Nigerian businesses and households are anticipating a positive economic turnaround in 2024, buoyed by optimistic projections of a stronger naira.
Particularly, the manufacturing sector, grappling with the fallout from the foreign exchange crisis in the previous year, is optimistic about recovery, attributing their hope to government measures addressing the FX challenges.
In 2023, the naira experienced depreciation against major currencies, notably the US dollar, due to heightened demand amid limited supply. However, a positive outlook for 2024 is emerging, with expectations of improved FX liquidity playing a pivotal role in stimulating foreign inflows.
According to a report by CardinalStone research, the anticipated improvements stem from the Central Bank of Nigeria’s actions to clear outstanding backlogs, the recent receipt of a $2.25 billion FX support facility from AFREXIM, expected inflows from the World Bank, and dividends from NLNG’s securitisation. These measures collectively contribute to the positive sentiment, fostering hopes of a strengthened naira.
As global interest rates are projected to decrease in 2024, efforts to address outstanding issues and private initiatives like the Dangote Refinery are poised to enhance dollar inflow and improve FX liquidity. Analysts at CardinalStone project that the official naira rate could touch N1000.0/$ by 2024, with an anticipated annual depreciation of 4.0 percent between 2026-2030.
In a note to BusinessDay, Charlie Robertson, head of Macro Strategy at FIM Partners UK Ltd, expressed optimism for Nigeria’s economic prospects in 2024.
According to Robertson, the naira has reached a realistic and even affordable level, marking a positive turn for the country’s currency. He further noted that the worst of the inflation rate surge may be behind, contingent on the CBN maintaining prudent measures in money printing. This positive assessment hints at a more stable and favourable economic environment for Nigeria in the coming year.
Rasheed Bolarinwa, president, the Association of Corporate & Marketing Communications Professionals in Banks (ACAMB), said the economy was in a reform mode. He expects a bit of continuation of the consequences seen in the past year, adding that there would be more stability this year. “Inflation will come down, we’d see greater stability and liquidity in the forex market, the overall economic growth, GDP, will be higher than the previous year and we should see a considerable improvement in the oil and non-oil sectors,” he said.
Bolarinwa added, “We expect some early gains of the key policy reforms to kick in this year. We are already seeing this with the budget process and outline, and we think the implementation will be better, in terms of the actual percentage of implementation and evaluation. So, for the economy, we can’t wish away the pain points of the reforms, but definitely, we will see glimpses of the benefits.”
Gabriel Idahosa, the president and chairman of the council of Lagos Chamber of Commerce and Industry (LCCI), expressed optimism about certain economic variables aligning favourably for Nigeria. He highlighted the potential decrease in the importation of refined products, anticipating a strengthening of the naira.
Idahosa pointed out that efforts to combat oil theft by the government could positively impact crude oil exports, contributing to an influx of foreign currency and potentially improving the exchange rate in favour of the naira.
However, he cautioned against global uncertainties, citing geopolitical tensions in regions such as Russia-Ukraine, Israel, and Palestine. The outcome of these conflicts remains unpredictable and could impact Nigeria’s foreign currency reserves due to its reliance on imports.
Addressing the need for diversification, Idahosa emphasised the importance of a robust push for non-oil exports. Such an initiative could gain momentum, involving more Nigerians in export activities, thereby contributing to a more stable economic environment.
On the manufacturing sector’s outlook, Idahosa stressed that the improvement of the naira’s value would be a pivotal factor. A stronger naira could enable manufacturers to increase exports, potentially leading to reduced production costs and, consequently, lower product prices.
“The impact of the manufacturing sector depends on whether the currency improves, if the value of the naira is better then, they would be able to export more and hopefully reduce their prices. We hope that naira improves so that the cost of production will be lower, and they can produce more,” he said.
George Onafowokan, managing director/chief executive officer at Coleman Technical Industries Limited, said, “I don’t see the naira pushing too far in 2024 than it did last year due to the anxiety in the market. But as of now, with the amount of funding coming in, the foreign exchange crisis would not be as bad as it was last year.”
“On the impact of manufacturers, we will see a negative impact because the cost of production is still high. After all, the manufacturer still has to import raw materials. We hope the losses for last year don’t count or add up this year.
Segun Ajayi-Kadir, director-general of the Manufacturers Association of Nigeria, said, “The sector may experience a meagre improvement in manufacturing output as forex and interest rates-related challenges are expected to subside from the third quarter.”
CardinalStone report has projected an exciting year ahead for Nigeria in 2024, with the gross domestic product growth rate anticipated to reach 3.5 percent.
The focal point of this optimistic outlook lies in the expected resurgence of the oil sector, which is poised to emerge from a three-year recession.
The key driver for this anticipated economic upswing is the projected improvement in oil production. Following a prolonged period of operational challenges, persistent oil theft, and underinvestment, the government’s recent push for offshore exploration is anticipated to mitigate these issues. This strategic shift towards offshore exploration, known for being less susceptible to oil theft, is seen as a positive signal for the future of oil production.
Moreover, the government has given the green light for a new marginal field round, specifically targeting dormant oil fields that have been abandoned by international oil companies (IOCs) for over a decade. These proactive measures by the government are expected to breathe new life into these neglected fields, potentially propelling average oil production to 1.56 million barrels per day (mb/d).
If these initiatives come to fruition, the associated GDP is likely to witness a significant boost, with a projected rise of 7.6 percent Year over Year (YoY). As Nigeria looks forward to 2024, these strategic actions suggest a positive trajectory for economic growth, particularly within the crucial oil sector.
Muda Yusuf, chief executive officer of the Centre for the Promotion of Private Enterprise, said the outlook for foreign exchange would be influenced largely by developments around the fundamentals of supply and demand of foreign exchange.
