Analysts on navigating Nigeria’s mixed business landscape in 2023

BY ONOME AMUGE & CYNTHIA EZEKWE

• Agbaje: Exchange rate, subsidy removal tops for new government
• NESG weighs in
• Proffer solutions to economic woes
• Realities seen mixed for economy

Policymakers, business managers and investors have been told that the landscape of the economy in 2023 remains mixed and for corporate strategies in organisations navigating this landscape would require having a keen eye on a number of trends that are projected to emerge on the horizon of the Nigerian economy this year.

Nigeria is on the throes of a crucial year in its history going into a crucial general election that will lead to a change of government amid serious economic challenges across different indices of measurement and analysts are advising individuals, corporate entities and the government to plan ahead to navigate the uncertainties that will shape the economy, policies and businesses in 2023 and beyond.

In projecting into what 2023 holds for the Nigerian economy, analysts are emphasising that the country is in a critical year, with the upcoming election expected to usher a new leadership that will determine the growth trajectory of the country’s economy, currently wobbling under the impact of multiple economic and social issues.

The economy has been buffeted by high inflation, rise in the cost of living and the spillover effects of the economic impact of the Russia-Ukraine war, yet there is a growing belief that the outcome of the elections will impact the economy

Opeyemi Agbaje, founder and chief executive of RTC Consulting Services Limited, a leading strategy and business consulting firm  based in Lagos, commenting on trends that will impact corporate strategies in 2023 said, “The first thing is the prospect of political, but more importantly policy change. It is inevitable that policies must change. I think businesses should be active in anticipating those, which will have a positive or negative impact on the economy.” 

Policy changes in respect to exchange rates should also be anticipated, as well as some positive changes in terms of markets, said Agbaje. 

He also projected that  investments will accelerate when the economic growth begins to resume, and the level of investments required in technology, artificial intelligence, communication networks, among others will increase, including e-commerce strategies. 

Agbaje, who spoke  at a recent webinar hosted by DCSL Corporate Services Limited, themed, “2023 Economic Outlook”, outlined  technology and policy as two top trends that firms should focus on going forward. 

“There are some sectors that are really positive – the technology, ICT, Fintech; all the technology and related spaces were stars in 2022, and will continue to brighten in 2023,” he said. 

Agbaje, a former faculty and head in strategy and entrepreneurship at Lagos Business School, advised businesses to develop a very clear financial  strategy, adding that it has become imperative for  financial institutions  to have a Fintech strategy.

Speaking on the implications of “Japa syndrome’’ which has seen the mass exodus of many young Nigerians, professionals, and non-professionals, including people selling their property to relocate to different parts of the world in search of greener pastures, he said: 

“I suspect that Japa will continue, irrespective of the new government of 2023, it will continue into the medium term, at least, and will only begin to abate when the impact of policy improvements, economic, and social improvements in Nigeria begin to manifest, which  may be in the medium term. 

“But I think that if we begin to do the right things immediately a new government comes in and begins to increase economic opportunities, reduce poverty, take actions, create a more investment-friendly environment, create jobs; then the process will begin to slow down,” said Agbaje.  

Giving his take on how to achieve a fair rate amid concerns on harmonisation of the country’s exchange rates, he said the harmonisation of  the exchange rates is likely to attract more investments, create a positive market, and  boost investors’ confidence.

On the flipside, he pointed out that the harmonisation can only go in one direction in a short time and there’s likely to be some unavoidable devaluation of the  naira.

“We have about N450 [to the dollar] at the official market, and we have between N740 to N750 in the black parallel market, and most people are trading at N740. We have to signal to the market that we are ready to adopt a more market-friendly exchange rate, so that we can begin to have a more natural economic dynamism, and over time, we will be able to achieve harmonisation.  

“Well I suspect that the full harmonisation will be achieved in the medium term, rather than in the short term, but there has to be significant movement in the direction of the devaluation,” he said. 

Narrowing down to subsidy removal and its implication on the citizenry, he said:

“I think we have over-held this fear that subsidy removal will kill everyone with poverty, and destroy the poor people, and we have been saying this for two decades, and the poor people are getting poorer, perhaps we have to re-evaluate our paradigms about fuel subsidy. 

“We need to focus on the cost benefit analysis; the opportunity cost of the subsidies. If we treat the analysis, we find that maintaining a downstream subsidised sector denies us of a vibrant domestic downstream,” said the economist.

According to Agbaje, the subsidy removal is a one-time adjustment and the benefits are huge if the government is willing to  deregulate the sector, and make the adjustment in terms of price, and begin to build the industry.  

He noted that Nigeria lost the opportunity to deregulate the sector several times when oil prices were very low. 

“If we had deregulated it during the time oil prices were low in  the last two or three decades, people would see that petrol prices can come down.

“But we have lost those opportunities, and I think  it is very easy, and essential to carry out real deregulation of the sector, so that we can have the investments that we need, as well as the jobs that the sector can offer,” he said. 

On the immediate decisions or pronouncements the new government can implement in order to ameliorate all the issues that Nigerians are facing, he said  the government  has to take immediate action in addressing the exchange rate and fuel subsidy. 

He explained that by doing so, Nigeria will signal to the investment communities, and the market that the era of borrowing is over, and the country is moving into the era of investment. 

He also advised that rational fiscal reforms should be prioritised and implemented by the government, considering that the country is currently besieged by rising debt issues.

“We need to think through our fiscal situations  and have more rational fiscal actions; which has to be an emergency action that will begin to happen in the first few months of the new government,” he said.  

The Nigerian Economic Summit Group (NESG), in its 2023 macroeconomic outlook report titled, “Nigeria in Transition: Recipes for Shared Prosperity”, noted that the country is yet to achieve high and sustained economic growth due to low economic competitiveness and weak productive capacity. 

The group also pointed out that socioeconomic indicators showed falling living standards for many Nigerians, an indication  that the country is far away from achieving shared prosperity. 

NESG warned that not taking proactive steps towards achieving shared prosperity in Nigeria might worsen the state of insecurity with the attendant humanitarian crisis, including the displacement of many Nigerians and loss of lives and livelihoods.

To this end, it identified four strategic thrusts including, concentric economic diversification and transformation, human capital development, thriving private sector, and functional social programmes.

According to the group, improving the country’s economic dynamics by achieving concentric economic diversification and transformation is a significant milestone in creating economic prosperity. This, it explained, is because achieving this strategic thrust, is a prerequisite for higher domestic and foreign investments, high economic growth, and improved sectoral performance. It added that the main enablers of this thrust are macroeconomic stability and sectoral/ industrial reforms which need to be addressed urgently, going forward.

On the relevance of human capital development, the report noted that one of the major factors inhibiting Nigeria’s economic development has been the brain drain and knowledge gap in human capital. 

According to the NESG, though an equipped labour force, a stable economic environment, a thriving private sector and robust social welfare programmes are crucial in attaining shared prosperity in Nigeria, developed human capital will only be actualised if education and health are prioritised as fundamental enablers.

“Knowledge as a significant driver of economies of scale can be increased by investing in education and providing better health services, which is the nation’s human capital formation,” it stated.  

Highlighting the importance of a thriving private sector to economic development, the report showed that the private sector, in addition to creating well-functioning markets, drives economic growth, which improves social and income mobility for the poor. 

Citing a 2021 data by the Small and Medium Enterprises Development (SMEDAN), the group noted that Nigeria’s private sector, proxied by the Micro, Small and Medium Enterprises (MSMEs) industry, accounted for 49.7 percent of the GDP, 96.7 percent of firms and 87.9 percent of the labour force. 

The report, however, showed  that the expanding MSME ecosystem is dominated by small businesses operating in the informal economy and in dire need of reformation. It noted that growing Nigeria’s private sector is important to enhance creation of economic opportunities and prosperities, and strengthen Nigeria’s pursuit of pro-poor economic outcomes such as job creation, reducing poverty, etc.

“Improving the social and economic mobility of the poor through equitable economic opportunity distribution is critical to achieving Nigeria’s shared prosperity. It is, therefore, critical to position the private sector as a significant player in the country’s pursuit of poverty eradication and shared prosperity,” it advised. 

The report outlined a functioning market system, enhanced enterprise development, and a stable business environment as private sector enablers required to generate economic prosperity.

Referencing a 2022 WorldBank report, the NESG noted that Nigeria’s  poverty headcount has increased to 90 million people in 2022 from 82.9 million people in 2019, an indication that the Nigerian president’s 2020 new year’s message to lift a hundred million Nigerians out of mass poverty over the next ten years has been a “wild goose chase”. 

According to the NESG report, a major inhibiting factor has been the oblivious existence of poorly captured and weak social programmes exhibited in poor social welfare programmes and insecurity and safety. 

“To set the foundation for realising shared prosperity, Nigeria must develop and ensure a well-functioning social welfare programme, developed human capital, a competitive economic environment, and a thriving private sector,” it said. 

The report stressed that a functioning social programme is contingent on some essential enablers, which include a robust social programme underlined by social protection targeted at the most vulnerable group, and security for all that eliminates all national security threats and delivers peace and national cohesion.