PwC has cautioned that any further increase in taxes could lead to a decline in reinvestment by firms operating in Nigeria and exacerbate corporate exits from the country. This warning is contained in its June 2024 report titled: “Nigeria Economic Outlook: Navigating Economic Reforms,” which also projected a decline in inflation to 29.5 percent by the second half of 2024 from the 33.95 percent recorded in May 2024.
The report advised the government to reconsider any planned tax hikes to alleviate financial challenges and unlock liquidity for businesses impacted by economic pressures. It warned that additional tax increases would further reduce reinvestment and might result in more companies exiting the Nigerian market.
PwC noted several impacts of the current economic reforms on businesses, including reduced revenue growth due to inflation eroding consumer purchasing power, leading to lower sales. It highlighted that higher production costs, import costs, and raw materials costs driven by inflationary and exchange rate pressures are negatively affecting businesses. The depreciation of the naira is expected to further increase the cost of imported raw materials. Additionally, the general rise in prices following the removal of subsidies is increasing expenses for businesses, such as marketing, logistics, and utilities. High-interest rates are also making it more expensive for businesses to borrow funds for operations and investments.
The report projected a marginal decline in inflation to 29.5 percent by the end of 2024, balancing the effects of reforms, policy actions, external pressures, and food prices, especially in the second half of the year. It also indicated that Nigeria’s Gross Domestic Product (GDP) might grow marginally by 2.9 percent, supported by sustained policy reforms, though growth prospects could be limited by elevated economic pressures.
Concerns over fiscal sustainability may remain high, with 89 percent of the budgeted fiscal deficit expected to be financed by new borrowings. The report included three broad considerations for the government: structured and focused policy, policy flexibility, and mitigation of policy impacts.
PwC urged the government to prioritize macroeconomic stability by addressing security, social issues, and inflation and exchange rate pressures. It emphasized mobilizing capital to drive growth through market-focused policies and investment promotion. The report advised taking short and long-term sectoral bets focused on exports, domestic substitution, and job creation.
To drive fiscal prudence, the government was encouraged to optimize spending on high-return capital projects, rationalize public service spending, and improve revenue diversification and collection efficiency. Under policy flexibility, the report suggested that the government decide when and how to introduce, defer, sequence, or stagger different policies based on current economic and social conditions. It recommended adopting scenario planning before major economic reforms to avoid policy reversals and embedding contingency plans within economic policies.
The report also recommended implementing intervention funding schemes to support businesses with low-interest loans or credit guarantees to ensure access to affordable financing despite high market interest rates. It called for creating social safety net programs, such as unemployment benefits and workforce development programs, to absorb job losses from business exits due to economic pressures.
For businesses, the report advised considering strategic priorities, operating models, and cost structures with a clear strategy. It recommended revisiting strategies to ensure success regardless of economic scenarios, transforming cost structures, and reimagining operating models using technology accelerators and resilience strengthening.
“Revisit your entire cost structure to establish short, mid, and long-term actions to fundamentally adjust for the future. Re-imagine how you organize and collaborate by using technology accelerators and strengthening resilience,” the report concluded.
