The Centre for Promotion of Private Enterprise (CPPE) has said forex scarcity in the country has greatly endangered capacity to create new jobs and retain existing employment.
Invariably the centre noted that the sharp depreciation of the exchange rate and operation of the parallel market which is over 300% due to the scarcity at the official window has worsened the profitability of investments in the first half of the year 2022.
According to the founder and the Chief Executive Officer (CEO) of CPPE, Dr. Muda Yusuf, 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% as a result of the exchange rate crisis,” he said.
He noted that output have declined significantly in many industries because of the challenges of accessing raw materials due to the scarcity of foreign exchange, while many players in the economy now resort to the patronage of the parallel market at very prohibitive cost, as very little access exist on the official window.
He said, “The dysfunctional foreign exchange policy has negatively impacted Foreign Direct Investment, Foreign Portfolio Investment as well as other capital inflows into the country.
“The multiple exchange rates, and the huge parallel market premium in the forex market remain major downside risks to investment growth and attraction of foreign capital into the economy. This has continued to weaken the supply side of the foreign exchange market.”
Yusuf lamented that the inability of foreign investors to repatriate their profits and dividends as well as incomes have created considerable perception, reputational and country risk issues for the Nigerian economy.
“All of these have been responsible for the sharp decline in the capital importation in recent years,” he said.
He listed among others, high cost of production due to high import dependence of manufacturing sector for imported raw materials as implications
of the foreign exchange crisis for the investors
Others include, high operating costs across businesses in practically all sectors of the economy, low sales and turnover because of the increase in price and effect on demand and erosion of profit margins because not all the additional cost can be passed on to the consumers.
According to the CPPE boss, the Nigerian economy over the past six months was characterized by diverse economic vulnerabilities, which include the following unprecedented surge in energy prices which had a very huge adverse effect on economic players across all sectors, unprecedented level of currency depreciation and currency volatility, increasingly weak fiscal space, acute foreign exchange scarcity with very profound effects on investors across all sectors, rising public debt and debt service burden, worsening Security situation and elevated political risk as a result of political transition processes and activities.
Others were growing fuel subsidy burden, weak infrastructure, slump in investors’ confidence and depressed purchasing power.
“All these headwinds have had devastating effects on businesses in the first half of the year. However, the economy continues to demonstrate resilience amid all of these harsh investment environments,” he said.
He however stated that the biggest concerns of economic players in the first six months of the year was the high and increasing energy costs, “Investors across sectors in the economy are concerned about the high and increasing energy costs especially the cost of diesel which has gone up by over 300%, the cost of aviation fuel which has gone up by another 300%, the cost of gas which has increased by over 100%. The cost of PMS is still moderately tolerable because of the subsidy regime that is still currently being provided by government.”
On fiscal operations, Yusuf stated that the figures released by the Finance Minister, Mrs. Zainab Ahmed, during the presentation of the 2023-2025 Medium Term Expenditure Framework, painted a gloomy and disturbing picture of the state of government finances, suggesting that the government is on the brink of bankruptcy.