Analysts at Agusto & Co, a Nigerian credit rating company, has said that the Federal Government’s plan to reach a $1 trillion GDP by 2026 appears to be a dream.
This assertion comes soon after Nigeria’s recent downgrade from the 1st to the 4th largest African economy by GDP, according to the International Monetary Fund.
The weak naira and disruptions in policy reforms like the removal of fuel subsidies caused the slip, as noted by Agusto & Co.’s monthly report.
“The government’s ambitious plan to reach a $1 trillion GDP by 2026 seems increasingly like a dream deferred. However, we believe that a longer and perhaps more tortuous path could be a modest price to pay to deepen the foundations for a more resilient economy set on a path of sustainable and accelerated growth in the long term,” the report stated.
At the heart of Nigeria’s economic vision is a plan to achieve a $1.0 trillion economy in the next seven years, followed by a staggering $3.0 trillion within a decade, BusinessDay earlier reported.
To achieve this, analysts have emphasised the critical importance of reducing inflation, maintaining a balanced exchange rate, and fostering a culture of value creation.
However, Nigeria’s headline inflation under President Bola Tinubu’s led administration has spiralled to 33.2 percent in March, the highest after ten months of inaugurating successive governments since 1999, BusinessDay’s findings showed.
Likewise, the naira has reversed its gains against the dollar in a month, witnessing a 5.9 percent depreciation in April.
Data from the FMDQ Securities Exchange Limited showed that the foreign exchange market closed the month at N1,390.96 per dollar on April 30, 2024, weaker than N1,309.39 closed in March 2024 at the official market.
Likewise, the parallel market also saw a decline, with the naira weakening by 2.96 per cent m/m to N1,350/$1 in April 2024, as against N1310 per dollar closed on March 2024, according to the data collated from street traders.
Speaking on the CBN’s banks recapitalisation order, Mustafa Chike-Obi, chairman, Bank Directors’ Association of Nigeria, said that the FG’s $1 trillion GDP target should not be a basis for banks to increase their capital base.
“The $1 trillion economy in 8 years is impossible, so it should not be a reason for the CBN to ask banks to raise more capital. It requires a GDP growth of 15 percent annually for the next 6 to 7 years, so it should not be a driver of decisions,” he said at the recent BusinessDay Banks’ recapitalisation round table in Lagos.
However, the Gross Domestic Product growth rate in the past 5 years has trended below 5 percent. According to the National Bureau of Statistics, Nigeria’s Gross Domestic Product growth in the last five years trended from 2.74 percent in 2023 to 3.10 percent in 2022. While in 2021, there was a growth rate of 3.40 percent, 2020 saw a retraction of -1.92 percent and 2.27 percent in 2019.
Furthermore, the credit rating firm recommended that the Central Bank of Nigeria tackle inflation via further rate hikes and attract new Foreign Direct Investments (FDI).
“The CBN needs to keep tackling the stubbornly high inflation (from demand-pull-induced sources), likely through further rate hikes, and attract sustained foreign investment beyond familiar players.”
Finally, establishing a truly transparent and functional foreign exchange market will be vital for long-term confidence in the naira. The naira depreciation since April 17 suggests that foreign investors, and speculators alike, are waiting for clearer signs of a comprehensive economic plan from the Nigerian government to attract capital inflows and ensure sustained naira stability,” the report stated
