Firms Identify Insufficient Power Supply And Access to Credit as Major Factors Constraining Business

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Thursday, November 01, 2018 / 11:46 AM / CBN

 

Highlights

The highlights of the outcome of the Business Expectations Survey in October 2018 are as follows:

  •  Respondent firms expressed optimism on the macro economy in October 2018.
  •  Respondents’ outlook on the volume of total order, business activity and financial conditions (working capital) remained positive during the review period.
  •  Firms identified insufficient power supply, high interest rate, unfavourable economic climate, financial problems, unclear economic laws, unfavourable political climate, insufficient demand and access to credit as the major factors constraining business activity in the current month.
  •  Respondent firms expect the Naira to appreciate in the current and next months; inflation rate to fall in both months; and borrowing rates to rise in both the current month and next month.

 

Introduction

The October 2018 Business Expectations Survey (BES) was carried out during the period October 8-12, 2018 with a sample size of 1050 businesses nationwide. A response rate of 98.4 per cent was achieved, and the sample covered the services, industry, wholesale/retail trade and construction sectors1 . (Fig. 1a, Table 1)

 

The respondent firms were made up of small, medium and large organisations covering both import- and export-oriented businesses (Figs.1b and 1c, Table 1).

 

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Business Outlook

At 23.2 index points, respondents’ overall confidence index (CI) on the macro economy in October 2018 was less optimistic when compared to its level of 24.8 index points recorded in September 2018. The businesses outlook for October 2018 showed confidence on the macro economy at 64.4 index points. (Fig.2). The optimism on the macro economy in the current month was driven by the opinion of respondents from services (13.6 points), industrial (7.2 points), wholesale/retail trade (2.1 points), and construction (0.3 points), sectors, whereas the drivers of the optimism for next month were services (34.9 points), industrial (21.5 points), wholesale/retail trade (5.8 points), construction (2.2 points) sectors (Fig. 3). The positive outlook by type of business in October 2018 were driven by businesses that are neither import- nor export-oriented (18.6 points), import-oriented (2.4 points), both import- and export-oriented (1.9 points) , and those that are export-related (0.1 points) (Table 1).

 

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Business Confidence on Own Operations by Sector

All sectors except the construction sector expressed optimism on own operations in October 2018 . Respondents from industrial sector expressed relatively more optimism on own operations in the current month with an index of 4.5 points, when compared with the 2.1 points reported in September 2018, respectively (Fig 4, Table 1) 

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Financial Conditions and Access to Credit

Respondents’ outlook on the volume of total order and business activity in October 2018 remained positive, as the index stood at 17.4 and 18.8 points, respectively when compared to 16.0 and 15.2 points, respectivly recorded in the previous month. Similarly, respondents’ outlook on financial conditions (working capital) and average capacity utilization improved , as the indices stood at 15.6 and 23.0 index points, when compared with the 11.6 and 18.3 points, respectively recorded in September 2018 (Fig.5). Respondents were however pessimistic on access to credit in the review month, with an index of -0.1 points.

 

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Employment and Expansion Plans The positive outlook in the volume of business activities (69.8 index points) and employment (27.5 index points) indicated a favourable business outlook in the next month. The employment outlook index by sector showed that the services sector (30.3 points) indicates the highest prospects for creating jobs, followed by wholesale/retail trade (29.9 points), industrial (24.4 points), and construction (10.3 points), sectors (Fig. 6, Table 1). The analysis of businesses expansion plans by sector next month showed that the services sector indicates greater disposition for expansion with an index of 25.3 followed by wholesale/retail trade and industrial sectors with 17.9 and 6.5 index points respectively (Fig. 7, Table 1).

 

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Business Constraints

The surveyed firms identified insufficient power supply (67.2 points), high interest rate (54.4 points), unfavourable economic climate (53.3 points), financial problems (52.2 points), unclear economic laws (48.8 points), unfavourable political climate (48.0 insufficient demand (44.0 points), and access to credit (42.7 points) as the major factors constraining business activity in the current month (Fig. 8, Table 1).

 

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Expectations on Exchange Rate

Majority of the respondent firms expect the naira to appreciate in the current and next months as the confidence indices stood at 23.3 and 41.3 points, respectively (Fig. 9, Table 1). 

Expectations on Inflation and Borrowing Rates Respondent firms expect inflation rate to fall in both the current and next months, with confidence indices of -0.3 and -6.8 points for the current and next months, respectively (Fig. 9). Similarly, respondent firms expect borrowing rates to rise in both current month and next month as the confidence indices stood at 4.7 and 2.0 points, respectively (Fig. 9, Table 1).


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