FDC Prism – January 26, 2024

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Stalled reforms, ideological backsliding & the policy dilemma

Nigeria’s reform momentum appears to be at a standstill. Whilst there is a possibility of the reforms being reignited, there are doubts as to the commitment and political will of the decision-makers. Nigerian policymakers seem stuck between a rock and a hard place. On one hand, the CBN is committed to explicit inflation targeting as a tool for achieving price stability, on the other hand, the fiscal authorities are at best ambivalent when it comes to the question of using interest rates as a tool for combating inflation.

The CBN appears to put managing the value of the naira in the forex market as a top priority, followed closely by managing the general level of prices in the economy. This is because some policymakers believe that the major cause of higher prices is the pass-through effect of the exchange rate on domestic prices. The debate about the level of interest rates and the appropriateness of managing the money supply as a monetary policy tool continues to rage. At the next MPC meeting, we expect the hawks to overwhelm the doves in determining the monetary policy stance. All said, it is expected that the MPR may be increased by 150–200 bps to 20.25%–20.75% p.a.

Economic progress is a function of aggregate output

The health of the Nigerian economy is closely tied to the total value of goods and services produced in the country. Given the vital role played by agriculture in its contribution to GDP (24.66% in 9M’23), particularly in terms of both output and employment, the significance of transforming the sector cannot be overstated. This is because the sector, which was once the cornerstone of the economy, has witnessed a decline in its GDP growth rate, dropping from 5.8% in 2010 to 0.63% in the nine months leading up to September 2023. With the sector’s declining growth coexisting with rapid population growth (2.5%), Nigeria’s food insecurity woes are set to escalate.

This underscores the need for immediate intervention to address the lingering structural challenges like inadequate seedlings, fertilisers, and poor storage facilities impeding the agricultural sector’s productivity. Drawing inspiration from successful models in neighbouring countries like the Benin Republic (rated as one of the fastest growing economies in Africa), whose growth is mainly driven by its agricultural sector, a window of opportunity has reappeared for implementing strategic initiatives to revive the sector.

In this edition of the Prism (Biznomics), the FDC Think Tank delves into an in-depth analysis of these recent economic developments and their wide-ranging impacts on households and businesses.

Enjoy your read!