Africa’s leading export-import bank, AFREXIMBANK is highilighting the resilience shown by the Nigerian economy in bouncing back from the covid 19 recession but says given the country’s struggle to slow population growth, efforts have to be made to attain a more rapid economic growth.
In its country brief released recently, the Cairo based institution that is facilitating trade and economic growth around the continent said, “this recovery, driven by favourable crude oil prices, growth in non-oil sectors such as agriculture and services, and increased public and private consumption, indicates Nigeria’s growth potential.”
According to the report, “Despite the current economic hardship, forecasts suggest that ecodomic growth will continue at
an average of 3.1% in 2024 and 2025, supported by rising global oil prices, improved oil production, sustained growth
in agriculture and services, currency stability, and the government’s efforts to strengthen fiscal policies.”
AFREXIMBANK said, “however, it is crucial to note that the pace of economic growth needs to be much higher, especially with Nigeria’s rapidly expanding population. While the GDP shows an annual growth of about 3%, demographic trends indicate that the economy is struggling to keep up with population growth, which could impede overall socio-economic progress and exacerbate unemployment and poverty. Sustainable economic growth requires targeted interventions to address unemployment and poverty. Nigeria’s recovery from the recession is a promising beginning. “
It added that given the growing population, addressing the high cost of living triggered by the war in Ukraine and achieving robust and inclusive economic growth in Africa’s most populous country would be crucial.
The continental financial institution noted that Nigeria has experienced significant inflationary pressure in recent years, attributed to supply chain disruptions and relaxed financial conditions. Inflation has risen, reaching 33.95% in May 2024, up from 28.9% in December 2023 and 21.3% in December 2022 wiping out disposable income of the people, especially the poor.
Food inflation, the most significant component of the inflation basket, has This recovery, driven by favourable crude oil prices, growth in non-oil sectors such as agriculture and services, and increased public and private consumption, indicates Nigeria’s growth potential. increased from 23.75% in December 2022 to 33.9% in December 2023 and 40.66% in May 2024.
On the foreign exchange market, the report said the Nigerian Naira has been highly volatile in recent years due to high and increasing demand for the US dollar to pay for imports, low foreign reserves, weak investment inflows, and a strong US dollar supported by tight US monetary policy.
According to it, “since May 2023, when the current administration assumed office, the Central Bank of Nigeria (CBN) has implemented several policy measures to tackle inflation and foreign exchange pressures. These measures include ongoing tightening of monetary policy, leading to tighter credit conditions for domestic companies and an increase in local bond yields. During the 295th Monetary Policy Committee meeting on May 21, 2024, the Monetary Policy Rate (MPR) was raised to 26.25%, the cap on the Standing Deposit Facility (SDF) was removed, and the Cash Reserve Ratio (CRR) was retained at 45%. Additionally, CBN has taken steps to tackle challenges in foreign exchange supply. This includes consolidating all foreign exchange transaction windows into the Investors and Exporters (I&E) window, reintroducing Bureau de Change (BDC) operators, establishing a committee to monitor foreign exchange liquidity, and gradually addressing outstanding foreign exchange obligations.
“While most reforms were being implemented, the Naira faced significant pressure, especially in the second half of 2023 and early 2024. After the official FX exchange windows were unified on June 14, 2023, the official exchange rate depreciated by 60%, aligning with the parallel market rate, which fluctuated between ₦750-850:US$1. Market scrutiny intensified, particularly regarding the CBN’s net international reserves position and its impact on FX liabilities, overdue dollar obligations to domestic banks, and a backlog of pending dollar demand from corporates seeking repatriation funds.”
