As Nigeria steps into the promising yet challenging economic terrain of 2024, PwC Nigeria, a leading professional services firm, has unveiled its highly anticipated report titled “Seven trends that will shape Nigeria’s economy in 2024 – PwC’s Economic Outlook.”
In its analysis, PwC delves into the intricacies of Nigeria’s economy, identifying seven key trends that will play pivotal roles in shaping the nation’s economic trajectory throughout the year.
PwC anticipates marginal GDP growth of 3.1% for the year 2024, attributing this positive outlook to sustained policy reforms.
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Despite the growth prospects, the forecast acknowledges constraints posed by heightened economic pressures. The driving forces behind this projection include ongoing reforms, recovering oil production, and a proactive policy environment.
However, potential risks loom, including a sustained increase in fiscal debt, elevated interest rates, high inflation, foreign exchange liquidity pressures, and challenges in non-oil revenues and sector development.
Sector-wise, the financial services, information and communication, and utilities sectors have emerged as key drivers of GDP growth. PwC projects that these sectors will maintain their growth momentum in the short term, contributing significantly to Nigeria’s overall economic growth.
The seven trends
1. Executing Fiscal Reforms: Balancing Ambition with Budgetary Implementation
PwC’s Economic Outlook notes the critical importance of fiscal reforms in achieving Nigeria’s ambitious revenue targets for 2024.
While historical challenges have seen actual revenue fall below budgeted figures, the report highlights the potential of proposed fiscal reforms in boosting non-oil revenue.
However, the success of these reforms is contingent upon effective budgeting and execution, with factors such as OPEC oil production quotas, international oil prices, and security in oil-producing regions acting as determining factors for the realization of budgeted oil revenue.
“Nigeria’s ambitious revenue targets for 2024 depend heavily on oil prices and reform implementation,” the report said. “Historically, actual revenue realized has averaged less than 70% of the total budget. Achieving budgeted oil revenue in 2024 will depend on OPEC oil production quota, international oil prices, improved security in the oil-producing regions, and geopolitical factors.”
2. Evolving Monetary Policy Stance: Finding the Right Framework for Price Stability
Despite the Central Bank of Nigeria (CBN) deploying various monetary policy tools, inflationary pressures persist. PwC advocates for an independent pursuit of inflation goals by the CBN, emphasizing the need for coherence and alignment between fiscal and monetary policy to stabilize prices.
Clarity, transparency, and consistent communication from the CBN are identified as crucial elements for enhancing stability in exchange rates and market activities.
“Finding coherence and alignment between fiscal and monetary policy to stabilize prices may enable the achievement of statutory and policy targets in 2024,” the report said.
3. Investors will be cautiously optimistic
The report further notes that as Nigeria positions itself on the global economic stage, foreign portfolio investment flows may remain cautious. This is influenced by challenges such as delays in capital repatriation, and downgrades from FTSE Russell and MSCI, investors’ outlook may be tempered.
Nevertheless, Moody’s, Fitch, and S&P maintain a speculative credit rating, providing a nuanced view. The report anticipates improvements in Foreign Direct Investment (FDI) flows in 2024, driven by expansions in the ICT and Manufacturing sectors.
4. Undulating pathways to unlocking productivity in the economy
Despite the nation’s aspirations for economic growth, limited fiscal space for public investment and difficulties in attracting private investments continue to constrain essential infrastructure improvements.
The allocated infrastructure spending budget for 2024 falls short of recommended benchmarks, impacting the realization of crucial projects. Security spending, totaling N14.8 trillion over the past nine years, has not effectively mitigated insecurity, adversely affecting national stability and investor confidence.
“The allocated infrastructure spending budget for 2024 is N1.32 trillion, falling short of both the World Bank’s suggested 70% infrastructure-to-GDP benchmark (currently at 30%) and the yearly $150 billion requirement specified in the National Integrated Infrastructure Master Plan for 2021- 2025,” the report notes.
5. Persisting vulnerability to external pressures with a potential of ‘shocks’
According to the report, Nigeria remains susceptible to a range of external pressures, including geopolitical, economic, environmental, political, and trade trends.
The escalation of the Russia-Ukraine war, for instance, could lead to global energy and commodity supply risks, impacting inflation and food security. The outcomes of elections in key countries like the USA, UK, and Taiwan may shape global trade and capital flows, presenting both challenges and opportunities for Nigeria’s economic outlook.
The report adds that “Nigeria may experience increased inflation and food security challenges due to grain import disruptions and high petroleum product cost.”
6. Consumers may likely adjust better to the evolving policy and macro realities
In the face of increasing prices of goods and services coupled with lower disposable income, consumer spending in 2024 is expected to come under pressure, according to PWC.
Private consumption, however, is expected to be marginally better than in 2023. The report projects an increase in poverty levels to 38.8%, driven by low consumer spending and purchasing power, exacerbated by the absence of a commensurate increase in the minimum wage.
7. Improved sectoral development riding on reforms
PwC projects marginal GDP growth of 3.1% in 2024, underpinned by sustained policy reforms, recovering oil production, and a proactive policy environment.
While the financial services, information and communication, and utilities sectors have been the main drivers of GDP growth, the report anticipates these sectors continuing to propel short-term growth.
However, potential downside risks include fiscal debt, elevated interest rates, high inflation, foreign exchange liquidity pressures, exposure to global value chain shocks, and poor non-oil revenues.
The firm projects that “sectoral growth will be driven by a combination of demand dynamics, investment, government reforms and trade dynamics.”