By every measure, the year 2023 has been one of the most challenging in living memory to operators in all sectors of the Nigerian economy: all economic projections and benchmarks missed their targets by wide margins. The year opened with an acute scarcity of cash (Naira notes) and is coincidentally ending with another round of Naira scarcity—evidently marked by crowds of bank customers in various banking halls, especially in Lagos and other cities across the country. The failed Naira redesign project and its aftermath unleashed unprecedented scarcity of Naira notes early in 2023; more so, as the general elections in February and March drew near. This bizarre situation coupled with heightening electioneering tensions, translated into untold pain and hardship for the populace.
These political and economic tensions coupled with the backdrop of social upheavals and widespread insecurity in the land characterized the first five months of the year. And then, at his inauguration on 29 May, President Bola Ahmed Tinubu, apparently pandering to the dictates of the Bretton Woods institutions, made the now ‘unpopular’ fiat: “fuel subsidy is gone.” The import, impact and ripples of this singular pronouncement have remained the proverbial last straw that broke the camel’s back. It practically threw the economy into a state of topsy-turvy, as price of petrol (Premium Motor Spirit, PMS) went through the roof. This fed into the prices of all goods and services; and has fuelled sharp and consistent spike in the rate of inflation.
From a headline inflation of 21.82 per cent in January 2023, the figure had risen by over 600 basis points to stand at 28.2 per cent as at end-November 2023. It is very likely to hit almost 30 per cent, as ‘warned’ by the Bank of America in July this year. In an interview with Bloomberg, the bank’s sub-Saharan Africa Economist, Tatonga Rusike, had warned that at the pace inflation was trending, it could hit 30 per cent by year-end. He then advised Nigeria’s apex bank to respond to the trend by increasing its policy (interest) rate, stressing that if this was not done, “foreign investors might exercise caution before investing in the country.” Rusike’s views have turned prophetic!
In the past seven months or so, the fuel subsidy removal and kindred policies like Naira floatation (or exchange rates unification) and return of 43 items (denied access to official window of forex market in 2015) to official forex window, have brought the economy to the nadir. For example, the Naira exchange rate to the dollar and other currencies has collapsed to worrisome levels: from around N465/US$ as of May, the rate has crashed to over N1000/US$ by mid-December. In the parallel window, the rate is fast hitting N1250/US$ as the year is drawing to a close.
Rather than the economy getting stimulated via Government policies, it has been further stunted by nondescript potpourri of palliative packages for the populace. The Federal Government on its part, came up with ‘doling’ out of five billion Naira to each state for further sharing (in cash and kind) to the very vulnerable poor in their domains. Each state government also had to come up with motely palliative packages to assuage the pains unleashed on the citizenry by the fallouts of Government policies—especially, fuel subsidy removal.
Some state governments had to reduce their official working days from five to two or three, in the face of the increasingly unaffordable transportation costs to the citizenry (their civil servants). Others chose to pay some token ‘salary awards’ to their workers. In the heat of all these, many business concerns had to either temporarily cut down operational capacity or adopt outright closure. The latter option is now proven to have been chosen by a number of multinational companies that have shut down their operations in Nigerian in the last seven months. The business environment has practically choked them out of the country.
As inflation was practically making nonsense of the purchasing power of the citizenry, the Organized Labour had been in a ding-dong with the Federal Government. As Labour (represented by the Nigeria Labour Congress, NLC, and Trade Union Congress, TUC, and their affiliates) was pushing for significant improvement in the welfare and wellbeing of workers (of all categories), the Federal Government kept dilly-dallying and prevaricating. Apparently unsure of the full impact of its policies or reforms, the Federal Government through the instrumentality of the Federal Industrial Court, continued to stall public protests and demonstrations. For the umpteenth time the Federal Government obtained court injunctions restraining Labour from organizing any protest/strike, pending the determination of (certain) substantive suit(s). And this has continued ad infinitum!
With all of these, the dawdling economy kept moving with its Achilles heel—the piling stock of public debt—which had hit N88 trillion at end-September 2023. According to the latest report by the Debt Management Office (DMO), Nigeria’s total public debt rose to N87.91 trillion (or US$114.35 billion) as of September 30, 2023, from N87.38 trillion in June 2023. The rise in the debt stock is attributable to an increase of N1.80 trillion in domestic debt, moderated by a reduction in foreign debt from US$43.16 billion as of June 30, 2023, to US$41.59 billion as of September 30, 2023.
As the Federal Government is grappling with the reality of the impact of its economic reform measures, the World Bank in its most recent Nigeria Development Update (NDU) said: “the economic outlook for Nigeria in the short to medium term hinges on the continuation and effectiveness of its macroeconomic stabilization agenda.” The NDU report said the successful implementation of the initiated reforms would be the first step towards improving Nigeria’s growth prospects.
The Federal Government, apparently sharing the World Bank’s optimism, had couched its 2024 budget on unrealistic assumptions, including an inflation rate of 21.4 per cent; exchange rate of N750/US$ and oil price of US$77.96 per barrel. But a dispassionate consideration of these benchmarks will show that the budget is built on a flimsy foundation. Nothing in the global or local economic horizon can support the rate of inflation dropping from close to 30 per cent by year-end 2023 to the assumed 21 per cent for 2024. Same for the exchange rate, now hovering at around N1000/US$ in the official window of the foreign exchange market.
The subsisting scarcity of dollar in the foreign exchange market, which ensures that demand over-strips supply of the green back, is bound to linger far into 2024 and beyond. In a forex market left to the forces of demand and supply (with the apex bank almost being the sole supplier) low dollar (earning) inflow into Nigeria is bound to tilt the balance against the Naira. Really, unless Nigeria’s dollar earnings improve dramatically (say, in a matter of months), the local currency will keep crashing against the dollar and other hard currencies.
At present, even the assumed level of oil production in the 2024 budget is faulty; for a long while, Nigeria’s oil production has been seriously threatened by the bizarre phenomenon of oil theft, vandalism on facilities and widespread sabotage. It is therefore very doubtful if the production level that only recently inched up to 1.4 million barrels per day (mbd) could sharply rise to 1.78 mbd target in the 2024 Appropriation Bill. Also contending against this hoped-for-rise in production/export volume is an impending OPEC quota cut for Nigeria.
Nigeria’s new OPEC quota is believed to be in the region of 1.5 mbd, owing to its underwhelming performance over the years. In other words, for several years, Nigeria has been producing/exporting far below its official quota (of about 2 mbd). All these seriously belie the optimism on which improved (forex) inflow from oil is founded. It indeed leaves the entire economic outlook for 2024 yet foggy.
- The author, Okeke, a practising Economist, Business Strategist, Sustainability expert and ex-Chief Economist of Zenith Bank Plc, lives in Lekki, Lagos. He can be reached via: obioraokeke2000@yahoo.com