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Firms optimistic naira will gain strength before year end

By on June 27, 2016

Nigerian business enterprises have expressed hope of a strong recovery for the Naira this year as they expect the national currency to gain strength in the next quarter, while cautioning that before the turnaround, it may further weaken in the current quarter.

Their optimism was contained in second quarter Business Expectations Survey Report of the Central Bank of Nigeria (CBN) recently released. The Business Expectations Survey (BES) was conducted during the period May 1st to 13th, 2016. A total of 1,950 firms were surveyed nationwide, drawn from the updated survey frames of both CBN and the National Bureau of Statistics (NBS). A response rate of 99.5 per cent was achieved during the reporting quarter, and covered the industry, construction, wholesale/retail trade and services sectors.

The BES report is coming at a time the CBN introduced a flexible foreign exchange policy aimed at recovering the value of the Naira and further strengthening it against the United States dollar. Barely a week after implementation of the new forex regime, which allows the naira to be determined by the market forces of demand and supply, the national currency trended positively. The market rallied as the Nigerian Stock Exchange All-Share Index (NSE-ASI) rose by 3.17 per cent, and market capitalisation added N279 billion to close higher at N9.579 trillion on the first day of the announcement. By the close of the week, that is, three days after, the stock market (measured by NSE-ASI) garnered a total gain of about 7.97 per cent.

Despite the promising start with the implementation of market-driven regime, analysts have however urged caution.

Similarly, respondent firms surveyed were also optimistic that inflation and borrowing rates, which they expected to rise in this quarter, would fall in the next quarter.

The respondents, as well, indicated “a positive outlook in the volume of business activities, as well as improved prospects for employment in the next quarter.”

They, nevertheless, identified insufficient power supply as the major constraining factor to their business activities in Q2, 2016. Other constraining factors, according to the CBN report, were “financial problems , unfavourable economic climate, high interest rate, competition, access to credit and unfavourable political climate and unclear economic laws.”

According to the report, “the sector with the highest prospects for employment was services, followed by wholesale/retail trade, industrial and construction sectors.”

Respondent firms were pessimistic on the macro economy in Q2 2016.

The pessimism was driven by the opinion of respondents from all the sectors: industrial, wholesale/retail trade, construction and services. However, the BES report noted that “respondents’ pessimism in the volume of total order and their internal liquidity positions, dampened the volume of their business activities in the current quarter.”

“Similarly, respondents’ pessimism on access to credit, further lessened their internal liquidity positions in the review quarter.”

Respondents were drawn from the industrial, construction, wholesale/retail trade and services sectors. The services sector is made up of financial intermediation, hotels and restaurants, renting & business activities and community & social services. The distribution of firms by sector showed that services sector constituted the highest number of respondents (34.5 per cent), followed by wholesale/retail (26.7 per cent), industrial (24.9 per cent) and construction (13.8 per cent).

A breakdown of the respondents by orientation of business showed that 17.0 per cent were import-oriented, 2.3 per cent were export-oriented, 7.6 per cent were both import– and export-oriented, and 73.2 per cent were neither import- nor export-oriented. The distribution of firms by employment size showed that small size firms constituted 80.6 per cent of responses, medium size firms 14.7 per cent, and large size firms 4.6 per cent.

 

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