Nigeria, widely-considered the giant of Africa, is once again at the epicenter of regional economic forecasts, as it dictates the tempo for Western and Central Africa. This time around, the World Bank estimates that economic activities in these regions could ramp up by 3.7% throughout 2024.
So these guys hinge a huge chunk of that optimism on Nigeria’s economic performance, suggesting a slight improvement from the previous year’s 3.2%. The subregion’s progress might stall if Nigeria’s economic growth trails off below the average pace.
Nigeria’s massive contribution comes not only from its massive population but also from its oil production, topping nearly 1.5 million barrels daily. Despite being the continent’s largest oil producer, Nigeria grapples with persistent hard currency shortages, hindering economic growth.
Since assuming office in May last year, President Bola Ahmed Tinubu embarked on a [ridiculously] ambitious plan to revamp the foreign-exchange market and magnetize investments, though not without its challenges. The devaluation of the naira has fanned the flames of inflation, prompting the central bank to hike borrowing costs, which could further suppress business activities.
Economic Management
Nigeria’s economic storyline is marred by decades of mismanagement, with its oil wealth largely benefiting a politically connected elite. Corruption is rampant, many state institutions function suboptimally, and swathes of the northern region remain under the threat of armed bandits and Islamist militants.
Approximately 40% of Nigeria’s populace, out of over 200 million, languish in severe poverty. The spike in living costs is only making the situation worse. In 2022, the government used a whopping 96% of its revenue for debt servicing, leaving a minuscule portion for other expenditures.
Previously, the central bank’s unorthodox methods, like providing loans to small businesses and sustaining multiple exchange rates, were intended to enhance liquidity and encourage dollar inflows. Unfortunately, these policies backfired, giving rise to a booming parallel currency market.
President Tinubu’s administration is taking steps to simplify the exchange-rate system, enhance manufacturing, and improve infrastructure and public transport accessibility. Notably, Tinubu axed long-standing fuel subsidies shortly after his tenure began, a move that saved the government $10 billion in 2022 but also sparked controversy.
Reforms in the central bank have allowed more freedom in naira trading and shifted focus to inflation targeting rather than stringent money supply control. The central bank’s aggressive rate hikes in early 2024 were part of these efforts to stabilize the naira and manage inflation.
Responses and Reactions
Tinubu’s economic strategies have drawn mixed reviews. While the International Monetary Fund and World Bank have expressed approval, the repercussions for ordinary Nigerians have been harsh, with soaring fuel and food prices. Inflation is nearing a three-decade peak, propelled by the naira’s depreciation and escalated gasoline costs. Despite the naira losing over 60% of its value against the dollar since Tinubu’s presidency began, it has shown signs of recovery since early March.
Foreign investors remain wary of the ongoing volatility in the currency markets. A stable naira would encourage them to invest more in Nigeria’s local-currency bonds, potentially reducing the country’s reliance on foreign-currency borrowing. Analysts, including those from Goldman Sachs, regard the recent rate hikes and improved capital inflows as indicative of a potential turnaround for the naira.
Businesses, however, have been less optimistic. The first quarter of 2023 saw over 700 manufacturing companies shut down, and global giants like GSK Plc and Procter & Gamble Co. have exited the Nigerian market due to the difficulties in importing goods and repatriating profits. Local business leaders have voiced concerns that elevated interest rates could dampen consumer spending and investment.
Despite these challenges, the IMF projects that Tinubu’s policies might foster stronger and more inclusive economic growth, anticipating an annual growth rate of about 3.1% through 2028. Central Bank of Nigeria Governor Olayemi Cardoso, appointed in September 2023, is hopeful that inflation will moderate by 2024 as the economy begins to stabilize. Yet, with many Nigerians struggling to meet even basic needs, the pressure mounts for the government to demonstrate tangible benefits from these policy shifts.
