Forex Volatility, Inflation Hampering Investor Confidence

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The volatility of the dollar in the forex market is taking its toll on micro, small and medium enterprises (MSMEs), especially those that source for raw materials abroad, LEADERSHIP learnt.

The volatility of the Naira against dollar is equally leading to price inflation of raw materials and consequently finished products, hence undermining household’s income and investors’ confidence.

SMEs are grappling to survive the economic shocks, vulnerability and associated risk as inflation maintains an upward trend.

Economic experts, however, have expressed worries over the inflationary pressures which they said remained a key concern to manufacturers, investors and business operators in the country.

They stated that price volatility has undermined investor confidence with headline inflation, low profit margins, weak purchasing power, overhead cost and weak manufacturing capacity.

Speaking on the issue, an economist and chief executive officer, Centre for Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf, said  the escalation of production and operating cost for manufacturers and businesses is leading to erosion of profit margins, drop in sales, decline in turn over and weak manufacturing capacity utilisation.

According to him, weak purchasing power poses significant risk to business interest and sustainability, stating that price volatility will undermine investor confidence.

While highlighting the major drivers of inflation and cost in the economy, Yusuf maintained that the exchange rate depreciation has a significant impact on headline inflation, adding that the liquidity challenges in the foreign exchange market was adversely impacting manufacturing.

He explained that structural constraint was affecting productivity in the agricultural value chain while the high cost of transportation was affecting distribution processes across the country which has been reflected in the huge differential between farm gate prices and market price.

He said: “High import duty on intermediate goods and raw materials at the nation’s ports has increased the cost of production and operating cost of businesses.

On CBN policy, he decried the monetisation of the fiscal deficit by the CBN, which he said was highly inflationary because of the liquidity injection effect on the economy.

This, he stressed, has become worrisome when statutory thresholds are exceeded. Yusuf suggested that to tame the current inflationary pressures, the government needs to fix and reform the foreign exchange market to stabilise the exchange rate and reduce volatility.

This, he emphasised, would address the issues of forex liquidity issues through appropriate policy measures.

On security, he urged the government to address security concerns causing disruptions in the agricultural value chain with high cost of food price and low productivity.

He charged the government to ensure the restoration of normalcy and good order at the nation’s ports to reduce transaction cost while stressing that this will reduce import duty on intermediate products and raw materials, even as it will reduce production cost, particularly, with the sharp depreciation in the exchange rate.

He further said the government needs to reduce fiscal deficit monetisation to minimise incidences of high powered money in the economy while urging government to address issues around high energy cost to create an investment friendly environment.

Similarly, the national president, Association of Small Business Owners of Nigeria (ASBON), Dr Femi Egbesola, said there’s a huge economic challenge as a lot of companies cannot meet up with the operating cost and overhead cost of running their businesses, which is largely due to the inflationary pressures in the economy.

He said that a lot of companies have had to cut down on operating cost and daily maintenance services to be able to regulate the pressures coming out of the foreign exchange market.

He stated that Nigeria is an import based economy and the Naira has nosedived and for a country coming out of recession, there are some economic shocks people and businesses are still suffering.

Speaking on price inflation for MSMEs, Egbesola said those who had to bring agro-commodities from hinterland into commercial cities have had to pay high cost and most of these goods are perishable products, that’s how inflation started.

“Much money started to chase fewer goods in the market and by the time we exited recession, our Naira could no longer compete with the dollar,” he stated.

– Leadership

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