Inflation, foreign exchange market volatility, and subsidy removal, among others, marred the earlier projected growth for the outgoing year as experts blamed fiscal and monetary authorities for the current economic misfortune.
Nigeria’s economic outlook for 2024 is marred by inflation, forex volatility, and the removal of fuel subsidies.
These factors contributed to a challenging business environment and threatened Nigeria’s projected GDP growth of 3.1 per cent.
LEADERSHIP’s investigation shows that 2024 started with an inflation rate of 28.92 per cent while the Central Bank of Nigeria (CBN) had set a target of bringing down the rate at which prices of goods and services rise to 21.3 per cent. This was not to be, as Inflation rate stood at 34.6 per cent as at November 2024.
This high inflation led to low disposable income as people continued to spend more as expenses while income shrank, thereby shooting up the cost of living that most people could barely cope with.
Subsidy removal, it was learnt, was another insult to injury with fuel price hike triggering high transport logistics that now have ripple effects across all sectors and spheres of our respective lives.
Some experts had predicted that fuel prices would drop as local refineries came up. While the fuel pump price was N668 per litre by January 2024, at the weekend, it was selling for N1,025, translating to an N357 price rise within the current year, despite Dangote Refinery coming on board and the Port Harcourt refinery now fully operational.
The forex volatility also affected the pricing of imported goods which is the mainstay of the nation’s economy and plays a critical role in the pricing of goods and services nationwide. When the current governor, Central Bank of Nigeria (CBN), Yemi Cardoso came on board last year, there were predictions that his policies would regulate forex but that was not to be until recently when the Naira started gaining strength.
As of January 2024, the dollar was exchanging for N1,455, but as of the weekend, it was N1,633, a surge of N73 between January and now. However, In-between, it was trading for as high as N1,800 until recently, it nosedived following a series of intervention from the Central Bank of Nigeria(CBN).
However, as the economy continued to adjust to the impact of exchange rate depreciation and energy subsidy reforms, economic activities continue to expand, albeit at a suppressed rate.
Gross domestic product (GDP) as at the third quarter showed that several sectors in Nigeria recorded lower GDP growth compared to the same period in 2023.
The manufacturing sector faced significant challenges, with its nominal GDP growth plummeting to 3.62 per cent, a drastic decline from 36.59 per cent in Q3 2023. This represented a staggering 90.11 per cent drop year-on-year. Despite a quarter-on-quarter growth of 31.67 per cent, the sector’s contribution to nominal GDP decreased to 14.30 per cent from 16.18 per cent in the same quarter of the previous year. Real GDP growth was reported at 0.92 per cent, slightly better than the 0.48 per cent recorded in Q3 2023 but lower than the previous quarter’s 1.27 per cent. These figures highlight ongoing structural issues, including high production costs and limited access to foreign exchange.
The agricultural sector growth also slowed to 1.14 per cent in Q3 2024 from 1.30 per cent in Q3 2023. Also, the industrial Sector grew by 2.18 per cent in Q3 2024, a decrease from 3.53per cent in the same quarter of the previous year.
Even though the Oil Sector expanded by 5.17 per cent in Q3 2024, this was a slowdown from 10.15 per cent in Q2 2024 and lower than earlier growth rates.
These declines reflect ongoing economic challenges amid inflation and policy changes.
In Q3 2024, Nigeria’s Information and Communications Technology (ICT) sector experienced a decline in its contribution to real GDP, falling to 16.35 per cent from 19.78 per cent in the previous quarter. Despite this drop, it showed improvement over the 15.97 per cent recorded in Q3 2023. The telecommunications sub-sector was a key driver, contributing 13.94 per cent to real GDP and achieving a year-on-year growth rate of 5.92 per cent.
Nevertheless, the sector experienced a quarter-on-quarter decline of -9.02 percent in real terms, reflecting broader economic challenges amidst ongoing inflation and forex volatility.
Moreover, macroeconomic instability continues to accompany economic growth, significantly suppressing economic performance, eroding the prosperity generated, restricting economic growth and diminishing the quality of life for Nigerians.
Also, the challenging business environment also led to the exit of some multinationals during the period under review.
Director general of the Manufacturers Association of Nigeria (MAN), Ajayi Kadiri said, the first half of 2024 was marked by significant challenges for Nigeria’s manufacturing sector, including high operational costs, declining consumer demand, and rising inflation.
He explained that “While some sectors showed resilience and growth, others struggled with declining production values, rising inventories, and reduced employment.”
Ajayi-Kadiri called for urgent need for Nigeria to implement decisive and coherent economic reforms to address these challenges, saying that “key areas of focus include enhancing policy consistency, improving the business environment, and fostering economic diversification.
“The success of these reforms will be crucial in reversing the current economic downturn, creating jobs, reducing inflation, and improving the overall welfare of Nigerian citizens. As the country navigates through these turbulent times, the resilience of its policy framework and the effectiveness of its economic management will determine the path forward.”
Speaking on the state of the economy, president of Lagos Chamber of Commerce & Industry (LCCI), Mr. Gabriel Idahosa stated that as of the third quarter of 2024, the Monetary Policy Committee (MPC) raised the Monetary Policy Rate (MPR) by 50 basis points to 27.25 per cent in September.
According to him, the private sector, which serves as the engine of growth and employment generation in Nigeria, is currently plagued with increased borrowing costs, reduced investment incentives, heightened uncertainties in our policy environment, and a pressured foreign exchange market.
“The hikes in the MPR have directly translated into higher interest rates, making it more expensive for businesses to access credit for working capital, expansion, and sustainability. With the high yields from treasury bills and bonds, the government is attracting investments from both local and foreign portfolio investors. This has, however, crowded out the private sector from accessing credit.
“We have consistently advised that rate hikes alone will not curb inflation without resolving the challenges of the real sector, which comprises the agriculture and manufacturing sectors. The real sector has demonstrated the capacity to create more jobs, manufacture products for consumption and export, and form the economy’s industrial base.”
On inflation hike, Idahosa noted that “the government must remain focused on boosting food production through ongoing policy reforms, targeted fiscal interventions, and better management of Nigeria’s floating exchange rate regime. The floating exchange rate policy adopted last year without any form of control has not shown good results till now.
“As an import-dependent nation, we need to consider better management approaches that fit the current profile of our economy. Boosting the supply of forex will also help strengthen the naira if transactions in the forex market are transparent enough to reduce speculative activities.”
He explained “the Chamber is optimistic that if the government harmonises its fiscal and monetary instruments to tackle the cost of agricultural production, enhance food processing, and sustain the fight against insecurity, inflationary pressures may soon begin to abate, and other economic variables can begin to record positive indicators.
“With the naira firming progressively in the past weeks, the government earning more forex to boost the supply of dollars, and the intensive focus on targeted interventions, we should begin to see an easing posture with the inflationary pressures.”
Similarly, the head of Financial Institutions ratings at Agusto & Co, Ayokunle Olubunmi, said, inflation has been difficult to manage in the country as the monetary and fiscal policy makers are working at cross purposes. While the CBN is tightening monetary policy, the fiscal authority has significantly increased spending.
Olubunmi noted that the fiscal authority had expended so much money such that, “we are having record high allocations at the FACC. We are having budgets that are actually more than twice or times three what we had a few years ago. We have actually seen the fiscal side embarking on an expansionary position which is increasing and flooding and intensifying the inflationary pressure while the CBN is doing the opposite trying to tame inflation.
“The CBN is trying their best but the truth is that it hasn’t been too effective. Not because the tools are not effective, but largely because the fiscal side is doing the opposite. They cannot achieve this without the support of the fiscal side.”
Managing director and chief executive of Cowry Assets Management, Johnson Chukwu whilst noting that the CBN has been very actively fighting inflationary pressures said “unfortunately, the factors driving inflation are beyond monetary tools, and they are likely factors outside the control of the monetary authorities.”
He pointed out that inflation is being triggered by issues such as “food production, which the monetary authorities cannot fight with monetary policy tools. The second factor is crude oil production, which they also cannot fight with monetary tools. So, the effectiveness of monetary policy as it relates to fighting inflation has been constrained by fiscal challenges. I wouldn’t say they are not doing a lot enough, but the intended goal has not been achieved.”
Looking at the cash crisis that has continued to prevail in the county, Chukwu said “given the fact that the current government was a victim of the cashless policy of the previous administration, and it is obviously one of the offences they took against immediate past CBN governor, I didn’t expect that we are going to be having the same experience.
In terms of cash management, Olubunmi had earlier noted that there is room for improvement by the central bank as he said “it seems as if the cash scarcity has been getting worse. I think the CBN is caught between the devil and the deep blue sea because on the one hand they want to encourage cashless transactions and everybody moving to the electronic platform. On the other hand, you also want to ensure that you have enough cash to be able to meet obligations.
To address the challenge, he said, there is a need to ensure that the payment platforms are effective. If the payment platform is very effective, the volume of cash that would be needed for transactions is going to be a bit low. Right. But having said that, the truth is that it is going to be difficult for all Nigerians to move into the cashless economy now.
“They’re seeing some level of cash. So, they need to be able to manage, try and increase the volume of cash in circulation. And I also understand the constraint of the CBN because the CBN is also embarking on cost-costing measures,” he said.
In his reaction, Henry Adigun an oil and gas analyst says Nigeria’s oil and gas industry performed better in 2024 than in the previous year.
Adigun, cited positive trends in the deepwater drilling exercise by major oil companies who have exited shallow wells to indigenous oil companies.
He said the industry witnessed significant asset acquisition by local oil companies and advanced gas production that has supported governments decade of gas initiatives.
To him, “In the midstream and downstream regions he said the Dangote refinery, a globally acknowledged refining facility, added significant value to the industry.
Above that is the return of operations by the Port Harcourt refinery which is adding value to the sector.”
However, he said, governance structure is yet to improve and lack of transparency still exists and needs to be improved in the coming year.
In the power sector, Kola Balogun, said the power sector privatisation exercise aimed at providing investment opportunities in the sector had proved to be a failed exercise.
Balogun, the chief executive officer (CEO) of Momas Electricity Meters Manufacturing Company Limited, said no meaningful investment has been recorded, especially in the distribution sector, as investors in that chain haven’t been able to carry out transformational projects.
In the transmission sector, he said, grid experiences had shown that the government should provide the needed infrastructure to deliver electricity through investment services. He said states should be encouraged to provide energy services across the chains to be able to transform the sector.
