As we enter 2024, the global economic landscape remains dynamic and uncertain. Economies worldwide grapple with the negative impact of inflation, supply chain disruptions, geopolitical tensions, climate change, increasing debts, and even the aftermath of COVID-19. For Nigeria, there was a significant downturn in economic activities in 2023 due to significant challenges emanating from abrupt currency policies leading to naira scarcity, the removal of petrol subsidy, naira devaluation and other government fiscal and monetary policies. These challenges generally impact the business landscape in Nigeria till date. However, analysts and economic experts project a potentially improved performance of Nigeria's economy this year, fueled by the oil sector's gradual recovery and the expected gains from Federal Government reforms across various sectors. Yet, Nigeria's inflation rate, standing at 28% as of December 2023 (based on the Nigeria Bureau of Statistics data), impacts the value of savings and investments. The International Monetary Fund projects Nigeria's Gross Domestic Product (GDP) growth to reach 3.1% in 2024, a modest improvement from 2023 (2.9%). The inflation rate is expected to decline marginally, hovering around 22%, while the naira, buoyed by expected increase in dollar inflows, might see some stabilization. The current government administration brings hope for clarity in government policies and improved governance. Further, there is an increased focus on infrastructure development, diversification beyond oil, and strengthening non-oil exports; these potentially create new opportunities for business enterprises including Family businesses.
According to verifiable data sources, Family businesses contribute up to 30% of GDP and are vital to Nigeria's economic growth and development. Hence, a need to assess the impact of the above economic projections on such businesses. This article provides insight into the effects of the outlined economic issues and how they impact Family businesses while offering guidelines to navigate the uncertain future and protect the Family's accumulated wealth.
General Impact of Economic Challenges on Businesses in Nigeria
Businesses in Nigeria are at risk of survival, stability and growth due to the prevailing economic challenges in the country. We discuss hereunder, some of these challenges and the implications of these on Nigerian businesses.
- Unfavourable Foreign Exchange (FX) Rates: The Nigeria Naira's poor performance against the major foreign currencies casts a shadow over businesses especially those that heavily rely on imported materials or processes as input. This is basically because the cost of production becomes high due to unfavorable FX rates thereby impacting the prices of final products. This in turn leads to reduced sales thus reduced profitability and in the long run, businesses struggle to meet expense obligations and to remain a going concern.
- Inflation: High inflation remains a major cause for concern for businesses as the rising costs of factors of production including utilities, transportation and other expenses ultimately determine the price of goods and services. While some businesses have adapted by exploring viable pricing strategies to stay competitive and sustain their operations, it is evident that inflation has significantly eroded profit margins.
- Interest Rate Changes: The frequent increase in interest rates also has a direct impact on businesses. The high interest rates have made borrowing more expensive, hindering the inflow of investments and expansion plans of these businesses.
Strategies for Family Businesses to Safeguard Family Wealth Despite Economic Challenges
Economic conditions and challenges in a country impact all businesses regardless of ownership. In other words, the various challenges discussed in this article impact Family businesses in the same manner as non-Family businesses. However, considering the unique nature of Family businesses in terms of the intricacies of Family dynamics, more effort needs to be put in place to ensure survival in these feeble economic times. Family businesses must judiciously employ well-calculated measures to mitigate the negative effects; from diversifying revenue streams to implementing efficient cost management mechanisms; from setting up proper Family and business governance structures to tactical inclusion of Family members in the Family business. We discuss some of these measures below.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
