Nigeria’s business environment showed signs of improvement in January 2025, yet profitability remained a challenge for many businesses due to high foreign exchange rates and rising import costs, according to the latest Business Confidence Monitor from the Nigerian Economic Summit Group (NESG) in collaboration with Stanbic IBTC.
The report revealed that although commercial activity picked up at the beginning of the new financial year, businesses continued to face pressures from structural constraints, such as limited foreign exchange access, high financing costs, and inflationary pressures.
Key concerns identified were the high exchange rate of the local currency against major foreign currencies, which, along with rising import costs, is eroding profitability and disrupting pricing strategies. Limited financing access remained a major obstacle, further stifling business growth.
The Current Business Performance Index increased to 5.69 in January from 0.77 in December 2024, signaling a slight recovery. However, the cost of doing business remained high at 47.58, down from 50.32 the previous month.
Other persistent challenges included frequent power shortages, limited credit access, and uncertainty surrounding economic policies. The report highlighted that the primary barriers to profitability were the high exchange rate and escalating import costs, which were driving up operational expenses. Meanwhile, weak demand conditions were hindering revenue growth.
Investment levels also dropped further to -27.50, signaling reduced capital inflows, while rising production costs, particularly in manufacturing and services, placed additional strain on profit margins.
Performance varied across sectors. The manufacturing sector showed a marginally negative performance of -0.66, though this was an improvement from -2.43 in December. High production costs, difficulty accessing foreign exchange, and weak consumer demand remained significant challenges. The cost of doing business in manufacturing stood at 41.57, indicating high operational costs, while operating profit remained negative at -17.41. However, production levels improved to 46.56 due to increased output.
The textile, apparel, and footwear sub-sector saw one of the steepest declines, with a performance of -27.71, while the motor vehicle and assembly sub-sector contracted sharply 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 weaker business activity. Investment levels in the sector fell sharply to -55.38 as businesses held back on expansion amid economic uncertainty, high borrowing costs, and policy concerns. The cost of doing business increased to 29.19 due to foreign exchange volatility and high logistics costs, though cash flow improved to 53.96 as firms managed their finances more effectively.
The services sector remained under pressure, recording a slightly negative performance of -1.40, an improvement from -3.46 in December. Broadcasting saw a significant decline at -30.35, while professional services posted a negative performance of -5.92. On a more positive note, telecommunications and information services performed better at 6.14, while financial institutions and real estate recorded 37.83 and 18.67, respectively, supported by seasonal demand. However, the cost of doing business in the sector surged to 37.68, further straining profitability.
The trade sector showed signs of recovery, with its index improving to -0.84 from -5.59 in December, indicating better sales performance at the beginning of the year. While the wholesale segment remained negative at -2.87, the retail segment returned to positive growth at 1.20. This was fueled by increased consumer spending and restocking, leading to an improvement in cash flow, which rose to 18.13. Nevertheless, high borrowing costs, limited credit access, and persistent price volatility continued to be significant constraints.
The agriculture sector was the only sector to show positive performance, recording 10.86, although growth slowed compared to the previous month. Crop production and livestock showed modest gains of 16.96 and 5.66, respectively, while agro-allied and forestry faced challenges from high input costs and weaker demand, posting -9.17 and -1.07. Despite these challenges, the sector benefited from strong demand conditions at 72.50. However, investment levels dropped to -27.20, as businesses remained cautious about expansion.
Looking ahead, the report noted that business expectations for the next three months remained 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, with an index of 14.39, due to ongoing cost pressures.
Businesses expect improvements in production, cash flow, employment, and operating profit, although concerns over inflation, high interest rates, and weak consumer purchasing power remain key risks to growth.
