February 23, (THEWILL) – The recent rebasing of Nigeria’s Consumer Price Index (CPI), as announced by the National Bureau of Statistics (NBS) and the momentary stability of the naira in the foreign exchange market, are capable of obscuring the reality of operating challenges plaguing businesses across all sectors.
Nigeria’s inflationary outlook has undergone a significant shift following the recent rebasing of the CPI by the NBS. The latest data for January 2025 shows headline inflation at 24.48%, a sharp decline from December 2024’s 34.80%. This has triggered mixed reactions from various quarters, given the macroeconomic uncertainties that dominate the environment.
At the risk of celebrating this ‘positive’ development, economy and finance experts insist that the decline in inflation does not signify a reduction in actual price levels; but rather stems from the statistical realignment of the inflation basket to better reflect current consumption patterns.
In their views, the economy has not improved remarkably to warrant the significant drop in inflation. Instead, the rebased CPI only provides a more updated and structured way of measuring inflation, but it does not change the realities of operating challenges against Nigerian businesses.
At present, the cost of living remains high, disposable incomes are shrinking and essential goods are still unaffordable for many households. Insecurity remains a terrific obstacle to investments in agriculture and agribusiness.
“If anything, the rebasing highlights a more balanced but equally urgent inflation crisis,” said Muhammad Barde, a Nigerian banker and businessman, adding that the operating environment remains challenged as inflationary pressure on businesses and households persists.
Lingering concern
A glimpse into the FY 2024 reports of many Nigerian companies revealed that operating expenses and cost of funds increased significantly fueled by high cost of goods and services that serve as input to their activities. Cost of sales, administrative costs, raw materials and inventory costs, recorded a significant jump in the year.
With high costs of electricity, transportation, telecommunication and multiple taxes which combined to give Nigeria’s operating environment a bad name, business remained challenged despite the rebased CPI and the stable foreign exchange market.
Among the worst hit is the manufacturing sector. Manufacturers are currently expressing concerns about the significantly high cost of doing business, citing factors like rising energy costs, import duties, inflation, and currency devaluation, which impact their profit margins, making it difficult to compete in the market.
According to a report by the Manufacturers Association of Nigeria (MAN), key points about manufacturers’ concerns consist of increased input costs: The rising price of raw materials, due to inflation and currency fluctuations which remains a major factor driving up production costs.
Next is high energy bills: Inadequate power supply and fluctuating electricity tariffs significantly burden manufacturers with high energy expenses.
Import duty challenge: Complex customs procedures and high import duties on necessary raw materials further inflate costs.
Logistics hurdles: Poor infrastructure and inefficient transportation systems add to operational costs.
Impact on competitiveness: The high cost of production makes it difficult for local manufacturers to compete with cheaper imported goods.
Industry experts maintain that without addressing these environmental, structural and policy-related challenges, the CPI rebasing only masks the ugly situation instead of effecting solutions.
In its note on Thursday, an investment and marketing research firm, Cowry Assets said, “From a policy standpoint, the rebased inflation figures present a new challenge for Nigeria’s monetary authorities.
“Cowry Research observes that the adjusted CPI framework has had a marked impact on real rates of return, potentially improving market sentiment in the short term.
“However, the sustainability of this inflation trajectory remains uncertain, particularly as upcoming policy shifts, such as the recently approved 50% increase in telecom tariffs, could exert renewed price pressures.
“Moving forward, the effectiveness of Nigeria’s inflation management will depend on a combination of fiscal discipline, exchange rate stability, and structural reforms aimed at improving domestic production and easing supply-side constraints.”
Momentary stability
Naira stability has become a fast-spreading cliché in our business and economy lexicon. The local currency has been remarkably stable in recent times, exchanging within the bandwidth of N1,500/US$1 and N1,510/US$1 at the official and parallel markets. Last Thursday, the media was agog with the news of the convergence of the official and parallel market rates which had earlier occurred in June 2023.
There was little positive impact of the development on the value of the naira beyond applause for the President Bola Tinubu-led administration and the deft monetary policy initiatives of the CBN under Dr Yemi Cardoso as governor.
However, some analysts have cautioned against the hyper-sensational reactions to the “historic” rates convergence at N1,510/US$1 against N467/US$1 and N760/US$1 in the official and parallel markets respectively on June 13, 2023, preceding the unification of the forex market on June 14, 2023. The policy shift marked the rapid devaluation of the local currency – recording a loss of 98% as at date, using the pre-devaluation parallel market rate.
Commenting on the celebrated naira stability, a Nigerian finance expert, Abayomi Fashina, observed that while the development has provided a temporary respite, the critical question remains: ‘Is this a sustainable path toward economic stability or merely a short-lived alleviation of persistent challenges?’
“The naira has previously experienced periods of stability, only to be undermined by structural economic weaknesses. The economy remains heavily reliant on imports, and non-oil exports have yet to achieve significant growth.
“Without sustained investment in productive sectors, the recent currency appreciation may prove transient. Fiscal discipline is also a pressing concern, as government borrowing and expenditure continue at unsustainable levels.
“Investor confidence remains fragile; without a clear, long-term economic strategy, capital flight could easily reverse recent gains.”
Persistent realities
Overlooking the weak productive base, massive divestment by the multinationals, high public debt profile, high revenue-to-debt-servicing ratio, and general challenging operating environment, to celebrate a stable naira amounts to an attempt to clap with one hand.
Historical trends show that the preceding year to the general election witnesses a high volatility scenario in the foreign exchange market. There is little to suggest that 2026 will be different as many analysts had predicted that the exchange rate would hit N2,000/US$1 by next year.
Others point to the fact that the massive borrowing that the Nigerian government had embarked upon through the sale of Treasury Bills, Eurobond and other instruments at a high interest expense, and the current recapitalization of the banks contributed to the foreign reserves boost that acted as a buffer in strengthening the naira.
Stakeholders are unanimous in their views that no meaningful achievement can be made without a stable and sufficient supply of electricity, tackling insecurity and fixing dilapidated road network across the country. These are the factors that drive sustainable economic gains if you have the appropriate human capital input.
Sam Diala is a Bloomberg Certified Financial Journalist with over a decade of experience in reporting Business and Economy. He is Business Editor at THEWILL Newspaper, and believes that work, not wishes, creates wealth.
