Nigeria’s economic growth in 2024 is under risk of declining, as per the World Economic Situation and Prospects (WESP) report by the United Nations. Mounting debt, soaring inflation, and their detrimental effects on citizens’ welfare pose significant risks to the nation. The National Bureau of Statistics reported Nigeria’s alarming inflation rate of 28.2% and a substantial debt burden amounting to approximately ₦87.38 trillion in the second quarter of 2023. This figure reflects a substantial increase of approximately 75.35% compared to the second quarter’s value of ₦49.85tn.
As per the report, policy reforms implemented in 2023, particularly in the hydrocarbon sector, which have positively impacted the nation’s growth prospects for the following year, is expected to give a slight rise to the country’s growth rate to 3.1 percent. However, the potential for economic growth may be hindered by mounting public debt, ongoing inflation, and an increasing cost of living. Additionally, a challenging business environment adds to the downward risks. The report also highlighted that future steps to enhance local oil refining capabilities should lead to lowered domestic fuel expenses, primarily starting from 2024.
External factors are unfavorable for African economies.
The UN report revealed that worldwide trade remained stagnant in 2023, with Africa reflecting this pattern by experiencing almost no increase in the volume of merchandise trade from one year to the next. Moreover, the report also expects external factors to continue being unfavorable for African economies due to a weak global economic outlook and limited opportunities for external financing. Yet, there is hope as the report projects a rebound in domestic demand for countries that have faced economic shocks caused by currency depreciation, electricity shortages, or armed conflicts.
It also stated that as developed countries direct their investments towards sustainable sectors, developing nations face difficulties with capital outflows and a decline in foreign direct investment. The report highlights a deteriorating trend in international trade as a catalyst for economic growth. In 2023, global trade growth weakened to a mere 0.6%, raising concerns. However, projections for 2024 foresee a recovery with an expected growth rate of 2.4%. Developing nations encounter numerous obstacles including mounting levels of external debt and surging interest rates, thereby posing difficulties in accessing global financial markets.
Internal challenges impede African economies expected growth.
According to the document, a decrease in official development assistance and foreign direct investment has resulted in debt sustainability challenges for low-income countries. As a result, the African currencies, except for the CFA Franc which is institutionally linked, have encountered depreciation pressures due to insufficient export earnings and limited inflow of external financial support. African economies are expected to witness a gradual improvement in GDP growth in 2024, reaching an average of 3.5 percent.
However, this progress is hindered not only by external factors such as deteriorating conditions but also by internal challenges including conflicts, instabilities, climate disasters, and infrastructure limitations. Consequently, domestic demand growth faces a slump due to these various constraints. Despite significant efforts, the anticipated outcomes of fostering greater regional trade within Africa through the implementation of the African Continental Free Trade Area (AfCFTA) have not materialized as expected. Moreover, Africa’s economy remains greatly threatened by the ongoing impacts of climate change.
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A recent report shows that out of the 68 countries in the Vulnerable 20 Group, which are particularly susceptible to climate-related issues, 28 of them are from Africa, showing the continent’s vulnerability. Furthermore, as a consequence of considerable currency depreciations, the exchange rate pass-through has led to higher import prices within domestic markets, thereby increasing inflationary pressures. Several major economies, including Nigeria, Egypt, and Ghana, experienced a persistently high level of food inflation, surpassing 30 percent. In contrast, the Central Bank of West African States and the Bank of Central African States successfully maintained significantly lower inflation rates compared to other African economies, according to the report.