The Lagos Chamber stated this in its third quarter report.
The steady and significant improvement of the business confidence level expressed by business leaders in Nigeria suggests that they are gearing towards expanding their investments and plant size in the months to come, the Lagos Chamber of Commerce and Industry (LCCI), the premier chamber of commerce in Nigeria, has said.
The improvement in confidence level by businesses in Nigeria was revealed in the chamber’s third quarter 2013 aggregate Business Confidence Index (BCI), a leading economic indicator designed to measure the degree of optimism on the state of the economy that business leaders are expressing through their activities of investing and spending.
The 3rd quarter BCI index, which highlighted a sustained positive improvement of 24 per cent from the 16.5 per cent and 10.5 per cent it achieved in second and first quarters respectively, represents 13.5 per cent point movement of the index along a positive trajectory since the beginning of this year.
The survey covered 15 sectors and 582 (top business executives) respondents over the period, 15th May to June 18th 2013. The chamber said the survey covered most sectors sufficiently, though it added that the solid mineral sector in particular was a concern.
The participation of top private players across all the sectors and sub-sectors were secured in a responsible fashion, according to the chamber, which has as objective, to promote, support or oppose legislative or other measures affecting trade, industry, commerce and agriculture as well as representing the opinion of the business community in particular, and the economy as a whole.
Apart from the recurrent factors such as poor access to credit, security situation and the dwindling public power supply, the index posted impressive confidence across most business and economic indicators.
Some of the factors that might have boosted the confidence level of business owners, according to the chamber, include the budget implementation, the federal government’s security intervention in some parts of the North, impressive corporate results, and the modest trends of exchange and inflation rate that tend to have supported the record rise of business confidence.
Indicators such as capacity of firms to produce, export prospects, deals closed, strength/patronage of domestic market, and the impact/size of non-performing credit consistently boosted the aggregate index over the last three surveys.
“Interestingly, these indicators did not only post a positive confidence, but the levels of confidence achieved this time are trending in line with the global business confidence threshold of 50%,” the chamber said.
“The 3nd quarter 2013 aggregate Business Confidence Index (BCI) sustained a significant positive improvement. This is supported by the take-off of budget implementation across the country, on-going security intervention in some parts of the North, impressive corporate results in most sectors and stable macroeconomic prices – exchange and inflation rate.
“This improvement suggests that business leaders are likely going to expand their investments in the months to come but we are not able to say by how much. Investors are still wary about the state of the economic in the medium term because the lingering limiting factors are yet to be addressed”.
Business confidence in sectors and regions
All the sectors recorded positive confidence, according to the survey. For the first time, the financial sector recorded the highest confidence of 35 per cent, closely followed by Hotel & Restaurant and Telecoms & Postal sectors 29 per cent and 27 per cent confidence levels respectively.
The agricultural sector was impressive at 18 per cent, but the manufacturing sector remains low at 5 per cent business confidence level.
“This implies that expansion and new investment in the Nigerian manufacturing sector remains largely held down by the lingering challenges confronting business environment in the country,” the chamber said.
The confidence level of businesses located in the South West Nigeria inched to a new high of 44 per cent from 38 per cent and 30 per cent in Q2 and Q1 respectively. This is followed by companies operating in the South East and South South with BCI score of 31 per cent and 21 per cent respectively.
The confidence level of businesses located in the North central which dropped to zero in Q2 improved dramatically with BCI score of 11 per cent. North East and North West continues to trail between the negative and neutral confidence trajectories.
“We look to see how far the on-going security operation in some Northern states will impact business confidence in our Q4-2013 BCI survey” the chamber said.
According to the survey, 49 per cent of business managers are making plans to increase their work force in Q3-2013. This assertion is consistent with turnover and investment expectation across the sectors and size of firm.
The survey also revealed that 60 per cent of business leaders expect increased turnover and plans to expand investment in Q3 of 2013. According to business managers, the sticky access to credit, challenging security situation and the dwindling public power supply are key factors that my derail their expectation and high business confidence at this time.
The survey highlighted that Small and Medium Enterprises (SMEs) are the worst hit as they are mostly at the receiving end of arbitrary hike of public power price, sticky credit market and intimidation/extortion by government monitoring and regulatory agencies.
“Most SMEs stated that significant amount of their profit is lost through provision of alternative power, payment for public power that were never supplied and settlement of agents working directly and indirectly for government,” the chamber stated.
The LCCI is of the view that decreasing business confidence is often a pointer to slowing economic activities because business owners are likely to decrease their investment.
“The more confident entrepreneurs and managers feel about the business environment, the more likely they are to make new investments, create job and impact the economy,” he said.