Nigerian Firms Capex Rises in Boost to Economic Recovery Hopes

Nigerian companies raised spending for property, plant, and equipment, offering relief to policymakers counting on private demand led recovery from inflationary pressures and foreign exchange crisis.

The non-financial firms collectively incurred N1.60 trillion on property, plant, and equipment (PPE) for the year ended December 2023, which is 17.71 percent higher than 2022’s N1.36 trillion, according to MoneyCentral calculations.

Capital expenditures (CapEx) are funds used to improve and maintain the physical resources of a company. Common CapEx projects include the construction of new factories, upgrading manufacturing equipment, and payment for repairs.

The increase in CapEx growth may have come as a surprise to investors given a red-hot inflation and a high interest rate environment as the central banks continue to adopt an aggressive monetary policy.

It could also mean that there is gradual improvement in business confidence or that firms are betting that the bold reforms of the president will unlock the potentials of the economy.

“Such growth of PPE on a macro level may be a positive indication of growing fixed capital formation in the country, with hope that such leading indicator would spur the growth of the economy in the near future,” said Rasaq Abiola, former head of Investor Relations at United Bank for Africa (UBA).

Higher crude oil prices since triggered by the Russia/Ukraine war and OPEC + output costs have also supported investment by some firms.

Nigeria’s Gross Domestic Product (GDP) grew by 3.46 per cent year-on-year in real terms in the fourth quarter of 2023, the National Bureau of Statistics has disclosed.

In February 2024, Nigeria witnessed a surge in headline inflation, reaching 31.70 percent, marking a notable uptick from January 2024’s rate of 29.90 percent.

MTN Nigeria Plc and Airtel Africa incurred a combined N812.59 billion on the acquisition of property, plant, and equipment, which represents 13.67 percent increase from 2022’s N715.86 billion, which also reflects these telecommunications firm’s continued investment in the resilience of their networks.

Dangote Cement Plc, BUA Cement Plc, and Lafarge Africa spent a combined N292.61 billion on PPE, which reflects the confidence of investors in the domestic industry and the potential for expansion as growth is unlocked.

Some analysts are of the view that the growth in CapEx is due to revaluation of assets which some companies are doing to ensure that they keep their equity and strong.

The abrupt devaluation of the currency to spur foreign investment stoked foreign currency revaluation losses that tipped some firms into a loss after tax and put pressure on shareholders’ funds.

Seplat Energy Plc, the largest upstream oil and gas firm, spent N117.53 billion on the acquisition of property, plant, and equipment, from N67.33 billion as at December 2022.

Seplat has a capex guidance of $170-200 million for 2024. It will fund  capex on Abiala, a marginal field development tied into OML40.

In February 2024, the upstream oil and gas giant received regulatory approval for the full lifecycle Field development plan (FDP) for the Sibiri oil discovery on OML40.

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