Developments that may Form Nigeria’s Financial Trajectory
Rising inflation, decrease shopper buying energy, international supply-chain bottlenecks, and foreign exchange shortages could proceed to affect manufactured output in 2024.
Skilled companies agency, PricewaterhouseCoopers (PwC Nigeria) made this projection in its newest Nigeria Financial Outlook, which highlights the seven key tendencies that may form the nation’s financial trajectory in 2024.
PwC, within the report, mentioned, as an example, that headline inflation rose steadily from January to December 2023 reaching an 18-year peak of 28.92 per cent in December, from 28.2 per cent in November 2023.
The report acknowledged that the rise in inflation was fueled by meals (33.9 per cent) and transportation inflation (26.7 per cent).
“The mixture drivers of inflation in Nigeria embody naira devaluation, elevated meals costs, excessive import invoice, rising power and logistic prices,” PwC mentioned.
It additionally predicted that shopper spending could stay pressured in 2024, lowering non- important spending.
“Shopper spending could also be pressured in 2024 on account of rising costs of products and companies (growing meals and transportation prices), coupled with decrease disposable earnings. Nonetheless, non-public consumption is predicted to be marginally higher than 2023,” PwC mentioned.
In line with the report, continued rise in meals costs could additional squeeze buying energy in 2024 if fiscal reforms stay sluggish.
PwC mentioned regardless of the low unemployment fee within the nation, low shopper spending and buying energy stays a difficulty, particularly within the absence of commensurate enhance in minimal wage to mitigate the inflationary development within the financial system.
It, nonetheless, acknowledged that the federal government’s conditional money transfers and projected slight lower in inflation would possibly supply momentary aid in 2024.
PwC additionally mentioned international supply-chain bottlenecks could affect manufacturing output this yr. In line with it, geopolitical, financial, environmental, political and commerce tendencies will form the dynamics and outlook for the Nigerian financial system in 2024.
It famous, as an example, that if the on-going Russia-Ukraine battle intensifies, it may result in elevated international power and commodity provide dangers.
“Nigeria could expertise elevated inflation and meals safety challenges on account of grain import disruptions and excessive petroleum product price,’’ the report mentioned.
It additionally mentioned Nigeria could face the continued danger of dampened investor sentiment regardless of the discount in international benchmark rate of interest on account of FX liquidity challenges and excessive inflation fee.
Nigeria, PwC additionally acknowledged, could also be impacted by a disruption in international provide within the occasion of a battle that might impede the circulate of products by way of the important Taiwan strait route, which is significant for half of the world’s transport site visitors.
In addition to, the end result of elections in a number of international locations globally, particularly USA, UK, and Taiwan could form the dynamics of commerce and capital flows around the globe in 2024.
On the problem of foreign exchange, PwC predicted that regardless of varied efforts aimed toward stabilising the FX market, the illiquidity challenges could proceed to restrict traders’ capacity to repatriate capital.
In line with the skilled companies agency, FX illiquidity challenges persist on account of restricted overseas change inflows to the nation.
It listed different challenges to incorporate decrease proceeds from crude oil inflows on account of decline in oil manufacturing.
“The common oil manufacturing from January to November 2023 stood at 1.25 mbpd, falling wanting each the budgeted 1.69mbpd and the Organsation of Petroleum Exporting Nations (OPEC) crude oil manufacturing quota of 1.78 mbpd.
“One other problem is the decreased FDI flows; capital importation declined by 43.6% to $654.65 million in Q3 2023 from $1,159.67 million in Q3 2022 on account of a number of elements equivalent to issue in funds repatriation overseas, insecurity, infrastructural deficit, and so forth,” PwC mentioned.
To deal with these points, PwC mentioned the Central Financial institution of Nigeria (CBN) carried out varied methods aimed toward attracting overseas change inflows.
The methods embody the continual clearance of FX backlogs, liberalising the FX market, and eradicating restrictions on 43 banned gadgets from accessing FX, amongst different reforms.
Nonetheless, uncertainty within the FX atmosphere could persist in 2024 if provide challenges should not met,’ PwC predicted.
It, nonetheless, mentioned: “Key quick and medium time period coverage initiatives could end in an improved FX market. The important thing drivers of secure FX market embody higher worth discovery, liquidity, and decreased friction in entry.”
The report concluded that manufacturing exports could stay low because the nation’s export complexity is considerably skewed and focused on uncooked supplies and commodities.
It, nonetheless, mentioned profitable implementation of fiscal reforms may have a optimistic affect on the sector.
“Alternatives abound to spice up manufacturing exports with the $3.4 trillion African Continental Free commerce Space (AfCFTA) market potential, if financial and structural challenges are addressed by the federal government,” it added.