Businesses in Nigeria say they expect the Naira to continue to depreciate in the next three months beginning from July but will begin appreciation after six months.
This is according to the Central Bank of Nigeria (CBN) Business expectation survey for the month of July published by the statistical department of the apex bank.
According to the report, the expectations of businesses in the country improved in July compared to June with players in the agricultural sector driving the growth.
Respondents in the survey indicated optimism in their outlook for the next month, the next three months, and the next six months.
They expressed a positive outlook on the volume of business activities for the next month, suggesting improved employment prospects during the same period.
They also identified the Agriculture Sector as having the highest employment prospects, followed by the Industry and Services sectors.
However, respondent firms expressed expectations that the exchange rate would depreciate in all review periods except for the next six months.
Also, businesses in the country anticipated that the borrowing rate would increase across all the periods under review. Additionally, respondents believed that the current inflation rate of 34.19% was too high.
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The report states, “Respondent firms expect the naira to depreciate in the current month, next month and next three months but appreciate in the next six months as their indices stood at -22.6 points, -16.5 points, -4.8 points and 13.7 points respectively.”
“They expect the borrowing rate to rise as the confidence indices stood at 15.0, 14.3, 18.3 and 17.4 points, in all the review periods, respectively. At the same time, their perception of inflation indicated that they consider the current inflation rate of 34.19% too high. At 72.8 points, this sentiment was strongest amongst large firms.”
Recent depreciation of the Naira
The projection by the business community surveyed on the prospects of the FX market stems from the recent depreciation of the Naira.
In the past two months, the Naira has weakened close to the feared N1,600/$ despite efforts by the CBN including selling of FX to Bureau De Change (BDCs) and the introduction of the Retail Dutch System (RDS).
Furthermore, the view of the business community on borrowing cost has been earlier acknowledge by both the CBN and the fiscal authorities in the Ministry of Finance. The CBN Governor had earlier stated that interest rates will come down immediately, inflation starts slowing down and the foreign exchange market is stabilised.
Inflation in July slowed to just over 33% in July- the first time in 19 months dating back to December 2022.
Expansion and employment prospects of businesses
Respondent businesses expressed a positive outlook about their plans to expand across all sectors in August 2024, with the Agriculture Sector showing the highest prospect for expansion at 66.9% in the next month.
Similarly, firms in the Construction, Market Services, Non-Market Services, Manufacturing, and Mining & Quarrying sectors indicated an interest in expanding their businesses, with 56.3, 55.2, 50.9, 44.3, and 30.0 points respectively.
In line with their interest in business expansion, respondents also had a positive employment outlook across all sectors in August 2024.
A breakdown of the Employment Outlook Index by sector showed that the Agriculture Sector, with 14.5 points, had the highest job creation prospects for the next month, followed by Construction (13.9 points), Mining and Quarrying (11.8 points), Manufacturing (6.0 points), Non-Market Services (5.8 points), and Market Services (4.4 points).
