Trends that will Shape Nigeria’s Economic Trajectory

Rising inflation, lower consumer purchasing power, global supply-chain bottlenecks, and forex shortages may continue to impact manufactured output in 2024.

Professional services firm, PricewaterhouseCoopers (PwC Nigeria) made this projection in its latest Nigeria Economic Outlook, which highlights the seven key trends that will shape the nation’s economic trajectory in 2024.

PwC, in the report, said, for instance, 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 stated that the rise in inflation was fueled by food (33.9 per cent) and transportation inflation (26.7 per cent).

“The aggregate drivers of inflation in Nigeria include naira devaluation, increased food prices, high import bill, rising energy and logistic costs,” PwC said.

It also predicted that consumer spending may remain pressured in 2024, decreasing non- essential spending.

“Consumer spending may be pressured in 2024 due to rising prices of goods and services (increasing food and transportation costs), coupled with lower disposable income. However, private consumption is expected to be marginally better than 2023,” PwC said.

According to the report, continued rise in food prices may further squeeze purchasing power in 2024 if fiscal reforms remain slow.

PwC said despite the low unemployment rate in the country, low consumer spending and purchasing power remains an issue, especially in the absence of commensurate increase in minimum wage to mitigate the inflationary growth in the economy.

It, however, stated that the government’s conditional cash transfers and projected slight decrease in inflation might offer temporary relief in 2024.

PwC also said global supply-chain bottlenecks may impact manufacturing output this year. According to it, geopolitical, economic, environmental, political and trade trends will shape the dynamics and outlook for the Nigerian economy in 2024.

It noted, for instance, that if the on-going Russia-Ukraine war intensifies, it could lead to increased global energy and commodity supply risks.

“Nigeria may experience increased inflation and food security challenges due to grain import disruptions and high petroleum product cost,’’ the report said.

It also said Nigeria may face the continued risk of dampened investor sentiment despite the reduction in global benchmark interest rate due to FX liquidity challenges and high inflation rate.

Nigeria, PwC also stated, may be impacted by a disruption in global supply in the event of a conflict that could impede the flow of goods through the critical Taiwan strait route, which is vital for half of the world’s shipping traffic.

Besides, the outcome of elections in several countries globally, especially USA, UK, and Taiwan may shape the dynamics of trade and capital flows around the world in 2024.

On the issue of forex, PwC predicted that despite various efforts aimed at stabilising the FX market, the illiquidity challenges may continue to limit investors’ ability to repatriate capital.

According to the professional services firm, FX illiquidity challenges persist due to limited foreign exchange inflows to the country.

It listed other challenges to include lower proceeds from crude oil inflows due to decline in oil production.

“The average oil production from January to November 2023 stood at 1.25 mbpd, falling short of both the budgeted 1.69mbpd and the Organsation of Petroleum Exporting Countries (OPEC) crude oil production quota of 1.78 mbpd.

“Another challenge is the reduced FDI flows; capital importation declined by 43.6% to $654.65 million in Q3 2023 from $1,159.67 million in Q3 2022 due to several factors such as difficulty in funds repatriation abroad, insecurity, infrastructural deficit, etc,” PwC said.

To address these issues, PwC said the Central Bank of Nigeria (CBN) implemented various strategies aimed at attracting foreign exchange inflows.

The strategies include the continuous clearance of FX backlogs, liberalising the FX market, and removing restrictions on 43 banned items from accessing FX, among other reforms.

However, uncertainty in the FX environment may persist in 2024 if supply challenges are not met,’ PwC predicted.

It, however, said: “Key short and medium term policy initiatives may result in an improved FX market. The key drivers of stable FX market include better price discovery, liquidity, and reduced friction in access.”

The report concluded that manufacturing exports may remain low as the country’s export complexity is significantly skewed and concentrated on raw materials and commodities.

It, however, said successful implementation of fiscal reforms could have a positive impact on the sector.

“Opportunities abound to boost manufacturing exports with the $3.4 trillion African Continental Free trade Area (AfCFTA) market potential, if economic and structural challenges are addressed by the government,” it added.

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