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Charting Nigeria’s Economic Course: Reflecting on 2023 and Anticipating 2024

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By Abdulrauf Aliyu

As Nigeria stands at the threshold of 2024, President Bola Tinubu faces a formidable challenge steering the nation through a complex economic landscape marked by political, social, and economic uncertainties. The preceding year, 2023, was a testing period for the President as he grappled with the delicate balance between implementing market reforms and maintaining a fragile political mandate. In this op-ed, we delve into a comprehensive review of Nigeria’s economic performance in 2023, examining key drivers, challenges, and policy decisions. Subsequently, we outline an economic outlook for 2024, projecting potential scenarios and their implications.

2023 Economic Review: A Precarious Balancing Act
President Tinubu’s administration initiated bold economic reforms in 2023, symbolized by the removal of the long-standing petrol subsidy and the introduction of a flexible exchange rate system. These measures were intended to align with economic theories emphasizing market-oriented policies, such as those advocated by proponents of structural transformation and economic complexity.

However, the momentum of these reforms waned due to rapidly rising consumer price inflation, which reached 26.7% year-on-year in September 2023. The partial reinstatement of the fuel subsidy and the stable official naira rate, amidst a depreciating parallel market rate, underscored the challenges in implementing and sustaining market reforms.

The removal of the petrol subsidy had immediate repercussions on the cost of living for Nigerians and the operational costs for Micro, Small, and Medium-sized Enterprises (MSMEs). The subsequent inflationary pressures strained household budgets and escalated the cost of doing business, leading to the closure of several MSMEs and contributing to unemployment. The uncertainties surrounding the floating of the naira by the Central Bank of Nigeria (CBN) added further complexity to the business environment.

The political landscape became increasingly precarious, with threats of nationwide industrial action and social unrest. The government’s decision to withhold further increases in petrol prices until the end of 2023 indicated a recognition of the need to balance economic reforms with social stability, highlighting the intricate interplay between pro-growth and pro-poor policies.

The year also witnessed the Ministry for Power revealing a staggering 600 billion naira bill incurred by the federal government in subsidizing energy consumption in 2023 alone. This revelation prompted discussions on the need to rethink the energy market’s operation and regulation. As proponents of inclusive economic growth argue, paying attention to the geoeconomic trends and understanding the diagnostics before prescription becomes imperative for sustainable development.

2024 Economic Outlook: Navigating Headwinds and Charting a Course.
President Tinubu’s reform agenda faces headwinds in 2024, given the elevated political risk and the potential for disruptive strikes. The implementation of market and institutional reforms is crucial for putting Nigeria’s economy on a sustainable growth trajectory. However, these reforms are likely to face resistance from labor unions and a populace grappling with the aftermath of subsidy removal and inflation.

Monetary Policy Imperatives for 2024
In addressing these challenges, the Central Bank of Nigeria (CBN) has outlined monetary policy imperatives for 2024. The commitment to ensuring price stability and ending unorthodox activities that fueled demand-pull inflation in 2023 is central to the agenda. A shift towards explicit inflation targeting and the recapitalization of banks align with the broader goal of achieving a $1 trillion economy in the next eight years.
However, risks such as the lack of independence of the CBN and conflicting interests in stimulating growth while curbing inflation may pose challenges. The CBN’s proposed feedback rule, while aiming for transparency, could delay responses to shocks and instability, impacting the effectiveness of monetary policy.

Fiscal Policy Imperatives for 2024
On the fiscal front, the government’s objective to achieve fiscal consolidation faces impediments. The projected revenue-to-GDP ratio of 4.5% in 2024 indicates severe fiscal constraints, with a significant portion of revenue allocated to debt servicing. Attempts to transform the tax system and enhance revenue may encounter resistance, leading to cautious approaches and widening fiscal deficits.
The challenges extend to Nigeria’s security situation, with fiscal constraints hindering the government’s ability to address the root causes of insecurity. The impact of violence on civilians, coupled with allegations of corruption within the security apparatus, necessitates a multifaceted approach that goes beyond fiscal considerations.

Real GDP Growth Forecast for 2024
Despite these challenges, a forecast anticipates a modest increase in Nigeria’s real GDP growth to 2.9% in 2024, driven by improvements in the oil sector. The operational start of the Dangote refinery is expected to reduce imports, increase the trade surplus, and provide a boost to economic growth. However, domestic demand is likely to remain weak, hindered by high inflation, tight financial conditions, and fiscal constraints.

Power Sector Reforms and Economic Implications
The decision to remove subsidies on power aligns with the new Nigerian Electricity Reforms Act 2023, aiming to create an enabling environment for private players and achieve sustainable power for households and firms. This move is pivotal for addressing Nigeria’s power challenges and supporting economic activities. However, it requires careful implementation to avoid unintended consequences on consumers and businesses.

Scenarios for 2024: Possible, Plausible, Probable, and Preferable
Possible Scenario: Modest Economic Recovery (2.9% GDP Growth)
In this scenario, the government manages a modest economic recovery, with a 2.9% GDP growth. While inflation is slightly lower at 22%, unemployment remains a concern at 17%. The 17.75% interest rate underscores the tight financial conditions, impacting the cost of living and doing business. Public finance reforms progress slowly.

• Government: The administration faces the challenge of managing expectations amid moderate economic growth. Balancing the need for fiscal consolidation with social welfare becomes crucial.
• Economy: The economy experiences a gradual recovery, with improved conditions in the oil sector contributing to growth. However, structural challenges persist, and the government must carefully navigate these to sustain positive momentum.
• Businesses: Companies face elevated operating costs due to high-interest rates and lingering inflation. Adapting to a cautious investment climate is necessary to weather uncertainties.
• Investors: Investors may adopt a wait-and-see approach, evaluating the government’s commitment to reforms and economic stability. Diversification and careful risk assessment become key considerations.
Navigation Strategies:
• Prioritize targeted social interventions to address unemployment and mitigate the impact of inflation on vulnerable populations.
• Enhance the investment climate by streamlining regulations and providing incentives for businesses.
• Accelerate fiscal and monetary reforms to instill confidence in the economic trajectory.

Plausible Scenario: Stagnant Growth (2.4% GDP Growth)

In this scenario, economic growth stagnates at 2.4%, with inflation at 23% and unemployment at 18%. The interest rate remains high at 17.75%, placing a strain on the cost of living and doing business. Progress in public finance reforms is limited.
• Government: The administration grapples with stagnant growth and rising unemployment, potentially facing public dissatisfaction. Striking a balance between economic reforms and social stability becomes more challenging.
• Economy: Stagnant growth poses risks to the overall economic health, requiring targeted interventions to stimulate key sectors and address structural bottlenecks.
• Businesses: Persistent high-interest rates and inflation impede business expansion. Companies need to focus on efficiency, cost-cutting, and adaptive strategies to navigate the challenging environment.
• Investors: Investor confidence may wane due to subdued growth prospects. Diversification into resilient sectors and regions becomes essential for mitigating risks.
Navigation Strategies:
• Implement inclusive policies to address rising unemployment and ensure the benefits of economic growth are widely distributed.
• Strengthen social safety nets to cushion the impact of economic challenges on vulnerable populations.
• Expedite structural reforms to unlock growth potential in key sectors.

Probable Scenario: Economic Downturn (2% GDP Growth)
In this scenario, the economy faces a downturn with 2% GDP growth, accompanied by 24% inflation and 20% unemployment. The interest rate climbs to 18%, intensifying the challenges for the cost of living and doing business. Public finance reforms stall.
• Government: The administration contends with economic downturn pressures, potentially triggering social unrest. Striking a delicate balance between reforms and maintaining stability becomes paramount.
• Economy: Economic downturn raises concerns about recessionary trends. Swift and decisive policy measures are necessary to prevent a prolonged contraction.
• Businesses: Escalating costs, both in terms of interest rates and inflation, pose severe challenges. Companies need to adapt rapidly, potentially exploring new markets and revenue streams.
• Investors: The economic downturn may lead to increased risk aversion among investors. Risk management and diversification become critical strategies.
Navigation Strategies:
• Implement targeted stimulus measures to revitalize economic activities.
• Address structural bottlenecks hindering growth to create a more conducive business environment.
• Enhance social protection programs to mitigate the impact of rising unemployment.

Preferable Scenario: Robust Economic Rebound (3.5% GDP Growth)
In this scenario, the economy experiences a robust rebound with 3.5% GDP growth. Inflation is lower at 21%, and unemployment decreases to 15%. The interest rate remains at 17%, signaling moderate conditions for the cost of living and doing business. Public finance reforms accelerate.
• Government: The administration benefits from a strong economic rebound, allowing for more flexibility in implementing reforms. There’s an opportunity to advance fiscal and monetary policies with reduced political resistance.
• Economy: Robust growth indicates a positive trajectory. The challenge is to sustain this momentum by addressing underlying structural issues and fostering an environment conducive to long-term growth.
• Businesses: Favorable economic conditions present opportunities for business expansion. Companies should leverage this period to invest in innovation, efficiency, and market penetration.
• Investors: A robust economic rebound enhances investor confidence. Strategic investments in sectors driving the rebound can yield significant returns.
Navigation Strategies:
• Prioritize reforms that stimulate investment and streamline regulatory frameworks.
• Strengthen institutional capacity to ensure the sustainability of economic growth.
• Create an environment conducive to private sector participation and foreign direct investment.

In conclusion, navigating the economic challenges in 2024 requires a nuanced approach from the government, businesses, and investors. Whether facing modest recovery, stagnant growth, economic downturn, or robust rebound, adaptive strategies, targeted interventions, and a commitment to reforms will be key to steering Nigeria’s economic trajectory in the coming year.

Abdulrauf Aliyu
An economist and Policy Analyst writes from
45 Ashiru Road, U/Dosa New Extension

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