Big Nigeria companies who are listed on the stock exchange saw a ramp up of capital spending in the first six months of the year, an indication that they were more sanguine about the economic outlook.
Of course, improved business activities means firms will embark on the purchase of property, plant, and equipment (PPE) needed for production needs.
Based on results from fifty companies in the NGXASI index, capital expenditures have risen 36.75 percent in June 2024 to N877.95 billion, from a year earlier, according to data gathered by MoneyCentral.
According to a MoneyCentral analysis, companies in the consumer goods, Industrial goods, Agriculture, and oil and gas sectors have been the most significant contributors to capital-expenditure growth.
The improvement in capital spending offers a glimmer of hope that companies are optimistic that the current bold reforms by president Bola Tinubu will spur economic growth and they are being proactive in purchasing assets.
“These companies may have invested more in PPE and that may reflect their positive outlook on the economy but you may need to check if there has been any revaluation of assets in such companies,” said Abiola Rasaq, a Lagos based analyst.
“It may reflect the impact of inflation on new PPE but may also reflect revaluation of assets, as some companies may have devalued their PPE to shore up asset base and minimize impact of FX loss on their equity position,’’ said Rasaq.
According to the National Bureau of Statistics (NBS), Nigeria’s economy grew by 3.19 percent in Q2-24 in real terms. This marks an improvement from the 2.51 percent yoy growth recorded in Q2-23, and the 2.98 percent yoy growth reported in Q1-24.
It is important to note that the economic reforms of the new administration undermined profit margin of firms who booked huge foreign exchange losses due to the abrupt devaluation of the currency as the Naira lost 70 percent of its value against the U.S dollars.
The depreciation of Naira led to imported inflation for companies who import their raw materials from overseas, which forces them to pass on higher input costs to the final consumers in the form of higher prices.
For the second quarter or first six months of 2024, the operating profit margin for Nigeria’s largest listed companies across all sectors except financial firms stood at a negative figure of -68.85 percent from 18.93 percent as at June 2023.
Some firms are tightening their belts over concerns about the foreign exchange volatility and rising inflation, as they put a brake on capital spending decisions.
The International Monetary Fund (IMF) has said that achieving Nigeria’s projected 3.1 per cent economic growth outlook for 2024 is dependent on implementation of stronger reforms.
“Insecurity, tight financial conditions, multiple taxes, insufficient power and corruption are foremost constraints identified by businesses.
“What comforts the IMF is that these issues can be addressed by the Nigerian government, and they are currently being addressed through reforms by the Federal Government. And we are encouraged by the fact that these issues can be reversed,” said Dr Christian Ebeke, IMF Resident Representative.
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