PWC Projects More Hardship, Says High Forex Rate Will Impact Negatively On Production Costs

Nigerians may need to brace up for more hard times in August as persistent high inflation and low disposable income will continue to weigh heavily on their spending, PricewaterhouseCoopers has revealed.

PWC the second largest professional service provider also believes that the clamour for a review of wages of workers by the Nigerian Labour Congress to mitigate the impact of fuel subsidy removal may be unlikely.

The warning was contained in PWC’s Nigerian Economic Outlook for August, seen by THE WHISTLER.

“Inflation is expected to rise in the short to medium-term. Consumers are expected to be pressured by higher prices causing demand to slow down. Wage adjustments are unlikely to be adjusted simultaneously and proportionately,” PWC projected.

PWC believes that further impacts of these would be that continued inflationary growth and rise in the cost of living may slow real economic growth in the medium term.

“Continued inflationary growth and rise in the cost of living may slow real economic growth in the medium term. High FX rates may drive up production costs and impact negatively on firm performance,” PWC said.

For most Nigerians, living in Africa’s most populous nation has been unbearable since the new administration headed by Bola Tinubu removed fuel subsidy and floated the naira.

The price of fuel has jumped to over N600 from N190 per litre since Tinubu assumed office in May 2023.

Although Tinubu has been vocal about his intention not to ‘suffocate’ the poor and let them ‘breathe’, consumer price index which measures inflation has hit 22.7 per cent while the food component has surged to 25 per cent.

The figures did not even factor in the removal of fuel subsidy, the National Bureau of Statistics admitted in a statement.

Businesses will also bear the pains of the policy reforms as their revenues may decline in the short-term mainly due to the direct impact of input costs and reduction in disposable incomes.

PWC said naira floating is expected to drive up the cost of imported raw materials, adding that “cost of borrowing (Naira) could remain elevated due to the increase in MPR rate to 18.5 per cent in July 2023 by 25 basis points.

“Finance costs to increase due to exchange rate losses from higher interest payments incurred on exposure to foreign currency denominated loans. These losses are on account of the currency devaluation.”

However, other positives according to PWC are that floating of naira from an average of N472 to N771 per dollar “could provide incentives to corporates to explore local sourcing or backward integration in the medium term.

”Economic reforms such as the FX market liberalisation could gradually attract foreign investments and boost capital inflows in the long term. However, in the short-run, investors will likely adopt a wait-and-see approach.

“This may be a result of the absence of further reforms to strengthen business and economic fundamentals.

“Rise in inflation will likely reduce the real yields or returns on investment. Proposed new ministerial cabinet to drive economic direction and fiscal policy management. Implementation of new tax reforms to drive revenue generation.”