The Nigerian economy has been fiercely buffeted by the winds of change and uncertainty, most notably characterised by the volatility of the Naira. As the nation grapples with fluctuating exchange rates and the subsequent impacts on trade, businesses are tirelessly seeking strategies to survive and thrive amidst the upheaval.

In a recent Talking Trade webinar hosted by Talking Trade and Investment Global (a Canadian not-for-profit), Mr Olufemi Boyede, CITP, a renowned international trade expert, comprehensively analysed the current economic and intricate challenges faced by businesses in Nigeria, with a focus on the volatile state of the Naira. The session delved into the impact of global economic trends, inflation rates, and exchange rate fluctuations on local businesses.

Boyede gave insightful nuggets to business owners looking to stay afloat and successfully navigate the choppy waters of naira volatility.

Opening Insights:

Mr Boyede began by acknowledging businesses’ global problems, hinting at the looming threat of another global economic recession. He particularly emphasised how Nigeria is not immune to these challenges, with the Naira experiencing unprecedented volatility.

Citing a recent TikTok Video he came across, Mr. Boyede ingeniously captured the essence of Nigeria’s economic predicament. A man navigating the market, attempting to purchase gari, with the price changing 3ce within a few minutes, symbolised the struggles of businesses in the constantly shifting economic landscape. The scenario highlighted the urgency and unpredictability that companies face, mirroring the rapid fluctuations in the value of the Naira.

Tracing the performance of the Naira against the US Dollar, Mr Boyede pointed out that today, the Naira has devalued almost four times compared to its value less than a year ago, in May 2023.

Of course, this has had multiple ramifications. Boyede explained that with the inflation rate rising to nearly 30% in January 2024, the highest rate in over 27 years, the prices of essential goods and services have steeply increased. 

The high inflation has also led to a shrinking package size phenomenon called “shrinkflation”, where consumer staples like milk, sugar and detergents that used to be sold in 450g packs are now being sold in 300g packs at more than double the price.

The impact of these price increases is a drastically reduced standard of living and purchasing power for average Nigerian consumers. Food, transportation and housing take up a higher share of incomes, leaving less for healthcare, education and other needs.

Mr Boyede debunked the myth and misconception that a devalued naira benefits exporters, pointing out the reality was far more complex. The weak Naira, coupled with high inflation and low purchasing power, has led to low wages and high unemployment, creating a vicious cycle that businesses must navigate carefully.

Strategies for Businesses:

To stay afloat amidst these challenges and survive in this challenging environment, Mr Boyede proposed several survival strategies  for businesses, such as:

1. Export clustering, cooperative exports: Collaborating with other exporters to fill containers, reducing shipping costs.
2. Prudent management: Focusing on cost optimisation measures, efficient resource allocation, and prudent financial management.
3. Adapting to changing customer preferences: Understanding and pivoting offerings to align with shifts in consumer spending habits.
4. Cultivating customer confidence: Actively engaging with customers, maintaining communication, and fostering trust and support.

He further recommended:

1. Flexible and multidisciplinary staffing: Building capacity that can adapt to changing tides.
2. Continuous review of cost efficiencies: Consistently evaluating and streamlining operations for cost savings.
3. Exploring new revenue streams: Critically exploring alternative sources of income.
4. Utilizing available incentives: Leveraging government incentives and support programs.

Government Intervention:

Focusing on the part the government should play in these uncertain times, Mr Boyede enumerated several measures that can be taken to support businesses, such as:

1. Supporting manufacturers and producers: Providing subsidies and incentives to aid production for domestic consumption and exports. Olufemi emphasised the need for deliberate and intentional government support.
2. Paying debts owed on the Export Expansion Grant: Reducing the heavy production cost burden on businesses. The Export Expansion Grant, among other existing incentives, was highlighted as crucial for reducing the cost of production and supporting businesses.
3. Activating Common Facilities Centres: Investing in trade infrastructure and shared facilities for domestic businesses, particularly the activation of common facility centres, thus echoing the importance of shared resources.
4. Adopting the model of the Asian Tigers: Emulating successful economic development strategies from countries like South Korea, Singapore, and Taiwan.

In closing, Olufemi concluded with case studies highlighting the impact of naira volatility on non-oil exporting businesses, such as the Ijebu Garri exports to Canada, where the wholesale buying price in the Nigerian market increased from ₦33,000 per bag in December 2023 to ₦55,000 per bag in February 2024, almost double the price in the space of 2 months. On the other hand, in the Canadian marketplace, the cost of gari has only gone up by 5-8 cents over the last four years! A stark illustration of the challenges faced by exporters and businesses operating in the current economic climate.

Ultimately, Mr Boyede left no one in doubt about the need for concerted efforts from businesses and the government. Businesses must adopt innovative strategies and adapt to changing market dynamics. At the same time, the government needs to intentionally provide support and implement policies that foster economic stability and growth.