|
Listen now
|
The audacious transformational economic reforms of Nigeria’s new President Bola Tinubu, that is expected to unlock the potential in the economy, will bolster the investment appetite among firms who are reeling from a myriad of challenges.
It is worth noting that companies usually scale back on expansion plans or cut back on capital expenditure spending (CapEx) whenever there are macro concerns and some could decide to give excess funds to shareholders in the form of dividend and share-buy backs.
Capital expenditures dipped by 29 percent year-over-year to N126.05 billion in the first quarter of 2023 among listed companies, according to data gathered by MoneyCentral.
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.
However, Seplat Energy Plc and Transnational Corporation Plc bucked the trend as they recorded CapEx growth of 88.06 percent and 808.69 percent respectively. The increase in investment was due to a rally in commodity prices even as they are capital discipline.
Of course, high inflation, foreign exchange scarcity, cash crunch, decrepit infrastructure, and central bank’s rate hikes have undermined business confidence and the growth in the revenue of bellwether been largely driven by a hike in the price of key product as consumers groan under price increases and spiraling utility bills.
Nigeria’s inflation rate rose to 22.41 percent in May 2023, marking the fifth consecutive increase. Despite monetary policies to control inflation, it remains at an over 17-year high, according to data from the National Bureau of Statistics (NBS).
Nigeria’s Gross Domestic Product (GDP) growth slowed to 2.31 per cent in the first quarter (Q1) of 2023 from 3.52 per cent in the fourth quarter of 2022.
The jobless rate in Nigeria rose to 33.3 percent in the three months through December 2021, according to the statistics body. That’s up from 27.1% in the second quarter of 2020, the last period for which the agency released labor-force statistics.
There is light at the end of the tunnel as analysts are optimistic that the transformation policy of the new government which has been getting standing ovations from both local and foreign investors will spur firms’ appetite for the acquisition of property, plant, and equipment (PPE).
There are indications that the unification of the foreign exchange will remove bottlenecks in the foreign exchange market, paving the way for companies to seamlessly import raw materials and equipment needed to meet production.
In a thriving economy, jobs are being created, which adds impetus to demand and ensures steady economic growth.
The new government seems to be starting strong and there is some expectation that it would pursue audacious reforms that can open up the economy and stimulate productive activities, according to Rasaq Abiola, former head of investor relations, United Bank for Africa (UBA).
“Hence, I would expect that investors and corporates begin to brace up for Capex spending to take advantage of different opportunities that may come up from the reforms and expectedly improved earning capacity of Nigerians and attendant growth in aggregate demand,” said Abiola.