FDC Whispers – May 15, 2024

Dear Subscriber,

Nigerian businesses and consumers embrace the stretch -Resilience in motion

The International Monetary Fund (IMF) reaffirmed its forecast of Nigeria’s economy growing by 3.3% in 2024 in its 2024 Article IV consultation. It emphasized that its macroeconomic models show that the CBN’s tightening campaign is an effective tool for stabilizing the naira and moderating the raging inflationary pressure. The Fund, however, cautioned that fiscal pressure persists with external debts outstanding (government plus private) at $113 billion (30% of GDP), while implicit subsidies are expected to increase to 2.8% of GDP in 2024 from 0.8% of GDP in 2023. After starting as the best-performing currency against the dollar in April, the naira reversed its 20% appreciation in the first half of April, losing 29% to trade at N1,530/$ at the parallel market on Tuesday, May 14, 2024. This change was driven by a decline in dollar liquidity amidst rising demand pressures. According to data from FMDQ, international investment inflows fell sharply by 69% to $476 million in April from $1.54 billion in March. Forex volatility and persistent inflation have increased the cost of doing business in the country, impacting corporate performance. Renewed pressures on the naira will likely keep inflation elevated in the near term, negatively impacting living standards as the new minimum wage negotiation drags on. The MPC is expected to maintain a hawkish stance in its upcoming meeting, with a probable rate hike of at least 100 bps.

Midwifing Economic transition through the manufacturing sector

In a 1960 book titled “The Stages of Economic Growth: A Non-Communist Manifesto,” An American economist, Walt Rostow, emphasized that the transition from agrarian to industrial economies is midwifed by the manufacturing sector. He argued that manufacturing plays a vital role in the takeoff stage of economic development by driving industrial growth, generating employment, fostering technological advancements, promoting economic diversification and export competitiveness, and guaranteeing accelerated and sustainable growth. In Nigeria, manufacturing value-added has dwarfed from an average of 19.96% in the 1980s to an average of 10.75% of GDP in the past decade. The sector struggles to survive amidst operational challenges, including epileptic power supply, FX scarcity, regulatory bottlenecks, and consumer market illusion. With 776 local industries ceasing operations, at least seven multinationals exiting the country in 2023 alone, and a cash-strapped government, it has become imperative to revive the sector, reaping its obvious benefits. Taking inspiration from Vietnam’s export-led strategy, Nigeria could prioritize domestic manufacturing and Special Economic Zones, particularly in processing raw materials and producing machinery, which currently contributes to 50% of imports.

In this latest edition of Whispers, the FDC Think Tank takes a deep dive into recent economic developments and their impact on your business and corporate strategy.

Enjoy your read!