Inflation is declining in some major economies. Nigeria’s foreign exchange market has become more stable. Business activity in Europe is improving, while several African markets are showing signs of greater economic stability.
These developments are encouraging. However, they do not mean that business risk has disappeared.
Interest rates remain high. Energy and shipping routes are under pressure. Chinese domestic demand is weakening, and geopolitical tensions continue to affect fuel, freight and financing costs.
Improving economic indicators should support better decisions. They should not encourage uncontrolled expansion.
For CEOs, CFOs and boards, this is a period for selective investment, stronger liquidity management and careful capital allocation.
The cost of capital may remain high
Many business plans prepared for 2026 assumed that global interest rates would begin to fall significantly. That assumption is becoming less certain.
Central banks remain concerned that energy prices and geopolitical disruption could push inflation higher again. This means dollar and euro financing may remain expensive for longer than many companies expected.
In Nigeria, headline inflation declined to 15.43% in July, but the Central Bank of Nigeria’s monetary policy rate remains at 26.5%. The gap between inflation and the policy rate may eventually create room for lower interest rates, but companies should not build their financing plans around an immediate rate cut. See Nigeria’s July inflation report and the CBN monetary policy decision.
A project that is only viable if interest rates fall quickly is not yet a strong project.
Before approving new borrowing, management should examine:
- whether the project can meet its obligations at current interest rates;
- whether the loan maturity matches the project’s cash flow;
- whether part of the debt can be refinanced without heavy penalties;
- the balance between fixed and variable interest rates; and
- what will happen if borrowing costs rise further.
Companies do not necessarily need to stop investing. However, large investments can be divided into stages, with additional capital released only when agreed commercial and financial targets have been achieved.
Energy risk is now a wider business risk
Disruption around the Strait of Hormuz remains one of the most important risks facing the global economy.
Seven commodity vessels reportedly crossed the strait on 20 August, approximately half the previous day’s level. More recent data also shows that traffic remains far below normal levels. The figures may exclude vessels operating without active tracking systems. Read the latest Reuters shipping report.
The impact extends far beyond the international price of crude oil.
This means crude oil prices may decline while diesel, petrol, aviation fuel and freight costs remain high.
Businesses should avoid using one oil-price assumption to estimate all energy-related costs. A proper forecast should examine crude oil, refined fuel, shipping, aviation, electricity and imported materials separately. Each cost responds differently to supply disruption, exchange rates, refining capacity and transport conditions.
For Nigerian businesses, this is particularly important because energy costs affect production, logistics, employee transportation and the final price paid by customers.
Nigeria’s FX stability is valuable, but it is not permanent protection
The relative stability of the naira is gradually becoming an important business asset.
A more predictable exchange rate improves budgeting, supplier negotiations, import planning, debt-service forecasts and pricing decisions. It also gives foreign investors greater confidence when assessing expected returns.
However, stability should not be mistaken for the complete removal of foreign exchange risk. Nigeria still depends on continued foreign currency inflows, investor confidence and favorable external conditions. A major change in oil prices, global interest rates or investor sentiment could create renewed pressure.
Companies should use the current period of relative stability to strengthen their position. This may include:
- matching foreign currency liabilities with foreign currency income;
- renegotiating payment terms with overseas suppliers;
- reducing unnecessary dollar-denominated debt;
- restructuring exposed obligations;
- rebuilding foreign currency reserves; and
- reviewing the currencies used in major customer and supplier contracts.
The appropriate response to FX stability is better discipline, not greater complacency.
Lower inflation does not mean households have recovered
Nigeria can experience declining inflation and improved foreign exchange stability while households continue to face serious financial pressure.
Inflation measures how quickly prices are rising. A reduction in inflation does not mean that prices have returned to previous levels. It means prices are increasing at a slower rate.
Many households are still dealing with the accumulated effects of earlier price increases, higher transport costs, expensive credit and weak income growth.
Consumer-facing companies should therefore avoid using lower inflation as sufficient evidence that demand will recover strongly. Management should continue to monitor:
- real disposable income;
- purchase frequency;
- changes in average transaction value;
- movement toward smaller product sizes;
- customer dependence on credit;
- delayed or canceled purchases; and
- movement toward cheaper alternatives.
A company may see a more stable economy while its customers remain under pressure. Both realities can exist at the same time.
China should not be treated as one economic story
China’s industrial output grew by 4.5% in July, but retail sales increased by only 0.6%, while fixed-asset investment declined by 6.7% during the first seven months of the year. These figures point to weak domestic demand, even though some parts of the Chinese economy remain active. See China’s official releases on industrial production and fixed-asset investment.
China matters to African businesses in several ways. It is a buyer of commodities, a supplier of equipment, a project financier and a source of investment capital.
Weak domestic demand could reduce China’s appetite for some African commodities. At the same time, excess industrial capacity may give African companies greater bargaining power when purchasing machinery, equipment and manufacturing services.
Companies should not use “Chinese economic growth” as a single assumption. They should assess Chinese consumer demand, industrial production, infrastructure spending, exports and overseas investment separately.
Stronger European activity could bring both opportunity and cost
Eurozone business activity improved in August. The composite Purchasing Managers’ Index rose to 52.1, while the manufacturing index reached 52.8. An index above 50 generally indicates expansion. See S&P Global’s August Eurozone PMI commentary.
This could support demand for selected African exports. However, stronger economic activity combined with energy-driven inflation could also keep European interest rates high.
For African businesses, Europe may therefore offer better commercial demand but more expensive euro financing. Companies importing machinery, chemicals, medicines and industrial materials from Europe should not assume that stronger European growth will automatically reduce supplier prices.
Exporters, on the other hand, should identify the countries and sectors where improving activity could create additional demand.
African markets must be assessed country by country
There is no single African economic environment.
South Africa is benefiting from lower inflation and a stronger currency, although imported fuel remains a significant risk. Ghana is experiencing renewed foreign exchange pressure while also attracting international interest in offshore energy exploration. Egypt remains a large and strategically important market, but its high interest rates make local financing expensive. Ethiopia is moving closer to resolving its sovereign debt default, which could improve investor confidence and access to international capital over time.
Nigeria is showing stronger signs of macroeconomic stability, but local borrowing remains expensive and consumer purchasing power is still weak.
A pan-African growth strategy must be built around the specific conditions of each country. Market size alone is not enough. Companies must consider currency risk, financing cost, regulation, customer income, capital controls and the ability to move profits across borders.
Corporate structure is becoming a strategic decision
Many Nigerian and African companies are considering holding-company structures in Mauritius, the UAE, Hong Kong, Singapore and other international financial centers. The decision should not be based on tax rates alone.
The most appropriate jurisdiction depends on several questions:
- Where are the likely investors located?
- Which banks will support the company?
- Where will the treasury function operate?
- What regulatory licenses are required?
- Where will senior management be based?
- What substance requirements must be satisfied?
- How will profits and dividends move between countries?
- Where could an eventual sale or public listing take place?
Hong Kong and Singapore, for example, compete not only through tax incentives but also through access to fund managers, family offices, skilled professionals, technology and international investors.
Mauritius may provide an effective bridge between African businesses and international capital, including growing pools of Gulf investment. The UAE offers access to investors, banks and global business networks, but companies must also consider geopolitical and banking concentration risks.
Which jurisdiction gives the company the best combination of capital, banking relationships, talent, regulatory credibility and exit opportunities?
Capital raising begins before the transaction
The proposed Dangote Petroleum Refinery listing could become an important test of whether African capital markets can mobilize substantial long-term funding for major industrial assets. The company has announced a $1 billion underwriting program ahead of the planned IPO, which remains subject to the formal regulatory process. See the Dangote Industries announcement.
Its significance extends beyond Dangote. Large African companies should begin considering whether their businesses could eventually attract pension funds, insurance companies, sovereign wealth funds and public-market investors.
Reaching that level requires more than hiring advisers when capital is needed. It requires:
- reliable audited financial statements;
- strong board governance;
- predictable cash flows;
- credible business forecasts;
- minority-shareholder protection;
- proper risk management;
- disciplined valuation; and
- consistent investor communication.
Capital raising begins years before the transaction. The quality of a company’s reporting, governance and financial discipline determines which investors it can attract and how much those investors will be willing to pay.
The decisions management should take now
Companies should divide planned investments into three categories:
Must doInvestments needed to protect operations, meet regulation or preserve critical revenue.
Strategic optionInvestments that create a long-term advantage but can be completed in stages.
Can waitInvestments whose returns depend heavily on lower interest rates, stronger consumer demand or favorable exchange rates.
Capital should first go to projects that strengthen cash generation, supply security, market position or strategic flexibility.
Every major capital proposal should also show the downside case. Boards should not approve investments based only on the expected return. At a minimum, management should test the effect of:
- a 20% increase in oil and fuel costs;
- a 10% decline in the naira;
- a 300-basis-point increase in borrowing costs; and
- delayed customer payments or weaker sales.
Management should also model a positive scenario in which interest rates decline and the naira remains stable.
The purpose is not to predict the future perfectly. It is to agree in advance on what the company will do under different conditions.
The board-level conclusion
The current environment is not a signal to stop growing. It is a signal to become more selective about growth.
Improving inflation and foreign exchange indicators create opportunities, but high financing costs, energy disruption, weak household purchasing power and geopolitical risk can still undermine an otherwise attractive investment.
The companies that perform best will not necessarily be those that expand fastest. They will be those that protect liquidity, allocate capital carefully and retain the ability to respond when conditions change.
Economic stability should create confidence in better decisions, not confidence that risk has disappeared.