Afrinvest Weekly Update | Is Nigeria Yet at Turning Point?
An Extraction of the Afrinvest Weekly Economic & Market Report for January 26, 2024
Photo Credit: Google
This week, we share our views on salient issues raised by the CBN governor, Mr. Olayemi Cardoso, during his keynote address at the launch of the 2024 Macroeconomic Outlook report by the Nigerian Economic Summit Group (NESG) on Wednesday. This became pertinent given increased market fuzziness on what could probably be the outcome of the first Monetary Policy Committee (MPC) meeting under Mr. Cardoso’s leadership come next month, and market dynamics thereafter. Recall that since assuming office in mid-August 2023, the CBN governor is yet to release his administration’s policy thrust document nor hold the statutory bi-monthly policy tone-setting meeting – the MPC meeting – to give stakeholders a clear sense of his administration’s blueprint for reforming monetary policy environment.
To begin with, the governor holds that Nigeria is now at a turning point and that bold reforms currently being undertaken across different segments would address the targeted challenges in a sustainable manner. Secondly, Mr. Cardoso aligned with FG’s 2024 growth projection of 3.76%, underpinned by expectations of positive gains from increased crude oil production and higher prices, favourable businesses' perception of the overall macroeconomy in H1:2024 (as per the outcome of its December 2023 business survey report), growing digitisation, sustained support for financial inclusion initiatives, and faster pace growth in the agriculture sector.
In addition, he asserts that pump prices of premium motor spirit (PMS) would moderate in no distance period due to the expected operational status of the country’s key government and privately owned refineries. Also, he expressed optimism that the average inflation rate would decline to 21.4% (from 24.5% in 2023) due to the ongoing anti-inflationary campaign measures of the CBN under its recently announced inflation-targeting policy actions. Lastly, Mr. Cardoso anticipates the FX market to stabilise in 2024, supported by the reduction in petroleum product imports, the upholding of market reflective exchange rate regime, the channeling of all FX inflows of NNPCL to the Central Bank, and the offsetting of all valid FX backlog which should restore confidence in the financial system.
To our mind, the CBN governor’s position of a turning point experience (though not unfounded) could be premature, given the static progress of some of the key enablers to the ongoing fiscal and monetary policy reform moves and growing external risks. For instance, although the new CBN management has scheduled its first MPC meeting for February, the statutory committee to pursue the meeting (as stipulated in the 2007 CBN Act) is yet to be fully constituted. More so, we flagged that adequate measures have not been set in motion to support key activities such as crude oil production, agriculture output, and the business environment to help push GDP growth higher to 3.76% from an estimated 2.74% in 2023. Furthermore, we are of the view that Mr. Cardoso’s assertion that PMS pump prices would moderate due to the expected operational status of the country’s key government and privately owned refineries vis-à-vis the elevated crude oil price projection for 2024 (average projection: $70.00/bbl - $85.0/bbl) may be tantamount to “building a castle in the air” except subsidy payment by FG is fully returned/increased.
In conclusion, while we share the view on the likely moderation of the average inflation rate (due largely to the high base effect), we hold that the CBN’s average projection of 21.4% may not crystalise should insecurity concerns in agrarian belts and aggressive exchange rate pressure persist throughout H1:2024. Hence, we maintain our 2024 macroeconomic prognosis that “Nigeria’s economic outcomes in 2024 would depend on the actions or inactions of the fiscal and monetary authorities to push through their reform agenda.”
Chart 1: Is Nigeria Yet at Turning Point?
