Re: AFDB Nigerian Economic Outlook for 2024

By Chinedu Okoye 



Revisiting the African Development Bank Economic Outlook for Nigeria for the year 2024. We do this with the benefit of hindsight and reconcile the AfDB projections with actual economic situation for the first half of the year.

We find that conditions have deteroriated more than expected so far in the year as at when the paper was written. 



Macroeconomic Developments (2023):

From the AfDB Article;

The Nigerian economic growth slowed from 3.3% in 2022 to 2.9% in 2023, this is owed to high inflation and sluggish global growth. The global economic growth slowed, declining by 0.3% from 3.5% in 2022 to 3.2% in 2023.

Growth in Nigeria was driven by services and agriculture (on the supply side, and consumption and investment (on the demand side) according to the Development Bank. 

Inflation was driven by exchange rate depreciation as Naira slumped 95.6% as a result of relaxing the Naira peg and floating the local currency. This drove fuel prices which are still largely imported to climb 300%+ and food prices felt this impact as a result giving that far inputs (fertilizer and equipment) were affected by the Naira slump.



Economic Conditions in 2024:

Inflation continued to rise consistently from January through to May 2024, surpassing the AfDB target for the December 2024. The Naira also slumped from an average monthly exchange rate of N911/$1 in January to 1500/$1 in June.

Breakdown of Inflation Rates in 2024:

- January: 29.90%
- February: 31.70%
- March 2024: 33.20%
- April 2024: 33.69%
- May 2024: 33.95%
- June 2024: 34.2%

Average Naira performance v USD From January to June 2024:

- January: N911.20/$1

- February: N1383.93/$1 (-51.83%)

- March: N1528.27/$1 (-10.43%)

- April: N1272.72/$1 (+16.67%)

- May:  N1434.08/$1(-12.71%)

- june: N1518.15/$1 (-5.83%)

These rates show a steady increase in inflation throughout the first half of 2024, with the rate in June being the highest in 28 years ¹. And also a heavy decline in Naira/USD rates


Central Bank Reaction:

The Central Bank tightened Monetary Supply, raising Cash Reserves Ratio from 32.5% to 45% and MPR 26.25% (as of the last MPC in May 2024) from 18.75% in December 2023. The MPR in January 2023 was 17.50%. Thus the Central Bank of Nigeria hiked 125 basis points for the full year 2023, and 550 basis points in the first six months in 2024.

This monetary tightening was intensified as inflation and exchange rate deteriorated further post the AFDB Outlook.



AfDB 2024 Nigerian Economic Outlook vs Reality:

Outlook: The AFDB projected the Nigerian economy to grow at 3.2% in 2024 and 3.5% for 2025. This was to be dependent on; Improved Security; higher oil production; and Stronger consumer demand. Inflation was expected to increase to 31.64% for the year (ie December 2023).

Economic headwinds and tailwinds for the year specified in the article; lower oil production, rising fuel and food prices and further exchange rate depreciation.

Reality: The security situation is still tentative, oil production stands at 1.7 million barrel per day (a markable increase); but consumer demand is stronger than usual in that minimum wage is nominally higher, and consumer credit schemes (eg CrediCorp) are being introduced.

Inflation is however at 34.1%, with food inflation at 40.9% and Fuel prices marginally higher than the 671/liter level in 2023. 


Zero Equilibrium Take:

From the data on inflation and Naira exchange rates above, all economic headwinds have occured with Naira depriciating further and food and energy prices rising in the first half of 2024.

Oil production has reportedly picked up in recent weeks averaging 1.7 million barrels per day. The increased Oil output and nominal minimum wage do not exactly fulfill the conditions for the projected growth in terms of the weight of impact. The new minimum wage and credit schemes (student loans, Credit Corp, etc) available to augment spending could prevent a steeper and longer decline in aggregate demand.

A successful implementation of policies targeted reducing the price of food (e.g., the reduced customs duty for food and drugs) might bring some short-term relieve in food inflation, and a sustained oil production increase is necessary to stabilize energy prices. These measures may not be sufficient for growth, but could well be for the much needed stability and the success in meeting these policy objectives is crucial to getting the economy to it's projected growth level of 3.2% for the year 2024.

Read More: 
African Development Bank Group. (n.d.). Nigeria economic outlook. African Development Bank. Retrieved August 9, 2024, from: 

https://www.afdb.org/en/countries-west-africa-nigeria/nigeria-economic-outlook

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