Market News

The Central Bank of Nigeria (CBN) is focused on achieving the ambitious goal of Nigeria’s economy attaining Gross Domestic Product (GDP) of $1 trillion by 2030 as set by President Bola Ahmed Tinubu in his Policy Advisory Council report on the national economy. CHIMA NWOKOJI, in this report, analyses the present state of the economy and expected policy directions.

The Central Bank of Nigeria (CBN), Governor Dr. Olayemi Cardoso has disclosed plans to shore up the country’s Gross Domestic Product (GDP) to $1 trillion in eight years.

Gross Domestic Product (GDP) is the monetary value of all finished goods and services made within a country during a specific period. It is an internationally recognised measure of economy size and strength.

Nigeria’s GDP was recently rebased from about $270 billion to $510 billion for 2013. The increase of about 90 percent was attributed to new sectors of the economy such as telecommunications, movies, and retail which were previously not captured or underreported. As a result of the rebasing, Nigeria was adjudged the largest country in Africa and 26th largest in the world.

However, analysts are worried that the size of the economy does not carry any benefit for the teeming population who are suffering economic hardship over time. So, any attempt at targeting higher GDP size without a paradigm shift in economic management would be an exercise in futility.

Only recently, the governor of Anambra State, Chukwuma Soludo, who is also a former CBN governor said that President Bola Tinubu inherited an economy from past administration equivalent to a “dead horse standing”.

The former CBN Governor said that the previous administration printed over N22 trillion and put it back into the system without any good backing.

“From a macroeconomic perspective the administration of former President Muhammadu Buhari bequeathed a rocky economy to the new one,” he had accused.

However, Soludo said that Tinubu’s economic team, of which Cardoso is among, has its work cut out, adding that the “coming months will be bumpy”.

“Muddling through this over the coming months will be bumpy, no question about it. Now you have to grapple with high inflation, the impact on the exchange rate and all the destruction. But I am glad that at least, the first salvos have been fired by the president, by his courageous step to remove the obnoxious scam that has festered over the years called petrol subsidy and then dealing with the exchange rate. On Thursday, the president said his reforms are a “bitter pill” that must be administered to an ailing economy,” Soludo had said.

Some analysts have also expressed worry that Nigeria is fast turning into a “Satchet Economy” where virtually everything now comes in small one-time-use-only packs popularly called, sachets: from milk to beverages, dry gin, soap, custard, among others.

This is attributed to part of the survival strategies of Nigeria’s poor, as many people cannot afford big packs anymore. People’s disposable incomes have shrunk to unbelievable lows.

For example, an average woman and her six children may never be able to enjoy a cup of “tea” if the only available packs of milk, chocolate beverages, and Sugar are N6,000, N3,500, and N1,300 respectively. The bigger packs would last longer, but if she earns N2,000 per day, taking “tea” automatically goes out of her reach. But with N500, she can buy smaller sachets and use them only once.

This is why firms are coming up with smaller packs of everything to aid average families with low purchasing power or low disposable income. “When you ponder on the fact that this affects more than 80 percent of the population, you know the economy is in big trouble,” one of the analysts stated.

Growth target sectorsThe government said it has some sectors in mind that could generate more jobs.  Further to the projected growth target, sectors including Agri-processing, oil & gas, manufacturing, solid minerals, fintech and information technology, real estate construction and infrastructure, among others are expected to attract significant capital investments.

“Having mentioned all these sectors, we must appreciate the soft power projected by the incredibly talented cohorts in the Creative industry.”

Other significant areas of focus

Further takeaways from Cardoso’s speech on Nigeria’s monetary policy direction are highlighted here. Aside from Cardoso’s revelation that the CBN would assist the current administration in attaining a $1 trillion economy over the next seven years, the apex bank says it will focus more on inflation targeting and scale-done direct interventions. This is crucial as it sets the tone for a lot of the other points he made, including the plans to increase the capital base for Nigerian banks so that the industry can support the $1 trillion economy target.

A public policy analyst Mr Tunde Akin-Moses, estimates the base should fall somewhere between N250 billion, and N500 billion.

There will be a new framework for payment service policies. This means the regulatory environment for Fintechs will change in the near future.

The last two Monetary Policy Committee (MPC) meetings didn’t hold because the law mandates a minimum of four times a year and Cardoso said the CBN has met that already.

The governor is of the view that the transmission mechanism is broken and so the meetings have not been effective. FYI, the transmission mechanism, is the time it takes policies to have an impact on the market. Tightening will most likely continue over the next two quarters before being relaxed. Tightening in this context means more selling of securities (that is Open Market Operations) and raising interest rates to reduce liquidity in the banking system.

“So, broadly speaking, we do not expect interest rates to start reducing until Q3 of 2024,” Akin-Moses stated.

He also said CBN will place focus on its primary mandate of price stability while discontinuing quasi-fiscal interventions (that is, those industry-targeted loans that the former CBN leadership pursued)

To achieve this, an inflation-targeting framework is being developed and a team/committee is to be set up for continued recovery of the disbursed intervention funds. New Foreign Exchange (FX) guidelines and legislation will be developed with extensive consultations with banks and FX market operators before any implementation.

Another point is de-risking instruments which will be developed to encourage private investment in housing, textile and clothing, food supply chain, healthcare and educational supplies. The rationale is that these areas have the potential for local input and value retention.

Comparison of BRICS and MINT economies

However, Mr. Cardoso seems unshaken and prepared to face the challenges ahead. According to him, the envisioned GDP target will put Nigeria in a position of much more favourable macro-economic indices, comparable to other economies of $1.0 trillion and above, with similar population and development characteristics. As with these countries, there is an expectation that driving to this target requires improvements in productivity, employment, and key macroeconomic growth indices.

In drawing a comparison with some of these countries, Cardoso referred to selected BRICS and MINT economies, such as Brazil, Mexico, and Indonesia for their capacity to absorb economic shocks and rebound from cyclical downturns.

BRICS, established in 2006, comprises China, Brazil, Russia, India and South Africa. MINT countries refer to the economies of Mexico, Indonesia, Nigeria, and Turkey.

According to him, Brazil with a population of 215 million, Mexico 129 million, and Indonesia 275 million have 2023 unemployment rates of 7.8 percent, 3.1 percent, 5.4 percent respectively.

By comparison, KPMG, a multinational consulting firm, in a newly-released report tagged ‘KPMG Global Economy Outlook report, H1 2023, stated that the Nigerian unemployment rate had increased to 37.7 percent in 2022 and will further rise to 40.6 percent, due to the continuing inflow of job seekers into the job market.

For the CBN Governor, these are unemployment levels that “we in Nigeria should aspire to achieve, and with resolve can attain.”

Nigeria is in need of new investments, debt restructuring, and restoration of old credit lines. In a toxic political environment, Nigerian policymakers are looking for good economic news that the people can see and most importantly feel.

The President and his fiscal team have been globetrotting in the last 16 weeks in search of new investments, debt restructuring and restoration of old credit lines. There have been a lot of promises but very little cash on the table. The naira has oscillated wildly but seems to have stabilised at the current level of N1,150/$.

Nigeria’s economic challenges are consistent with its regional peers, the economic challenges are similar to some of its African peers, especially Angola, Ghana and Kenya.

The outlook is that Nigerian growth in Q4 will be stronger than Q3. The IMF and World Bank are estimating full-year 2023 growth of 2.9 percent, implying that the economy will have to expand by 4.24p ercent in Q4.

The policy-making environment is more likely to be predictable and stable, especially in exchange rate management and curtailment of the petrol and electricity subsidies in the near term. The real benefits of market reform policies are unlikely to be felt in Nigeria until Q2 2023.

Fiscal and monetary authorities

Both monetary and fiscal policies are macroeconomic tools used to manage or stimulate the economy. Monetary policy and fiscal policy together have great influence over a nation’s economy, its businesses, and its consumers.

The Minister of Finance and Coordinating Minister of the Economy, Mr. Wale Edun said that his Ministry and the Central Bank of Nigeria (CBN) are collaborating to undertake a comprehensive reform of the country’s foreign exchange market.

In terms of achieving macroeconomic stability, he said it is important to stabilise the exchange rate, to bring down inflation, and of course eventually bring down interest rates so that borrowing for investment is affordable. The collaboration would lead to the development of a new framework for the foreign exchange market.

“There is going to be a comprehensive reform of the foreign exchange market. Individual retailers (currently) are unprotected; they’re dealing in a market without rules. The intention is to have all players (operate) inside a formal market, where there is a rules-based price setting, where the smaller retailer is protected, and where speculators that deal illegally will face appropriate sanctions.

“The Central Bank of Nigeria is autonomous in terms of setting interest rates, and controlling money supply. But it is one economy, and so the foreign exchange question is something that is done with collaboration. So it will be a joint effort by the central bank, in collaboration with the Ministry of Finance, to really deliver a new framework for the foreign exchange market.”