BY FESTUS OKOROMADU
The World Bank Group in its latest publication has predicted an average economic growth rate of 3.7 percent for Nigeria in 2024-2025.
The anticipated growth is expected to be driven by key sectors including services, trade, construction, manufacturing, and agriculture.
However, the World Bank’s bi-annual publication suggests that the country’s oil production will recover during this period, but likely to remain below OPEC+ quotas.
The report also noted that with the ramp-up in production of a new refinery, fuel product imports are expected to decline.
Examining Nigeria’s recent economic performance, the report indicated that the country saw a 2.5 percent year-on-year growth in the second quarter of 2023.
Although this represented a slight improvement from the previous quarter, it was notably lower than the 3.5 percent growth observed in the same quarter of 2022.
Economic activities, as evidenced by the Purchasing Managers’ Index data for August, remained weak, driven by waning business confidence and rising input costs.
Furthermore, the report highlighted that Nigeria’s cash crunch issue, witnessed earlier in the year, began to ease as the Central Bank of Nigeria extended the deadline for exchanging old naira notes for new ones until the end of the year.
This extension supported economic activity with a 3.6 percent year-on-year growth in the non-oil economy, particularly driven by the services sector.
However, the underperformance of the oil sector continued to hold back overall economic growth, contracting by 13.4 percent year-on-year.
Taking a broader view of the sub-Saharan African region, the World Bank paints a challenging outlook.
It anticipated a slowdown in economic growth for the region, projecting a rate of 2.5 percent for 2023 compared to 3.6 percent in 2022.
Per capita growth in Sub-Saharan Africa has remained stagnant since 2015, and the region is expected to contract at an average annual rate of 0.1 percent per capita from 2015 to 2025.
The Eastern and Southern Africa sub region is expected to grow at 1.9 percent in 2023, down from 3.5 percent in 2022, while the Western and Central Africa sub region is forecasted to achieve 3.3 percent growth in 2023, down from 3.8 percent in 2022.
Consequently, economy experts at Cowry Asset Management Limited have opined that Nigeria should urgently diversify its economy by incentivizing private sector investments in agriculture, manufacturing, and technology to help mitigate the country’s heavy reliance on oil, which has proven vulnerable to global price fluctuations.
“The report indicated that the country saw a 2.5 percent year-on-year growth in the second quarter of 2023”
The researchers also suggested that fiscal reforms should be implemented to enhance revenue generation and rationalize subsidies gradually, while maintaining prudent budget management to ensure fiscal sustainability.
“In addition, exchange rate unification must be carefully managed to stabilize the currency and attract foreign investment. Finally, improving infrastructure, maintaining a balanced monetary policy, and ensuring transparency and good governance practices are crucial components of a comprehensive strategy to foster economic growth and stability in Nigeria,” the experts noted.
On his part, Chief Economist and CEO, Financial Derivatives Limited, Bismark Rewane, expressed worries that the World Bank report forecast a declining performance for the three largest economies in Africa, namely Nigeria, South Africa and Angola.
He noted that Nigeria’s economy is grappling with excruciating debt service, spiraling inflation, and tepid growth.
Comparing the Nigerian economy with that of South Africa, Rewane said, whilst South Africa announced a decline in its net external reserves to $54.98 billion, Nigeria’s gross external reserves remain a subject of controversy.
He emphasized that the CBN published data shows a gross external reserves position of $33.23 billion on a 30-day moving average basis.
“The backlog of unsettled forward contracts is estimated at $6.8 billion and airline-trapped funds are approximately $800 million. Therefore, it is baffling to see that our PPP (purchasing power parity) value of the naira is N735.53/$, approximately 27 percent above the parallel market rate. It shows that the naira is 1.3 percent undervalued rather than overvalued.
“Some economists have questioned the logic and sanity of our analysis, but that is what the PPP analysis discloses as of September 30. We believe that the naira will appreciate to N900/$ before December if and only if Nigeria comes clean with what its true external reserves minus its encumbrances are to the market. However, we do not expect any tangible appreciation of the Naira until 2024. We are encouraged by the pedigree of the new CBN leadership that they will stop doing the dumb things and start doing some smart things. But those are necessary and not sufficient to salvage the decadence.
“We are confident that Nigeria will approach the markets to reschedule its inefficiently structured external debt and talk to the IMF about policy support after the World Bank meetings in Morocco. Some may ask why borrow more money when you are up to your ears in debt. The answer is simply that mismanaged debts and liabilities with no tangible assets need to be followed by project-specific borrowing and proper governance going forward,” Rewane explained.
