The Economist Intelligence Unit revises Nigeria’s 2024 economic growth forecast to 2.5%

Nigerian Tribune

Aerial photography of the Eric Moore towers and the surrounding buildings in the mainland area of lagos, Nigeria. Getty Images Image used for illustrative purpose.

The Economist Intelligence Unit, EIU, has revised Nigeria’s 2024 economic growth forecast figures from 2.2 percent to 2.5 percent in its latest country report, which was generated on March 8th, 2024.

According to the EIU, hydrocarbons generate about 50 percent of government’s revenue and more than 80 percent of export receipts, but agriculture and services dwarf industry’s contributors to GDP.

This is premised on higher-than-expected crude output and earlier-than-expected production from a new mega-refinery.

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“The oil sector constitutes about 6% of GDP. The higher growth forecast has come despite sharper-than-expected monetary tightening in February 2024. We now expect the Central Bank of Nigeria’s policy rate to peak at 23.75 percent, 200 basis points higher than our previous forecast,” it added.

Commenting on the current reforms by the administration of President Bola Tinubu, the EIU highlighted that market reforms were intended to attract investments but did not constitute a coherent plan. The two flagship policies, the elimination of petrol subsidies and the liberalisation of the exchange rate, have an inner contradiction.

The EIU stated, “As Nigeria imports virtually all its fuel, naira devaluations, the latest being a 45% drop in February 2024, should be reflected in the pump price. However, owing to the threat of industrial action, there has been little movement since June, despite the naira having weakened from N461/$1 in May 2023 to N1,600/$1 in late February 2024. This indicates the return of (large) subsidy.”

It further stated that a large naira devaluation in early February will likely herald further depreciation, as inflation remains high and real short-term interest rates remain negative.

“Falling risk premiums on government international bonds make tapping the international capital market another viable (albeit costly) option once US interest rates start to fall from the second half of 2024. For most of this year, the naira will be highly volatile, leading to regulatory erraticism that can affect businesses, especially those holding foreign currency. The CBN lacks the liquidity to support the naira itself; out of $33bn in foreign reserves, a large share (estimated at nearly US$20bn) is committed to various derivative deals.”

EIU noted that the Nigerian business environment will remain highly challenging, undermined by corruption, cronyism, rampant insecurity, and a giant infrastructure gap.

Looking at investments, the report observed that multinationals are increasingly deciding to quit Nigeria or reduce their presence; EIU estimated that there was a net withdrawal of foreign direct investments in 2023, to be repeated in 2024 as naira losses exert pressure on balance sheets carrying large foreign liabilities.

“The exodus includes oil majors selling onshore assets, which are high-cost and vulnerable to insecurity, leading to the sector’s indigenisation over time. Although, in principle, this is positive for foreign exchange accumulation, local companies will be unable to match the investing power of outgoing multinationals.”

It also forecasted that Nigeria’s crude oil production will rise from 1.23mbpd in 2023 to 1.48mbpd in 2028, although this remains about 250,000bpd below the 2019 level.

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