‘Decline in merchandise trade, a reflection of deteriorating business environment’
18 September 2024 |
2:15 am
Stakeholders across the real sector have lamented the worsening business environment, saying that the decline in total merchandise trade in Q2 2024, compared to Q1, does not come as a surprise in light of current realities.
Stakeholders across the real sector have lamented the worsening business environment, saying that the decline in total merchandise trade in Q2 2024, compared to Q1, does not come as a surprise in light of current realities.
They added that amongst other factors, local trade and volume sales have dropped significantly, forcing multinationals and investors to exit the economy and indigenous businesses to pack up. They added that this has no doubt affected import and export.
It should be recalled that the National Bureau of Statistics (NBS), in its recent foreign trade in goods statistics for Q2 2024, put Nigeria’s total merchandise trade at N31.90 trillion in Q2 2024 representing a decrease of 3.76 per cent over the value recorded in Q1.
Speaking on this decline, President of the Association of Small Business Owners in Nigeria (ASBON), Femi Egbesola, pointed out that trade volumes for Q3 and Q4 would drop even more, as disposable income and purchasing power of most Nigerians have disappeared. He said income is directly linked with trade as when people have money, they can buy and sell.
However, he said since income has waned, the ability to trade and make sales has waned also. “Also, it must be noted that while sales have dropped, the cost of doing business keeps going up; so, a company that was producing 500 cartons in Q1 for instance, is now producing maybe 100 cartons; this will definitely result in low trade.”
He added that investors have also lost confidence in the Nigerian economy, mostly due to the unstable Naira, saying that businesses thrive when money is pumped into it and they make sales in return.
“Interest rate is through the roof, MPR keeps going up and it is impossible to borrow money from the banks because it is not viable. All these factors have slowed down trade significantly. Also, consumers have reduced their wants, purchasing only basic needs. Households are prioritising what they buy, reducing purchases to the barest minimum; this makes manufactured goods suffer. Imports are reducing as well because the purchasing power to buy anything is no longer there. Manufacturers are finding it hard to sell locally and too many obstacles prevent them from even exporting regionally and internationally; it is a desperate situation right now for Nigerians and local businesses,” he said.
Economist and investment specialist, Dr Vincent Nwani, supporting Egbesola said this is a tough period for businesses and the situation does not look reassuring in any way. “Look at the top 10 non-oil export contributors to the economy, including Olam and BAT, you would see that their export numbers have dropped significantly year to date. BAT has practically relocated all their operations, including their Human Resources, to South Africa. Just like many multinationals have done in the last two years. They have completely scaled down and are operating skeletally in Nigeria. They have not announced their exit yet, but it will be confirmed soon.
“This is a clear sign of the huge problems in the economy that we have been crying out for the government to pay attention to. Unilever, Nestle and PZ are still in Nigeria but have all scaled down operations and moved their export arms out of the country. This is a direct impact of the tough business environment in the country that has forced many multinationals out and led to the closure of thousands of local businesses. Those with export potential have scaled down and this would become more evident by year-end.
“When these companies were leaving, including the many more that would soon leave but have not just announced yet, they mentioned the reason for doing so and the top three reasons are insecurity/kidnapping, dearth of infrastructure and total crisis in the FX market/currency volatility. Recently, an energy crisis has joined the mix, how would businesses produce or even export in these circumstances? Our business environment has seen more heat in the last 18 months compared to what it used to be. The business environment needs to be cleaned up urgently as well as the macroeconomic crisis, led by inflation and FX issues. Insecurity, safety of goods and lives and kidnapping must be addressed urgently and total infrastructure overhaul must be carried out,” he said.
On his part, Chief Executive Officer (CEO), Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, affirmed that the value of trade has dropped significantly, “because when you factor in the real value of money, looking beyond the nominal figures and discount for inflation, it is clear there has been a contraction in the value of trade. The reasons are obvious; import costs keep going up, slowing down imports. Also, because of the high cost of cargo clearing and import duties, there is an increase in unofficial imports including trade diversion and smuggling. The incentive for the latter has increased, all of which have affected official trade figures.”
Yusuf also pointed out that within the sub-region, up to 80 per cent of trading activities are informal and unrecorded. “However, I will say the two major factors responsible for the decline in trade are the exchange rate and cost of clearing cargo at the ports.”
Speaking on the recommended N800/$1 for import exchange duty and why it has not been implemented, he said the likely reason it has not seen the light of day yet is that some government officials feel it might undermine the Federal Government’s FX reforms.
“I even suggested N1000/$1 at worst because a stable and practical rate will improve trade, reduce import costs and bring down inflation. The rate affects all products across the board and a fluctuating rate is worsening our trading numbers. On the export side, oil output is dropping and this will also affect the total trade value,” he said.
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