that the PDP will zone their presidency to the north,” he added.

According to the economist, the state of insecurity in the country had already compounded fear as well as the country’s economic woes. He pointed out that insecurity which used to be a major challenge in the north-eastern part of the country has now shifted to the north-west.

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“Deteriorating social conditions leading to high insecurity and crime rates, kidnapping and ransom; Bus Rapid Transports (BRTs) and commercial vehicles are unsafe; train bombings now a reality, and Boko haram activities spreading to central Nigeria,” he stated.

Furthermore, Rewane noted the country’s low-interest rates amid rising inflation widening negative real rates of return.

‘Investors are sceptical as debt level climbs. Total public debt up 20 per cent to N39.56 trillion in 2021 from N32.92 trillion in 2020. The federal government is still cash strapped despite the increase in oil prices.

“Oil production suboptimal leading to capping impact of higher oil prices. Swap deals also tapering oil revenue. Tax revenues slowing on hostile business environment. The Federation Account Allocation Committee (FAAC) disbursements are down by 10.67 per cent to N621.68 billion in the first quarter of 2022 from N695.94 billion in the fourth quarter of 2021.

“Subsidy payments are adding to revenue challenges and the Nigerian National Petroleum Company continues to maintain monthly deductions from FAAC remittance,” he added.
According to Rewane, negative real rate of return was widening as inflation rises amid steep decline in treasury bills.

Owing to this, he stated that there would be dis-savings as the negative real rate of return increases.
He predicted that the Central Bank of Nigeria was likely to adopt a tighter monetary policy stance to contain inflation and would most likely push up lending rates.

“Inflation eroding the real value of minimum wage. Household income further depressed. Nigerian consumers are pushed to the wall. Nigerians are now buying less in quantity and lower quality.

“Real income of fixed income earners fall in the face of rising price level. Real Income rapidly eroding with salary cuts and layoffs imminent. Nigeria still the poverty capital of the world as over 40 per cent of total population live in extreme poverty and four in every 10 Nigerians live below a dollar per day (World Bank).

“Unemployment: 33.3% as of fourth quarter 2020. Nigeria is still the fourth highest unemployment rate in the world after South Africa, Angola and Namibia. Youth unemployment at 45.3 per cent despite a median age of 18.7 years. Graduates predominantly in the informal sector.

“Misery Index: 49 per cent: Inflation and unemployment worsening misery levels. Public outrage beginning to manifest. All economic agents currently feeling the revenue squeeze. Life Expectancy: 55.8 years – Death toll rising on bad living conditions and insecurity. Dilapidated health care system and sharp rise in brain drain increasing mortality rates,” he stated.

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