Despite the fact that Nigeria’s business environment showed signs of improvement in January 2025, however, companies have continued to struggle with profitability due to the high foreign exchange rate and rising import costs.
This is according to the latest Business Confidence Monitor published by the Nigerian Economic Summit Group in collaboration with Stanbic IBTC.
The report indicated that while commercial activity picked up at the start of the new financial year, firms remained under pressure from structural constraints, including limited access to foreign exchange, high financing costs, and inflationary pressures.
It read, “A key concern remains the high exchange rate of the local currency against major trading currencies, which, alongside rising import costs, continues to erode profitability and disrupt pricing strategies.
“Limited access to financing persisted as a major structural barrier, further hindering business growth throughout the month.”
The Current Business Performance Index rose to 5.69 in January from 0.77 in December 2024, reflecting a slight recovery. However, the cost of doing business remained high at 47.58, compared to 50.32 in the previous month.
Businesses also continued to grapple with frequent power shortages, restricted credit access, and uncertainty over economic policies.
The report identified the major obstacles to profitability as the high exchange rate and increasing import costs, which drove up operational expenses, while weak demand conditions hindered revenue growth.
Investment levels declined further to -27.50, indicating reduced capital inflows, and rising production costs, particularly in manufacturing and services, put additional pressure on profit margins.
“A key concern remains the high exchange rate of the local currency against major trading currencies, which, alongside rising import costs, continues to erode profitability and disrupt pricing strategies.”
Business performance varied across key sectors. The manufacturing sector recorded a marginally negative performance of -0.66, though this marked an improvement from -2.43 in December.
High production costs, difficulty in accessing foreign exchange and weak consumer demand remained significant challenges.
The cost of doing business in the sector stood at 41.57, reflecting the high cost of operations, while operating profit remained negative at -17.41. However, production levels improved to 46.56, supported by increased output.
The textile, apparel, and footwear sub-sector recorded one of the steepest declines at -27.71, while the motor vehicle and assembly sub-sector faced a severe contraction at -37.14.
The non-manufacturing sector, which includes oil and gas services, construction and natural gas, declined to -4.64 in January from 5.80 in December, reflecting subdued business activity.
Investment levels in the sector dropped sharply to -55.38 as firms held back on expansion due to economic uncertainty, high borrowing costs and policy concerns.
The cost of doing business rose to 29.19, largely driven by foreign exchange volatility and high logistics costs, although cash flow improved to 53.96 as firms sought to manage their finances more effectively.
The services sector remained under pressure, recording a mildly negative performance at -1.40, though this represented a slight improvement from -3.46 in December.
Broadcasting recorded a significant decline of -30.35, while professional services also posted a negative performance at -5.92.
However, telecommunications and information services performed better at 6.14, while financial institutions and real estate recorded 37.83 and 18.67 respectively, buoyed by seasonal demand. The cost of doing business in the sector surged to 37.68, further straining profitability.
The trade sector showed signs of recovery as its index improved to -0.84 from -5.59 in December, reflecting better sales performance at the beginning of the year.
While the wholesale segment remained in negative territory at -2.87, the retail segment returned to positive growth at 1.20.
The sector benefited from increased consumer spending and trade restocking, leading to an improvement in cash flow, which rose to 18.13. Despite these gains, high borrowing costs, limited access to credit, and persistent price volatility remained major constraints.
The agriculture sector remained the only positive performer, recording 10.86, although growth slowed compared to the previous month.
Crop production and livestock posted modest gains of 16.96 and 5.66, respectively, while agro-allied and forestry struggled with high input costs and weaker demand, posting -9.17 and -1.07.
The sector continued to benefit from strong demand conditions, which stood at 72.50, though investment levels declined to -27.20 as businesses remained cautious about expansion.
The report noted that business expectations for the next three months remain moderately optimistic, with the Future Business Expectation Index rising to 31.96.
The manufacturing sector was the most optimistic, posting 57.31, followed by non-manufacturing at 50.07, agriculture at 35.87, and trade at 34.35. The services sector was the least confident at 14.39, reflecting persistent cost pressures.
Businesses anticipate improvements in production, cash flow, employment, and operating profit, although concerns over inflation, high interest rates, and weak consumer purchasing power remain potential risks to growth.
Alcohol, tobacco record highest inflation rate
Also, the National Bureau of Statistics has disclosed that alcoholic beverages, tobacco, and narcotics recorded the highest inflation rate at 14.80 per cent, according to its latest rebased Consumer Price Index for January 2025.
In a graphical illustration presented in its CPI report, the NBS noted that the alcohol and tobacco item division was followed by restaurants and accommodation services, which had an inflation rate of 14.14 per cent, while transport and clothing and footwear recorded 12.77 per cent and 12.73 per cent, respectively.
The report, which rebased Nigeria’s CPI to 2024 as the new base year, revealed that headline inflation stood at 24.48 per cent in January 2025, meaning that the general price level of goods and services rose significantly compared to the same period in 2024.
The report by the NBS read, “The rebased All Items index in January 2025 was 110.68, while the headline inflation rate on a year-on-year basis stood at 24.48 per cent in January 2025.
“This means that the general prices of goods and services in Nigeria increased by 24.48 per cent compared to January 2024.”
The CPI rebasing was necessary to reflect current economic realities and consumption patterns in Nigeria.
The rebased CPI structure covers 934 product varieties, classified under 13 divisions based on the 2018 Classification of Individual Consumption According to Purpose.
The divisions include food and non-alcoholic beverages, clothing and footwear, transport, housing and utilities, furnishings, health, communication, and education, among others.
The weighting structure was adjusted to account for changes in consumer spending, with food and non-alcoholic beverages maintaining the highest weight at 40 per cent, although it declined from 51.8 per cent in the previous base year of 2009.
According to the report, inflationary pressures varied across different categories, with food and beverages inflation at 10.64 per cent, reflecting the continued rise in staple food prices.
The personal care, social protection, and miscellaneous goods and services division recorded 12.04 per cent inflation, while furnishings, household equipment, and routine household maintenance saw an inflation rate of 11.48 per cent.
The health sector recorded 9.42 per cent inflation, while housing, water, electricity, gas, and other fuels increased by 7.61 per cent.
The education sector and insurance and financial services recorded the lowest inflation rates, standing at 4.88 per cent and 4.65 per cent, respectively. Information and communication, which was newly assigned a higher weight in the rebased CPI, had an inflation rate of 7.54 per cent.
The recreation, sport, and culture category recorded 6.85 per cent, highlighting moderate price increases in these services.
The NBS report highlighted the divergence in inflation trends between urban and rural areas, with urban inflation at 26.09 per cent, while rural inflation stood at 22.15 per cent.
This suggests that price pressures were more severe in urban areas, particularly in sectors such as housing, transportation, and restaurant services, where cost increments were more pronounced.
The rebasing exercise introduced new methodologies to enhance the accuracy of inflation tracking.
Data collection was fully digitised, replacing paper-based surveys with computer-assisted personal interviewing devices, which allowed real-time transmission and verification of price data.
The high inflation rate for alcoholic beverages and tobacco is linked to multiple factors, including excise duties, exchange rate volatility, production costs, and supply chain disruptions.
It was further observed that Imo State emerged as the most expensive state to reside in Nigeria following the rebasing of the Consumer Price Index by the NBS.
The development marked a significant shift in Nigeria’s inflation rankings, as Bauchi, which held the top spot for seven consecutive months, was dethroned.
The change comes after the NBS updated its methodology, adjusting the base year from 2009 to 2024, revising the weighting structure, and expanding the consumer basket to better reflect household spending patterns.
Earlier, the Statistician-General of the Federation and Chief Executive of the NBS, Semiu Adeyemi, said, “Rebasing our GDP and CPI allows us to align with these transformations, providing a more precise and relevant picture of Nigeria’s economic landscape.
“This process is foundational to informed policymaking, strategic planning, and effective governance; hence, it is one exercise that the NBS is conducting with significant importance and professionalism.”
