After tumultuous 2023 analysts see mixed 2024 Nigeria outlook 

 The year 2023 was not a kind one for the Nigerian economy. Turbulence across various sectors, ranging from energy to agriculture, has derailed the country’s economic projections and benchmarks. 

Economic indicators have been erratic, with inflation rising and the value of the local currency, the naira, plummeting. The cost of living has spiralled out of control, eroding the purchasing power of the average Nigerian. A combination of global and domestic factors has conspired to leave the economy reeling, with little sign of respite on the horizon.

The shortage of naira notes in the first quarter of 2023 has had a lasting and profound impact on inflation in Nigeria. Consumer inflation had already been high at the beginning of the year, but the shortage sent prices even higher, hitting an 18-year high in November at 28.20 percent. The crisis is having a profound effect on the cost of living for ordinary Nigerians, many of whom are struggling to make ends meet. The naira shortage has also resulted in a fall in the value of the currency, further contributing to inflationary pressures.

Furthermore, the policy changes related to fuel subsidies, the exchange rate of the naira, and access to foreign exchange have had far-reaching implications for the Nigerian economy. The local currency has depreciated sharply against the US dollar, resulting in a significant loss of purchasing power for both individuals and businesses. The depreciation has also impacted the parallel market exchange rate, with the naira losing more than half of its value since May 2023.

Rather than promoting economic growth, the government’s policy decisions have created a perfect storm of economic hardship for the Nigerian populace. 

While the government has attempted to provide some relief in the form of cash and other benefits, the impact has been negligible in the face of high inflation and a weakening currency. Furthermore, the government’s decision to remove fuel subsidies has only exacerbated the situation, placing an even greater strain on the budget and the country’s economy.

Consequently, many businesses have been forced to reduce their operations or even close their doors completely. This has had a devastating effect on both local and multinational companies, with some choosing to leave the country altogether. The economic climate has become increasingly difficult to navigate, and businesses are finding it impossible to continue operating profitably.

Amidst all of these economic challenges, the Nigerian economy continued to struggle under the weight of a significant public debt burden. As of September 30, 2023, the country’s total public debt stood at N87.91 trillion, or $114.35 billion. Of this amount, N1.80 trillion was attributed to domestic debt, while foreign debt fell from $43.16 billion to $41.59 billion over the same period.

Given the current state of the foreign exchange market in Nigeria, with demand significantly outstripping supply, some analysts argue that it is unlikely that the situation will improve any time soon.

With the central bank acting as the primary supplier of dollars in the market, there are projections that the lack of significant dollar inflows into the country is likely to exert downward pressure on the naira, unless there is a dramatic increase in Nigeria’s dollar earnings.

According to analysts, Nigeria’s economic prospects for 2024 are mixed, with moderate growth expected to be weighed down by ongoing challenges.

The World Bank’s latest Nigeria Development Update (NDU), noted that the country’s economic outlook is highly dependent on the effectiveness of its macroeconomic stabilisation agenda.

According to the World Bank’s ‘Macro Poverty Outlook’ report, the share of Nigerians living in poverty is expected to reach a peak of 38.8 percent in 2024, as inflation and economic growth rates continue to fluctuate. However, the report projects that the share of Nigerians living in poverty will gradually decline as inflation decreases and the economy begins to grow again. The report noted that the successful implementation of the country’s current economic reforms is crucial for improving its growth prospects in the short to medium term.

In a more optimistic view, Gabriel Idahosa, the president of the Lagos Chamber of Commerce and Industry (LCCI), has predicted that Nigeria’s inflation rate will start to slow down in 2024.

Idahosa added that the various measures being implemented by different levels of government to address the rising cost of transportation and logistics will help to moderate prices in 2024. He noted that while the measures may not immediately reverse the rising cost of living, they will help to mitigate its impact and set the stage for a more sustainable recovery.

According to the LCCI president, the decision to end fuel subsidies was not unexpected, and it was clear that there would be significant ripple effects on the cost of fuel and other goods and services. He said that while the government has taken steps to reduce transportation costs, such as deploying CNG buses, these measures will take time to have a meaningful impact on the cost of living.

Idahosa also expressed confidence that the expected increase in production at Dangote and Port Harcourt refineries in 2024 will have a positive impact on energy costs and, by extension, prices in general. He noted that the country’s current reliance on imported fuel is a major driver of inflation, and increasing domestic production will help to mitigate this challenge.

“So, we are going to get an aggregation of that across the country. Places like Borno and Bayelsa are now having CNG buses and transportation is coming down in these places. So, between six and nine months, all the efforts to replace petrol as the primary source of transportation will begin to show results,” he said.

In the opinion of Dumebi Oluwole, economics analyst at STEARS,  the first quarter of 2023 was marked by a severe cash crunch that had a major negative impact on the economy, resulting in a significant decline in GDP.  

Oluwole pointed out that the PMI, a forward-looking indicator of GDP growth and a measure of the health of business and private sector activity, also contracted significantly, contributing to high inflationary pressures. 

According to Oluwole, the key factors that will affect the macroeconomic environment in the future include commodity prices and the exchange rate, which are both areas where the monetary authorities play a crucial role. The economic analyst noted that the job of the monetary authority is to ensure price stability, and in order to do so, it must take into account the movements of these key variables. Therefore, it is important to monitor and analyse how these factors will evolve over time, in order to ensure that the monetary policy decisions are aligned with the goal of price stability.

On the fiscal perspective, Oluwole said, “Starting with the exchange rate, we are already seeing the CBN’s commitment to getting this lumps of dollars that the CBN will use to service its FX backlog which is currently estimated at over $6.7 bilion and we are also seeing the government will get some funds to continue to intervene in the FX market and what this is signaling is that a more committed CBN to addressing the FX issues is good enough to gradually increase investor sentiment.”

The STEARS analyst argued that while the commitment to exchange rate reforms is a positive step, it is not enough to reassure investors and speculators. She also noted that investors and speculators require more than just words, they require tangible evidence that the reforms are being implemented and are effective. Without this, there is a risk that the naira will depreciate faster than anticipated due to speculative attacks and capital outflows.

According to Oluwole’s projections, consumer disposable income is expected to remain low in 2024, leading to increased price resistance, price consciousness, and price sensitivity among consumers. This, she explained, means that consumers will be more likely to prioritise essential items and make fewer bulk purchases, opting instead for smaller quantities as they try to adapt to the rising cost of living. Oluwole also noted that luxury goods and non-essential items are likely to see a decline in demand, as consumers focus on meeting their basic needs.

To stimulate consumer spending, Oluwole emphasised the need for the government to create a business-friendly environment that encourages job creation and economic growth. She noted that this will give people the opportunity to earn more money, which will increase their ability to spend. Oluwole highlighted the importance of reducing red tape, streamlining the process of setting up businesses, and improving the security situation as key factors that can create an enabling environment for businesses to thrive and generate more employment opportunities. These measures, she argued, are essential to boosting consumer spending and stimulating economic growth.

In order to address issues related to infrastructure and logistics costs, Oluwole emphasised the need for the government to take proactive steps to create a stable and predictable environment for businesses to operate. She also highlighted the need for fiscal and monetary policies that are well-aligned with Nigeria’s unique economic conditions. This includes avoiding excessive government spending that does not reach those at the grassroots level and ensuring that the country’s resources are used efficiently and effectively. She further stressed the importance of reducing policy uncertainty, which can have a negative impact on investment and economic growth.