Key Takeaways
- Although inflation growth rate slightly slowed in 2024, however, the high cost of production is a significant challenge, amidst hike in interest rate by the Central Bank of Nigeria (CBN).
- The tax reform bills initiated this year remain a significant development to ease business environment and enhance growth if passed into laws and implemented.
- Inflation rate is projected to slightly drop in 2025 amidst possible rate adjustments.
- LSETF remains steadfast in supporting businesses and individuals with opportunities to thrive amidst challenges through affordable finance and beyond.
In 2023, we published an article assessing the business terrain in 2023 while stating some predictions for 2024. This article seeks to serve a similar purpose, beaming a retrospective light on 2024 and providing some insights about the 2025 outlook.
A good starting point would be assessing the predictions for 2024 and the reality, before delving into 2025 predictions. The inflationary trend persisted as predicted, but at a lower rate, as headline inflation grew by 13% from 29.9% in January 2024 to 33.9% in October 2024, indicating a drop of 12 percent points compared to the same period in 2023. Food inflation also slowed growth-wise as it grew by 11% from 35.4% in January 2024 to 39.2% in October 2024, a 19%-point decline compared to the 2023 numbers. However, core inflation – all items excluding farm and energy – in 2024 outpaced the 2023 growth rate by 0.7% point, rising by 20.3% from 23.6% in January 2024 to 28.4% in October 2024. The consistent increase in pump rise stemming from the removal of fuel subsidy, insecurity, flash floods and exchange rate depreciation were the major drivers of this inflation.
As predicted, the monetary policy rate was hiked six times in 2024 from 18.75% recorded at the beginning of the year to 27.5% by November 2024 to address the inflationary trend. This further tightened access to credit for businesses and increased the cost of capital, which affected business’s bottom line. However, interventions from government institutions such as the Lagos State Employment Trust Fund, the presidential grant and loan facility provided some level of support to businesses.
In addition, one of the highlights of 2024 is the upward review of the national minimum wage from #30,000 to #70,000 through the National Minimum Wage (Amendment) Act 2024. This landmark policy action is currently being implemented across different States at different rates, with some States adopting minimum wage rates above #70,000. Although this has significantly improved income levels across some households, however, the rising pricing levels limited the impact of this crucial policy action.
Another highlight of the year is the presentation of the tax reform bills – the Nigeria tax Bill, the Nigeria Tax Administration Bill, the Nigerian Revenue Service Bill and the Joint Revenue Board Establishment Bill – to the National Assembly by the Presidential Fiscal Policy and Tax Reforms Committee.
2025 Outlook and Predictions
- Benefits of the tax reform bills
The tax reform bills hold significant implications on businesses and individuals in the Nigeria economy. The aim of the bills is to improve fiscal governance, transform the architecture of public revenue, and boost economic growth in Nigeria. These bills, if passed into laws, will have positive implications on micro, small and medium enterprises as they seek to:
- Introduce zero-rated value-added tax (VAT) to promote exports (services, goods and intellectual property).
- Exempt small businesses with annual turnover of N50 million or less from taxes including VAT, withholding tax and corporate income tax.
- Reduction of corporate income tax rate by 5% over the next two years from 30% to 25%.
- Harmonisation of earmarked taxes into a single levy at a reduced rate.
- Repeal over 50 taxes and levies and harmonise others into a single digit.
- Introduce tax ombudsman to adjudicate tax-related issues, improve tax system and protect vulnerable taxpayers, among others.
These provisions, if implemented, are expected to reduce tax burdens on businesses, increase their turnover and provide opportunities for scaling through exports.
Beyond businesses, the reform seeks to also improve the livelihood of individuals, especially low-income earners, by:
- Exempting minimum wage earners from personal income tax and lessening tax burden of more than 90% of workers in Nigeria.
- Zero-rated VAT for food, education, and healthcare, and the exemption of rent, fuel products, public transportation and renewable energy from VAT.
These measures would improve the disposable income of the Nigerian public while protecting the vulnerable demographics among workers in Nigeria.
- Inflation and monetary policy rates
The inflationary trend in Nigeria is projected to drop slightly in 2025 to 25%, corroborating the comment of the CBN Governor about the effect of monetary policy rate hikes taking six to nine months to manifest. The effect is projected to be apparent by Q1 2025. The CBN is likely to decide on the next course of action on the rate hike based on the outcome of the inflation numbers in Q1 2025, especially with respect to core inflation.
However, businesses must be prepared to develop effective capital management strategies and leverage affordable funding opportunities with LSETF, Bank of Industry, and financial institutions with moderate and less stringent credit terms.
Concluding Thoughts
2024 challenged the resilience of MSMEs through increasing price levels and high cost of inputs amidst the enduring effect of subsidy removal and hike in energy cost. while also creating few windows of opportunities to enhance sustainability. However, critical policy reform initiated such as the tax reform bills hold silver lining for businesses in the years to come. Meanwhile, although some factors impacting businesses this year may persist in 2024, knowledge management and exchange, reskilling and upskilling are essential for business success.
Lagos State Employment Trust Fund remains in the business of providing access to job and wealth creation opportunities for businesses and individuals in Lagos State. You can follow LSETF across all social media platforms (Instagram, X (Twitter), Facebook, YouTube and LinkedIn) and sign up to our weekly newsletter to stay informed about our opportunities.
