A recent report by PricewaterhouseCoopers (PwC) titled ‘Nigeria Economic Outlook: Navigating Economic Reforms’, predicts a marginal 2.9% increase in Nigeria’s Gross Domestic Product (GDP) in the second half of the year 2024 (H2 2024). While anticipated growth is attributed to ongoing policy reforms, the report noted that economic challenges could limit the potential for further expansion. According to the projection, Inflation is expected to decrease slightly to 9.5 percent by the end of the year. This drop is anticipated to be a result of a combination of reforms, policy decisions, external influences, and changes in Food Prices, especially in the H2 2024.
This report examined the major economic trends of the year 2024 and offered analysis on how they are shaping the landscape for government, households, and businesses. The report highlighted that the economic reforms initiated in 2023 have expanded throughout 2024, as fiscal, monetary, and sector-specific policies have been implemented to boost Economic Development and stability. The reforms involve loosening regulations on Petroleum Motor Spirit (PMS) to cut government expenses and shift resources to essential sectors, as well as opening up the foreign exchange market to allow for better pricing mechanisms.
Key reforms implemented are showing positive results.
Also, the implemented Electricity Act in Nigeria targets to solve the country’s energy issues by combating yearly economic losses of ₦10 trillion, equivalent to $26 billion, and providing electricity to 85 million underserved Nigerians. Similarly, the Central Bank of Nigeria (CBN) has raised capital requirements for different types of banks to aid in the growth of the Economy. Similarly, three executive orders have been issued in the Oil and Gas Industry, addressing areas such as Tax incentives, exemptions, remissions, and local content compliance requirements, among various other reforms.
By implementing these directives, the contracting procedure becomes more efficient, cutting the time frame to just six months, while also strengthening the emphasis on local materials while still maintaining cost-effectiveness. Likewise, in Agriculture, the government has taken steps such as investing in dry season cultivation, distributing essential farming supplies like rice, fortified crops, seeds, and fertilizers, and improving Security measures to boost production and counter food price inflation. PwC reported that the country is seeing positive results from key reforms, including higher government revenues, increased exports, more capital imports, and a better credit outlook.
Implemented reforms have also caused various challenges.
It reported a significant rise in the Federal Accounts Allocation Committee (FAAC) disbursements, with a 91.3% increase from ₦976 billion in May 2023 to ₦1.87 trillion in April 2024. This surge was attributed to higher distributable VAT, statutory allocation, and exchange rate difference Revenue. According to the report by PwC, the reforms implemented have caused various challenges such as Naira Devaluation, increasing inflation rates, and higher interest rates. It also highlighted that inflation has been primarily driven by the rise in prices of food (40.6%), utilities (29.6%), and transportation (25.6%), which in turn is negatively impacting the purchasing power of both households and businesses.
Despite CBN’s efforts to reform, the inflation rate remained stubbornly high at 33.95 percent in May 2024, showing little sign of slowing down. According to the report, there was a significant 775 basis point increase in the Monetary Policy Rate (MPR) from May 2023 to 2024 in response to increasing inflation. While this rise in MPR draws more Investors to the fixed-income market seeking higher yields, however, it has also had a detrimental effect on borrowing costs for businesses. The firm highlighted various important factors for governments and businesses to take into consideration.
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PwC suggested that the government’s focus should be on maintaining macro stability through addressing security, social, inflation, and exchange rate challenges. The firm recommended using scenario planning to anticipate potential outcomes before making significant economic reforms, in order to prevent sudden policy changes. Businesses are advised to carefully plan their approach by revisiting their strategies and clearly defining key priorities for success in the upcoming years, regardless of economic conditions. It also suggests reviewing the entire cost structure to identify necessary adjustments for the future, and implementing short, medium, and long-term strategies accordingly.
