Executive Summary
Generally, the economy has been in an adjustment mode with several variables like stubborn inflation, persistent weakening of the Naira, supply chain disruption driven by insecurity, and weak production base, defining the outlook at any given time. While policy choices have been liberal on the sides of the monetary and fiscal authorities, expected outcomes have not been recorded yet. Some bold decisions were taken at some point with sincere intentions of fixing structural deficiencies. Significant decisions were removing fuel subsidies, harmonizing official and parallel exchange rates, and adopting a cost-reflective electricity tariff, among others. There is now a need for a systematic review and evaluation of these policies to achieve the best-desired outcomes.
Gross Domestic Product (GDP)
Looking at the Gross Domestic Product, the leading economic performance indicator, we can make a favourable comparison between the GDP recorded in the first quarter of 2024 (2.98%) and 2.31% in the corresponding period of 2023. We understand that generally, the beginning of any year presents slow growth dynamics expected to increase in subsequent quarters. However, suppose we must achieve the government’s target of 3.37%., we must address issues around power supply, rising cost of production, FOREX illiquidity and its impact on imported raw materials for manufacturers, making better choices of monetary instruments, and dealing with the security challenges that hitherto have impeded agricultural production and supply chain disruptions.
Rising Inflation
The fight against inflation has not been successful, as the prices of goods keep an upward trend, with the inflation rate rising from 22.22% in April 2023 to 33.69% in April 2024, recording more than a 10% leap in twelve months. In attempts to curb flaring inflation, the Central Bank of Nigeria, through the instrument of rate hikes, has consistently increased the benchmark rate, the Monetary Policy Rate (MPR), within the last twelve months. This action has made borrowing costlier and constrained new credit for productive activities. This has continued to weaken our production base and impede new job creation in the economy. We have consistently advised that rate hikes will not curb inflation without a corresponding fiscal intervention to boost agricultural production and industrial manufacturing. We would continue to advocate concessionary interventions for SMEs in Nigeria in the face of shrinking credit to the private sector.
Fiscal Policy and Management Finance
In the last one-year, government spending was largely sub-optimal due to substantial debt services and returning subsidy payments. Thus, removing subsidies was to reduce the enormous fiscal burden on the government and improve its financial well-being.
- The President signed a budget of N28.7 trillion in 2024 tagged “Budget of Renewed Hope”, comprising N1.74 trillion for statutory transfers, N8.27 trillion for debt servicing, non-debt recurrent expenditure of N8.76 trillion, and Capital expenditure of N9.99 trillion.
- Nigeria’s debt stock was N97.34 trillion (US$108.22 billion) at the end of 2023, compared to N87.38 trillion (US$113.42 billion) at the end of June 2023. This represents an increase of about N10 trillion. The total public debt stock increase is reflected in domestic and external debt.
- Between May 2023 and April 2024, the Federation Account Allocation Committee (FAAC) disbursement increased by 93.1% to N1.87 trillion from N976.3 billion. However, April declined slightly compared to FAAC disbursed in March at N2.33 trillion.
- The Tinubu administration has made strides in fiscal consolidation, reducing the budget deficit to 4.5% of GDP from 5.7% the previous year.
- Public debt levels remain high at 34% of GDP, though manageable within the current fiscal framework.
Taxes and Levies
On taxes and levies, we see a government trying to establish a better tax system that captures more people into the tax net and harmonizes taxes to a single number. The recent establishment of a single window project is expected to drive the ease of doing business in Nigeria. Establishing the Presidential Committee on Tax Reforms and Fiscal Policy has been evaluated as the government’s commitment to building a new tax system for a thriving business environment. The advent of a single window will ease transactions from one portal, make permits and licenses cheaper, and less prone to corrupt tendencies.
The Manufacturing Sector
The Manufacturing sector in Nigeria has shown resilience and growth amidst recent reforms and government interventions aimed at fostering economic development and industrialization. As outlined in the data provided, the sector has experienced fluctuations in growth rates throughout the quarters of 2023 and the first quarter of 2024, reflecting both challenges and opportunities.
Overview of Sector Performance:
The first quarter of 2024 presented some challenges, with nominal GDP growth slowing to 8.21% year-on-year. Quarter-on-quarter growth was negative at -17.67%, reflecting a contraction. Despite this, the sector’s contribution to Nominal GDP remained substantial at 14.79%.
The government must fix the FOREX crises, adopt a lower exchange rate for import duties on imported raw materials for manufacturing, offer manufacturers concessionary interest rates in the face of shrinking credit to the private sector, and ensure the policy environment is stable and predictable.
Agriculture Sector
In the first year of President Tinubu’s Administration, the agriculture sector was impacted mainly by insecurity, fuel subsidy removal, and consistent exchange rate deprecation, which increased the cost of fertilizer and other input costs. Some parts of the country recorded the worst flooding in history in the last quarter of 2023, significantly affecting crops such as rice, maize, and soybeans. The economic conditions have also been difficult for livestock producers and animals suffering from the high feed cost, herder-farmer crisis, etc.
As a result of the challenging conditions, the federal government declared a state of emergency on food production to stabilize prices. It implemented several intervention policies, including distributing N100 billion fertilizers to boost food production. However, affordable food is still a far cry. According to NBS, food inflation has consistently increased over the last twelve years, reaching 40.53% in April 2024 compared to 24.82% in May 2023.
In terms of GDP, agriculture sector growth has mainly been sub-optimal. In the first quarter of 2024, the sector grew by 0.18% compared to 2.10% and 1.30% in Q4 and Q3 of 2023, respectively. This implies a downward trend in the sector’s output.
To address low agricultural output, we recommend that the government address the country’s high level of insecurity and the exchange rate crisis. In addition, the government must incentivize agricultural processing and invest in vital infrastructure such as power and transportation.
Information and Communication Technology (ICT) Sector
The growth of the ICT sector since the second quarter of 2023 has been on a downward trend, reflecting several challenges facing the sector, such as exposures to exchange rate depreciation, poor electricity and high cost of fuel, high interest rates, and government policies. In Q1 2024, the sector grew by 5.43% compared to 6.33% in Q4 2023, 6.69% in Q3 2023 and 8.60% in Q2 2023.
In the last year, several promising tech start-ups in Nigeria with the potential to contribute to the economy’s productivity immensely stopped operation because of the government’s inconsistent approach to policies related to the sector’s support. Some of these policies include the CBN policy on crypto firms and the country’s fintech.
Recommendations
- Strengthen Monetary Policy:
Enhance coordination between fiscal and monetary policies to better control inflation.
- Enhance Revenue Generation:
Continue tax reforms and improve compliance to increase government revenue.
- Diversify the Economy:
Invest in non-oil sectors to reduce dependency on oil revenues and build economic resilience.
- Improve Infrastructure:
Accelerate infrastructure projects to support economic activities and reduce logistics costs.
- Focus on Job Creation:
Implement targeted programs to reduce youth unemployment by supporting SMEs.
By addressing these recommendations, the Tinubu administration can build on its initial successes and foster a more robust and inclusive economic growth trajectory for Nigeria in the coming years.
Dr Chinyere Almona,
Director –General
LCCI
