PwC has warned that any further increase in taxes would
cause a decline in reinvestment by firms operating in Nigeria and exacerbate
corporate exits from the country.
This warning is contained in its June 2024 report titled:
“Nigeria Economic Outlook: Navigating Economic Reforms,” which projected that
inflation would decline to 29.5 per cent by the second half of 2024 from the
33.95 per cent that was recorded in May 2024.
The report said: “Government may reconsider any planned
increase in selected taxes to alleviate the financial challenges and unlock
liquidity of certain businesses being impacted by the economic pressure
points…any further increase in taxes will compound the decline in reinvestment
and exacerbate possible exits of corporate from industry.”
PwC stated that the impacts and implications of the reforms
on businesses would include reduced revenue growth.
It said: “Inflation may erode revenue by reducing the
purchasing power of consumers. This leads to low sales for businesses, which
consequently impacts business revenue negatively.
“Higher production costs, import costs, and raw materials
costs from the inflationary and exchange rate pressures are passed on to
businesses. Naira depreciation is expected to drive up the cost of imported raw
materials.
“The general rise in prices due to the removal of subsidy
may increase expenses such as marketing, logistics, utilities etc,” while “high
interest rates may lead to higher borrowing costs for businesses, making it
more expensive to fund operations and investments.”
According to the report, the economic outlook for the second
half of 2024 projects a marginal decline in inflation to 29.5 per cent by year
end, balancing the effects of reforms, policy actions, external pressures and
food prices; particularly in the second half of the year.
It also stated that the broad economic growth outlook was
indicating that the country’s Gross Domestic Product (GDP) may grow marginally
by 2.9 per cent on the back of sustained policy reforms although growth
prospects may be limited by elevated economic pressures.
“Fiscal sustainability concerns may remain slightly
elevated, given debt servicing costs, that is, 89 per cent of the budgeted
fiscal deficit is to be financed by new borrowings,” the report said.
The report also contained three broad considerations for the
government, which are structured and focused policy, policy flexibility and
mitigation of policy’s impact.
It urged the government to prioritise macro stability by
addressing security, social and pressure points of inflation and exchange rate
pressures and mobilise capital to drive growth through market focused policies
and intensification of investment promotion.
Besides, it advised the taking of short and long term
sectoral bets focused on exports, domestic substitution and job creation.
“Government must drive fiscal prudence by optimising
spending on capital projects with the highest Return on Investment (ROI),
rationalise public service spending and improve revenue diversification and
collection efficiency,” it added.
Under policy flexibility, the report said that the
government should decide when and how to introduce, defer, sequence, or stagger
different policies based on current economic and social conditions.
It further advised the authorities to adopt scenario
planning before any major economic reform is implemented to avoid unwarranted
policy reversals and embed contingency plans within any economic policies
during the planning phase.
The report further advised the government to implement
intervention funding schemes to support businesses with low-interest loan
programmes or credit guarantees to ensure businesses have access to affordable
financing despite high market interest rates.
It also enjoined the government to create social safety net
programmes such as unemployment benefits and workforce development programmes
to absorb the job losses from business exits due to the economic pressure
points.
The report also stated that businesses must consider their
strategic priorities, operating models, and cost structure and should have a
clear-eyed strategy.
It said: “Revisit your strategy and be clear on your must
haves to win in the future regardless of any economic scenario,” adding that
“businesses should double down on developing systems that would enable them to
win in any economic environment.”
The report also urged businesses to radically transform
their cost structure and reimagine their operating models.
“Revisit your entire cost structure to establish short, mid,
and long term actions to fundamentally adjust for the future. Re-imagine how
you organise and collaborate by using technology accelerators and strengthening
resilience,” it advised.