PwC warns against rising market uncertainty

A professional tax and advisory firm, PwC, says Nigeria’s economic outlook remains uncertain despite efforts made by the Central Bank of Nigeria (CBN) to ensure stability in the foreign exchange (FX) market and attract investors. It noted that the rising inflationary pressure and volatile FX market are increasing the uncertainty level and dampening investors’ confidence.

“Despite the hawkish stance by the CBN to maintain stability, Nigeria’s outlook is still quite uncertain as investors remain cautious of a complex and ambiguous macroeconomic environment,” PwC said in its latest Nigeria capital market report.

The CBN has made efforts to stabilise the exchange and inflation rates. The apex bank has hiked the monetary policy rate by a total of 800 basis points to 26.75 per cent in less than a year in line with its price stability mandate.

But the measure is yet to address the high consumer prices, which are forcing Nigerians to forgo necessities as purchasing power dwindles.

“Inflation rate was majorly driven by the food inflation rate, which rose from 25.25 per cent in June 2023 to 40.87 per cent in June 2024, owing to insecurity, climate change and emigration from food-producing regions,” PwC said.

It noted that the earlier sharp swings of the country’s FX have now been relatively controlled, with the naira emerging as the best-performing currency in the world in March/April, but the latter lost steam.

“Though the naira is straddling between N1,500 – N1,600 per dollar, it has now been quoted as the second least performing currency across the globe in July, according to Bloomberg.

“Naira crashed against the dollar by 48% between H1 2023 (N770.38/$) and H1 2024 (N1470.19/$), following the unification of exchange rates and FX scarcity,” PwC said in the report.

It stated that an increment in Africa’s biggest oil producer’s capacity and the government’s effort to ensure food security will crash inflation and reduce the cost-of-living crisis, thereby improving its macroeconomic landscape.

“With the potential increase in our oil refining capacity, government initiatives to mitigate food shortages, as well as the loan from the African Development Bank to bolster food production, there is optimism for alleviating inflation,” the report said.

It added that the ongoing banking recapitalisation is expected to set the right foundation that will support the achievement of the $1 trillion economy by 2030 as well as provide opportunities for the growth of the equities market.