CBN: Taxes, Insecurity, High Interest Rates Put Firms Under Pressure

By Chibuzor Alli

Nigerian businesses are maintaining a positive outlook despite growing pressure from taxation, insecurity and high borrowing costs, with the three issues emerging as the leading constraints on operations in September, according to the Central Bank of Nigeria.

The CBN’s latest Business Expectations Survey showed that the Business Confidence Index stood at 13.4 points during the month, indicating that firms remained optimistic about the business environment even as several cost and operational challenges persisted.

High or multiple taxation recorded the highest constraint index at 67.1 points, followed by insecurity at 66.2 points and high interest rates at 64.3 points.

The figures highlight the pressure businesses are facing from rising government charges, security risks and the cost of accessing credit, particularly for companies that depend on bank financing to fund working capital and expansion.

Tax burden tops firms’ concerns

Tax-related pressures emerged as the biggest concern among firms surveyed by the CBN, with high or multiple taxation recording 67.1 points.

Insecurity followed closely with 66.2 points, while high interest rates ranked third at 64.3 points.

Other significant constraints included an unfavourable political climate, which recorded 61.8 points, and high bank charges at 61.5 points.

Competition stood at 60.2 points, while unclear economic laws and an unfavourable economic climate each recorded 58.7 points.

Financial constraints scored 57.5 points, while poor infrastructure recorded 55.0 points, placing it last among the 10 major constraints identified in the survey.

The findings suggest that although infrastructure remains a longstanding challenge for businesses, firms currently view taxation, insecurity and the cost of borrowing as more immediate pressures on their operations.

Confidence remains positive despite pressure

The concerns identified by businesses did not translate into an overall negative outlook.

The CBN said the Business Confidence Index remained positive at 13.4 points in September, with respondents expecting business conditions to improve in the months ahead.

Increased demand was the biggest factor supporting the positive outlook, accounting for 29.3 per cent. Economic diversification followed with 18.9 per cent, while access to finance accounted for 13.5 per cent.

The industry sector recorded the strongest improvement in sentiment during the month, suggesting that firms in the sector were becoming more positive about their operating prospects despite the broader challenges confronting businesses.

High borrowing costs remain a concern

The persistence of elevated interest rates remains a potential obstacle to investment and business expansion.

Companies that rely heavily on bank loans for working capital, equipment purchases and new projects could face higher financing costs, potentially limiting their ability to increase production or expand operations.

The CBN survey also indicated that businesses expect borrowing rates to remain elevated across the review periods, although respondents anticipate some moderation in financing costs over the longer term.

Firms expect naira to gain modestly

Businesses also maintained a positive outlook on the naira, with respondents expecting the currency to record modest gains against the US dollar across the various review periods.

The currency outlook forms part of the broader positive sentiment recorded in the survey, despite concerns over taxation, insecurity and borrowing costs.

Regional outlook remains broadly positive

Business sentiment was broadly positive across the regions, although the CBN identified differences in expectations.

The South-East was the only region that did not share the positive near-term outlook expressed by businesses elsewhere.

The North-East recorded the strongest optimism across the forecast periods, while businesses in other regions also expressed positive expectations about the macroeconomic outlook.

Overall, the September survey presents a mixed picture of Nigeria’s business environment: firms remain hopeful about future activity, but taxation, insecurity and expensive credit continue to pose significant challenges to day-to-day operations and investment decisions.