Dear Subscriber,
Now you see me, now you don’t
Nigeria’s policymaking disappearing act may have begun to take a toll on the economy and investor confidence.
The Government has suspended its cyber security levy after announcing the same with fanfare. It also had to distance itself from a fiscal stimulus package that was cynically leaked to the media by fifth columnists. In spite of these missteps, there appears to be a determination and consistency to push through a reform agenda (2.0) designed to rectify the shortcomings of the 2023 reform and position the economy for competitiveness in 2025. Luckily, the gap between the ask (N100K) and the offer (N60K) in the minimum wage drama has narrowed sharply, and a deal is now imminent.
The telecommunications sector is losing its sheen
Once the poster child for fast-paced growth in a bumpy economy, Nigeria’s telecommunications sector, a catalyst for future growth, is fast losing its spark. This is due to economic challenges, inflation, exchange rate pressures, regulatory burden, right-of-way conundrums, and multiple taxations crunching the once vibrant sector. Although the sector’s growth outperforms annual GDP growth, but after discounting for inflation, it becomes evident that the sector is stagnating as revenue and margins decline.
Strengthen telecommunications and strengthen the economy.
Despite the current turbulence the telecoms sector faces, there is still hope, especially because of the strong linkages with other critical and job-elastic sectors of the economy, including manufacturing, agriculture, and trade. The way out is to boost aggregate telecom investment that had shrunk 47% since 2021, crippling market efficiency and growth. The regulatory landscape and macro-fundamentals must be supportive to incentivise investments.
It’s the economy, stupid!
Boosting sectoral GDP is an inductive way to achieve economic expansion marred by structural defects. Should output decline, exports will keep falling, further exacerbating inflation and exchange rate pressures. Since the 14% currency appreciation on May 28, at the official market, the naira has reversed to depreciate by 21% to N1,481.49/$ as of June 6. Renewed currency pressures point to a more problematic second half of 2024. There is no magic wand to stabilising the economy. If the wrong choices continue to take precedence, the macroeconomy will attest to it.
What next? Adapt or Collapse?
The cost of living in Nigeria is set to spiral as inflation remains steady above 30%. The naira, which is theoretically undervalued, will endure pressure. However, CBN’s sustained market corrective measures will likely continue, possibly anchoring investor sentiments positively in the medium term. The FG’s recent policy to raise the minimum wage and remove import levies also signals a continuation of policy reforms to investors and could support the sourcing of external finance from the World Bank, AFDB, and commercial creditors.
As they say, it’s not over until the fat lady sings! We will keep watching the plug-and-play moves that will influence business and investment decisions over the next few weeks.
In this latest edition of the LBS Breakfast session, Bismarck Rewane and the FDC think tank discuss these issues and more.
Enjoy your read!
