PricewaterhouseCoopers (PwC), says economic reforms such as the foreign Exchange market liberalization could gradually attract foreign investments and boost capital inflows in the long term.
While it projected higher inflation and continued volatility in the foreign exchange market in August due to the managed float of the naira and removal of fuel subsidy, in the long run, the country will benefit from the reforms.
In its recently released report titled ‘Nigeria Economic Outlook’, the professional services firm, however, said in the short run, investors will likely adopt a wait-and-see approach, which may be a result of the absence of further reforms to strengthen business and economic fundamentals.
PwC projects higher inflation and continued volatility in the foreign exchange (FX) market in August.
According to the firm, petrol subsidy removal and the adoption of a managed float exchange rate system is expected to mount additional pressure on inflation.
“Proposed new ministerial cabinet to drive economic direction and fiscal policy management, implementation of new tax reforms to drive revenue generation. Inflation is expected to rise in the short to medium-term.
“Consumers are expected to be pressured by higher prices, causing demand to slow down. Wage adjustments unlikely to be adjusted simultaneously and proportionately.
PwC warned that consumer spending may be adversely impacted by the elevated inflation rate (food 25.3 percent and core inflation 20.3 percent rates.) and fuel price (140 percent increase after subsidy removal).
The firm said business revenues may decline in the short-term, mainly due to direct impact input costs and reduction in disposable incomes.
PwC said continued inflationary growth and rise in the cost of living may slow real economic growth in the medium term.
“The naira value since the implementation of the policy had ranged between N472/$ and N771/$ from an average of N463/$ in May before the policy announcement,” the report reads.
“Though this may have a negative impact, it could provide incentives to corporates to explore local sourcing or backward integration in the medium term.”
FX market liberalisation ’ll attract foreign investors, boost capital inflows – PwC
