Chamber explains drop in business confidence index
THE Lagos Chamber of Commerce and Industry (LCCI) has attributed the continued drop in the confidence level of business leaders and investors in the nation’s economy to heightened uncertainty surrounding the 2015 general elections, depressed crude oil price in the international market and the volatile exchange rate leading to significant depreciation of the local currency.
According to the chamber in its latest Business Confidence Index (BCI) report, activities in the nation’s economy within the last three months have been overshadowed by heightened anxiety and commercial risks associated to the political uncertainty in the country.
Specifically, the growing concerns have been revealed in the decline of 7.7 per cent in the aggregate Business Confidence Index (BCI) from 30 per cent in the last quarter of 2014 to 22.3 per cent within the last three months.
“Unpredictable political developments has engendered uncertainty among economic agents, increased the risk profile of new contracts and distorted investment plans. Initial commercial plans and investment decisions across the economy have become very fragile leading to less than optimal operations and delay tactics by companies pending when things will start to normalise.
“Over the years, Nigeria’s BCI scores over continues to trail below the 50% global business confidence threshold due to the lingering infrastructural and institutional shortcomings. The Q1-2015 BCI survey presented far reaching and very worrisome picture about the state of the economy triggered by profound political uncertainty and oil price fluctuations”, the report showed.
According to the chamber, the decline in the index is the largest quarter on quarter point drop of the BCI score over the last three years, adding that conventionally, movement of the BCI score by up to five points indicates the presence of significant positive or adverse development in the country’s economic/business environment.
The chamber noted that the drop of the BCI scores at this time suggests that business leaders are largely pessimistic about expanding their business and investment spending over the next few months.
Activities within the sectors showed that the agricultural sector is mostly troubled by the continued challenges of access to and cost of credit, infrastructure shortcoming, weak agricultural-industry linkages, transport and logistics constraints, while manufacturers (both the big players and SMEs) remain challenged by the 2015 general elections, cost and access to credit, rising cost of production, exchange rate fluctuation, influx of fake and substandard products, regulatory infractions and worsening public power supply.
Similarly, other key sectors suffer from declining patronage due to weak consumer demand, depreciation of the local currency (Naira), e-trade platforms, rising cost of goods/services,
macroeconomic fluctuations, flight to safety due to the general elections, downgrade of sovereign ratings by international rating agencies, policy uncertainty and exchange rate volatility.
The chamber explained that decreasing business confidence is often a pointer to slowing economic activities because business owners are likely to decrease their investment.
According to the LCCI, the more confident entrepreneurs and managers feel about the business environment, the more likely they are to make new investments, create job and impact the economy.
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