CBN Poll: Respondent Firms Expect the Naira to Depreciate Next Month

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Monday, December 28, 2020   /02:25 PM / By CBN/ Header Image Credit: CBN


Highlights

  • Respondent firms expressed pessimism on the macro economy.
  • Respondents' outlook on volume of business activity, average capacity utilization, volume of total order, and financial condition(working capital) were positive.
  • Respondent firms identified insufficient power supply, unfavourable economic climate, competition, high interest rates, unclear economic laws, financial problems, unfavourable political climate, access to credit, insufficient demand, lack of equipment, lack of materials input, and labour problems as major factors constraining business activity in December 2020.
  • Respondent firms expect the Naira to depreciate in the current month and next month but appreciate in the next 2 months and next 6 months. Inflation level is expected to rise in the next 6 and 12 months, while borrowing rate is expected to rise in the current month, next month, next 2 months and the next 6 months.

 

2.0           Introduction

The December 2020 Business Expectations Survey was conducted online from December 7-11, 2020 with a sample size of 1050 businesses nationwide. A response rate of 91.3 per cent was achieved and the sample covered the agric./services1 , manufacturing, wholesale/retail trade and construction sectors (Fig. 1a, Table 1). The respondent firms were made up of small, medium and large corporations covering both import-oriented and export-oriented businesses (Figs. 1b and 1c, Table 1).

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3.0         Business Outlook

At -15.2 index points, the overall confidence index (CI) on the macro economy was pessimistic in December 2020. However, respondents are optimistic in their outlook for the month of January 2021 with a confidence index of 29.4. They also expressed optimism in the overall business outlook for February and June 2021 as shown in a greater confidence of the economy with 39.2 and 55.2 index points, respectively (Fig.2).

 

The pessimism on the macro economy in the current month was driven by the opinion of respondents from agric./services (-10.4 points), wholesale/retail trade sectors (-1.7), construction (-1.6 points) and manufacturing sectors (-1.6 points). The major drivers of optimism for next month were agric./services (16.8 points) and manufacturing sectors (10.3 points) (Fig. 3, Table 1).

 

Further analysis revealed that businesses that are neither import and export-oriented (-9.5 points), both import and export-oriented (-3.4 points), importers(-2.0 points) and exporters(-0.2 points), drove the negative business outlook for the month under review.


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3.1           Business Confidence on Own Operations by Sector

Respondents from three sectors of the economy expressed optimism on own operations in the review month with confidence index of 3.2, 2.5, and 0.2 for agric./services, manufacturing and construction sectors, respectively. However, wholesale/retail trade sector was pessimistic at -0.3 index points (Fig 4, Table 1).


3.2          Financial Conditions, Access to Credit and Installed Capacity

Respondents' outlook on volume of business activity, average capacity utilization, volume of total order and financial condition (working capital) were positive at 39.2, 11.2, 8.2 and 5.3 index points respectively, in December 2020 (Fig. 5).


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3.3          Employment and Expansion Plans

Respondent firms' opinion on the volume of business activities indicated a favourable business outlook for January and February 2021 with indices of 47.7 and 55.0, respectively. Businesses also hope to employ in January and February 2021 as the outlook was positive at 18.5 and 21.5 index points, respectively.

 

The break down by sector showed that the Agric/services sector with (20.5 points) has the highest prospect for employment in the next month, followed by construction sector with an index of 17.9 points, manufacturing sector (16.7 points) and wholesale/retail trade (13.4 points) (Fig. 6, Table 1).

 

Respondents were also optimistic about the volume of business activity and employment outlook index in the next 6 months as all indices were positive.

 

An analysis of businesses with expansion plans in January showed that the Agric/services sector and construction sector have the highest disposition to expand with 52.9 index points each. Manufacturing and Wholesale/retail sectors had an index of 46.6 and 41.2 respectively (Fig. 7, Table 1).


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3.4          Business Constraints

Respondent firms identified insufficient power supply (68.3), unfavourable economic climate (65.7) competition(64.8), high interest rates ( 64.5) unclear economic laws (62.7), financial problems (61.9), unfavourable political climate (59.4), access to credit (53.1) insufficient demand (49.3), lack of equipment (41.5) lack of materials input (41.1) and labour problems (27.87) as major factors constraining business activity in the current month (Fig. 8, Table 1).


3.5          Expectations on Exchange Rate

Respondent firms expect the naira to depreciate in the current month and next month but appreciate in the next 2 months and next 6 months, as their confidence indices stood at -24.1, -3.8, 9.9 and 30.5 index points, respectively (Fig. 9, Table 1)


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3.6          Expectations on Borrowing Rates

Respondent firms expect borrowing rates to rise in the current month, next month, next 2 months and the next 6 months with indices of 19.2, 14.9, 14.7 and 14.3 points, respectively (Fig. 10, Table 1).


3.7          Expectations on Level of Inflation

Firms expect the average inflation rate in the next six months and the next twelve months to stand at 13.24 and 14.51 percent, respectively (Fig. 11, Table 1).


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3.8         Expectations on Economic Growth Rate

Respondents anticipate increase in economic conditions as the index on economic growth rate in the short run stood at 5.9, 19.2,27.6 and 41.9 points for the current month, next month, next 2 months and next 6 months, respectively (Fig. 12, Table 1).


3.9          Opinion on Control of Inflation

Respondent firms expressed dissatisfaction with the management of inflation by the Government with a negative net satisfaction index of -33.5 in December 2020. The net satisfaction index is the proportion of satisfied less the proportion of dissatisfied respondents (Fig. 13,Table 1).


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