Tax burden, insecurity, high rates keep pressure on firms

Nigerian businesses are becoming more optimistic about the economy despite a stubbornly high cost of doing business, with taxation, insecurity and interest rates emerging as the biggest threats to investment, expansion and job creation in September, according to the Central Bank of Nigeria (CBN).

The CBN’s latest Business Expectations Survey showed that the Business Confidence Index stood at 13.4 points in September, indicating that firms remained positive about the outlook even as major operating constraints continued to weigh on their performance.

High or multiple taxation ranked as the biggest constraint, recording 67.1 points, followed by insecurity at 66.2 points and high interest rates at 64.3 points.

The findings highlight a critical contradiction in Nigeria’s economic recovery. Businesses are increasingly expecting stronger demand and improved access to finance, yet the cost of operating within the economy remains high enough to discourage investment and limit the ability of firms to expand.

Unfavourable political conditions ranked fourth with 61.8 points, followed by high bank charges at 61.5 points and competition at 60.2 points. Unclear economic laws and an unfavourable economic climate both recorded 58.7 points, while financial constraints and poor infrastructure stood at 57.5 and 55 points, respectively.

Despite those pressures, firms identified increased demand as the biggest reason for their optimism, accounting for 29.3 per cent of the positive outlook. Economic diversification contributed 18.9 per cent, while access to finance accounted for 13.5 per cent.

The Industry sector showed the greatest improvement, with its confidence index rising to 19.4 points in September from 17.1 points in August. Services declined from 13.3 to 10.2 points, while Agriculture eased from 13.9 to 12.8 points.

The CBN expects the positive sentiment to strengthen further, projecting business confidence at 23.6 points by December 2026 and 36.1 points by March 2027.

The projected improvement, however, is being tempered by expectations that borrowing costs will remain elevated. Although firms anticipate some easing in financing costs over the next six months, the CBN said borrowing-rate sentiment remained positive, indicating that businesses still expect credit to remain expensive.

Exchange-rate expectations were more favourable, with respondents anticipating a modest appreciation of the naira against the US dollar across the different outlook periods.

For manufacturers, traders and other productive businesses, the combination of high taxes and financing costs has direct implications for prices, investment and employment. Businesses facing multiple levies and expensive credit have less room to reduce prices, increase production or commit capital to expansion.

The taxation finding is particularly significant because it comes after the Federal Government introduced a new tax reform framework and measures aimed at simplifying compliance and reducing the burden of multiple taxation.

In March, the government introduced a presumptive tax framework for micro, small and medium-sized enterprises, while the Joint Revenue Board moved against the collection of road taxes, levies and related charges through checkpoints.

The September survey suggests that businesses have yet to feel sufficient relief from such measures.

The positive confidence reading nevertheless offers an important signal that demand and investment appetite are improving. The challenge for policymakers is to ensure that optimism translates into actual factory expansion, stronger hiring, higher output and lower prices.

Until taxation, insecurity and financing costs fall materially, the gap between what businesses expect from the economy and what it costs them to operate may remain one of the biggest obstacles to converting Nigeria’s improving macroeconomic picture into broad-based private-sector growth.