Following the recent slump in the country’s currency fuelled by volatility in oil prices at the international market, Chief Financial Officers in Nigeria are becoming pessimistic about future trends in the value of the naira.
A Deloitte survey of CFOs operating in the Nigerian market showed that 38 percent of respondents expect some depreciation in the currency, and a further 32 percent expect significant loss of value.
“Fifty-six percent of Nigerian and Ghanaian respondents rated currency volatility among the top five risk factors to their businesses”, said Michael Vincent, Advisory Leader for Deloitte West Africa in his report.
“This may be due to the fact that Nigeria and Ghana (although to a lesser extent) are heavily reliant on imports, despite the overwhelming abundance of natural resources in both countries”, the report further said.
The Central Bank moved the naira’s official peg to a midpoint of N168/$ from N155, by 8 percent, as falling oil prices continue to impact oil-related revenues. Oil accounts for 95 percent of Nigeria’s foreign exchange earnings.
The naira gained at the interbank on Wednesday as the Central Bank intervened in the market with a dollar auction, but closed outside its new target range.
External reserves fell to a six-month low of $36.7 billion, December 2, down 4.5 percent from its November levels.
The Deloitte report also stated that a majority of CFOs (41 percent) see cost of new financing as being very expensive.
The report further observed most CFOs in Nigeria are hoarding cash rather investing in business expansion like mergers and acquisitions, as opposed to companies in South and Eastern Africa, who are aggressively investing in improving their current operations and expansion.
“Most CFOs are not investing in growth and buyout companies in new markets,” said the report.
It was revealed that CFOs were increasingly concerned about regulations in their Industry, the financial health of their primary customers, competitiveness of the local market, and the availability and retention of talent
Despite the copious infrastructure deficits besetting Nigeria, the report sees the country attracting investors from other parts of the continent. Investors, especially from South Africa are looking to aggressively expand out of their home markets to deliver value to their shareholders, as the economic outlook in their home country remains grim.
“Nigeria is increasingly on the agenda of global companies, you are the largest economy in Africa,” said Vincent, adding that the country is an investment driver. “I don’t think you will wait so long before you see competition in your market”.
Some of the opportunities in the Nigeria economy are its burgeoning middle class, with rising disposable income and also its rising population that craves for consumption.
Additionally, the rapid urbanisation means the demand for building materials will increase further, consolidating the country’s upside position.
According to the United Nations, Nigeria’s urbaniation rate was estimated at 51 percent in 2012, which suggests that over 80 million people live in the cities. The UN estimates that this number is growing at an annual rate of 3.51 percent.
In the last rebasing exercise,Nigeria outleaped South Africa as the largest economy in Nigeria with an economy of $510 billion (N80.22 trillion).
BALA AUGIE & EDOZIE IFEBI
