Dear Subscriber,
Nigeria on the path to economic effervescence — Andrews Liver Salt !!!
Recent reforms are making the average Nigerian live on a shoestring. Prices are skyrocketing as inflation crosses the 25% threshold and the naira might be in a free fall, crashing to an all-time low of N995/$ as the scramble for dollars increases in the midst of inadequate forex supply. The credibility and independence of the CBN has also come into question with forex market participants pricing in a monetary policy risk premium and lingering capital control measures on the naira.
The persistent dollar shortage and macroeconomic vulnerability prompted FTSE Russell to downgrade Nigeria’s stock market from “Frontier” to “Unclassified market”, triggering selloffs and a whopping loss of N757 billion in two days. External debt is also ballooning ($43.16bn in Q2’23) as interest payments take precedence over infrastructural and socio-economic needs.
Higher oil prices are good but not great for Nigeria
Globally, oil prices trade at $95pb and are projected to hit $100pb by year-end due to supply shortages. While government revenue (FAAC) could increase in naira terms, Nigeria’s reliance on imported energy products (LPG, diesel, petrol and kerosene) amid a falling naira means higher food and transport costs, exacerbating inflationary pressures. These will be major considerations for the MPC at its next meeting, whenever that will be. Nonetheless, we expect the MPC to remain hawkish.
But some form of looking inward could solve Nigeria’s economic woes. Viable options would be improving the value addition of top agricultural traded products like cashew and cocoa, as well as mineral resources like steel. More importantly, Nigeria needs to show its political will, improve access, and encourage local businesses, particularly SMEs, to participate in the AfCFTA by removing non-tariff barriers.
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!
