Nigeria’s Private Sector to downsize in 2013- LCCI report
Nigeria’s private sector will downsize or at best, maintain its current level of workforce in 2013 as the nation’s business environment remains largely constrained by rising socio-economic uncertainties, said the Lagos Chamber of Commerce and Industry, LCCI.
The LCCI, the premier chamber of commerce in Nigeria, in its second quarter 2013 ‘Business Confidence Index’ (BCI) quarterly survey, reflected the thoughts and forecast of 600 top business executive respondents drawn from the coverage of 14 sectors and 37 sub-sectors over the period, February 15 to March 16.
The survey revealed that hope for new employments this year is rather fragile and downsizing may be inevitable, due to rising socio-economic uncertainties hampering on the nation’s business environment, highlighting severity to the nation’s already pathetic unemployment situation.
“For the second consecutive quarter, results from BCI survey shows that the private sector will largely keep their current workforce size or even slash it down in 2013. With official unemployment number already put at 23.9 per cent by the National Bureau of Statistics, NBS, as at 2011, the job market in 2013 looks ominous,” the organisation said.
A number of variables have continued to constrain business growth in Nigeria. According to the survey, major factors that weakened the index score include: poor access to credit, inhibitive tendencies of monitoring and regulatory agencies, sustained insecurity situation across the country, dwindling public power supply and budget approval/implementation crisis. These, among other variables have kept the BCI scores trailing far below the global optimum levels.
“Macroeconomic factors such as exchange rate and inflation rate exerted neutral influence on the second quarter, 2013 BCI score. The neutral impact of macroeconomic prices on businesses at this time is informed by the relative stability achieved over the last few months. However, the downside remains that the current stabilization of prices through monetary tightening has been achieved at the expense of investment, employment, output and growth,” it added.
LCCI said the second quarter 2013 aggregate Business Confidence Index (BCI) recorded a modest improvement of 16.5 per cent from the 10.5 per cent it achieved in quarter one 2013, a six point movement of the index along a positive trajectory. This improvement notwithstanding, BCI scores for quarter one and two of 2013 continues to trail far below the 50 per cent global confidence threshold. Investors and business leaders are still wary about the state of the economy and the challenging business environment.
Access to credit worse in the last three months
The difficulty of getting credit remains on the top of variables that significantly pool down the BCI scores. The survey showed that access to getting credit by businesses especially the SMEs over the last three months is getting worse.
“Expectations for credit access in the second quarter 2013 even look somewhat more gloomy. Regulatory and monitoring agencies in the states and the Federal Government are another source of major concern for doing business in Nigeria. Incidences of informal/reckless charges/fees, frequent and unscheduled visits, intimidation and seizure of all kinds, collection of excess sample with attendant cost on the intellectual property of the agencies,” LCCI said.
The survey highlighted that the impact of regulatory and monitoring agencies weighed down the aggregate index by scoring -15.1 per cent and -11.1 per cent in quarter one and quarter two 2013 respectively. New employment also followed the same path.
The negative impact of price, (inflation and exchange rate) volatility on doing business seem to have moderated significantly. From index score of -32.3 per cent and – 29.4 per cent respectively in quarter one 2013, inflation and exchange rate posted a neutral impact on business with 0 per cent and -0.5 per cent index scores in quarter two, 2013. The downside, according to the survey, is that this is being achieved through monetary tightening at the expense of investment, employment and growth.
No confidence in public power supply
The concern of companies over power supply is still very high, going by the survey. It stated that the index score for public power supply which was impressive at 3.01 per cent in quarter one, 2013 has fallen back to the negative corridor.
“Companies are increasingly casting “a vote of no confidence” on public power supply” the survey highlighted.
BCI indicators such as capacity of firms to produce, export prospects, turnover/sales expectation, deals closed, strength/patronage of domestic market, new investment/expansion and the impact/size of non-performing credit have consistently boosted the aggregate index over the last two surveys.
“Interestingly, these indicators did not only post a positive confidence, but the levels of confidence achieved this time are more significant and itching closer to the global business confidence threshold,” the organisation said.
The BCI is a leading economic indicator designed to measure the degree of optimism on the state of the economy that business leaders are expressing through their activities of investing and spending. The survey, according to LCCI, covered most sectors sufficiently, though Solid mineral sector in particular is a concern. The participation of top private players across all the sectors was secured in a responsible fashion.
While ideally the sample would reflect the sectoral composition of the economy, gathering the responses per sector, may not be absolutely feasible, LCCI said, adding that it used GDP contribution weighting for each sector to balance the sample outcomes.
The organisation, which has as primary objective to promote, support or oppose legislative or other measures affecting trade, industry, commerce and agriculture as well as represent the opinion of the business community, said the idea is that the more confident business owners and managers feel about the economy, the more likely they are to make new investments and create opportunities. It added that a decreasing business confidence is often a pointer to slowing economic activities because business owners are likely to decrease their investment.
With the progress made so far on the privatization of Nigeria’s power sector, the commencement of the implementation of the 2013 budgets across the states and the Federal Government, and the new momentum given to the consideration of the Petroleum Industry Bill by the National Assembly, the organisation said, “we look to see how far this will reflect in the outcome of our quarter three, 2013 BCI survey and outcome.”
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