• Slow growth, high inflation 
• Tight monetary policy
• Challenging exchange rate
• Low capital, high recurrent spendings

  PHILLIP ISAKPA IN MANCHESTER, UK A team of financial, economic and markets analysts, after a detailed review of the first six months of the year and examining government policy direction, especially on monetary and fiscal policies, as well as global economic and oil price forecasts, have projected what looks like a gloomy second half for the Nigerian economy in 2024. The analysts, assembled by Lead Capital, said after their examination they were left with no choice but to say that they can only foresee a mountain of obstacles for the economy and operators within it in the second half.  They were specific in stating in their 72-page analyst note titled “Nigeria in the First Half of 2024 and Outlook for the Second Half of the Year”, that the economy will be buffeted on several fronts, including by slow growth, a high inflation environment, a tight monetary policy environment, a challenging exchange rate environment, low capital spending, high recurrent spending, and high government borrowings. They said the economic outlook drivers for the second half are crude oil price and Nigeria’s production, government economic policy management and the global economy. Diving into the details, on the economic policy environment, focusing on monetary policy, they observed the hawkish monetary policy moves as the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) increased the monetary policy rate (MPR) by 750 basis points so far this year to 26.25 percent. “We expect the use of this tool to aggressively pursue the runaway inflation rate and to attract Foreign Portfolio Investors (FPI) to invest [in] FGN’s financial instruments,” the analysts said in their outlook. They however warned that a massive inflow of FPIs, also known as “Hot Money”, is not a stable source of forex inflow as such money is short-term in nature. Accordingly, they posit that this policy is not likely to attract foreign direct investments (FDIs) which looks more at the long term  For the second half of the year, they believe that with inflation rate currently above 31 percent, Nigeria is in for a long haul of hawkish monetary policy decisions in the medium term, adding that “this suggests that in 2024, monetary tightening will persist until the rate of inflation softens.” In their outlook on fiscal policy they drew attention to the fact that President Bola Tinubu was expected to shortly present the 2024 Supplementary Budget to the National Assembly (NASS), which they say has prompted concerns over the impact this would have on the economy.  According to them, this impact would include likely additional pressure on inflation, increased debt service cost and higher borrowing cost from businesses. “It seems going forward, government deficit spending would be covered by both domestic and foreign borrowings,” they opined. Observing the global economy and how it could impact the Nigerian economy in the second half, they observed that the world economy is expected to grow at the same rate of 3.2 percent in 2024 and 2025 as it did in 2023, going by baseline prediction.  “A moderate decline in emerging markets and developing nations, from 4.3 percent in 2023 to 4.2 percent in both 2024 and 2025, will counterbalance a minor acceleration for advanced economies, where growth is predicted to rise from 1.6 percent in 2023 to 1.7 percent in 2024 and 1.8 percent in 2025,” they further observed. They also noted that five years from now, the predicted 3.1 percent growth rate for the world economy is the lowest in decades. They also noted that forecasts also show that global inflation would gradually decrease from 6.8 percent in 2023 to 5.9 percent in 2024 and 4.5 percent in 2025, adding that developed nations are expected to return to their inflation targets earlier than emerging markets and developing economies. They noted that in a general sense, core inflation is expected to decrease more gradually, and that risks to the global outlook are now broadly balanced. However, on the downside, they observed that new price spikes stemming from geopolitical tensions, including those from the war in Ukraine and the conflict in Gaza and Israel, could, along with persistent core inflation where labour markets are still tight, raise interest rate expectations and reduce asset prices Gauging sub-Saharan Africa (SSA) in the global prediction, the analysts noted that after four turbulent years, the outlook for sub-Saharan Africa is gradually improving. They stated that growth will rise from 3.4 percent in 2023 to 3.8 percent in 2024, with nearly two thirds of countries anticipating higher growth. Accordingly, economic recovery is expected to continue beyond this year, with growth projections reaching 4.0 percent in 2025. They also observed that in addition inflation has almost halved, public debt ratios have broadly stabilised, and that several countries in SSA have recently issued Eurobonds, ending a two-year hiatus from international markets.  Putting down a caveat, they stated: “However, not all is favourable and risks to the outlook remain tilted to the downside.” For SSA, they noted that funding squeeze persists as the region’s governments continue to grapple with financing shortages, high borrowing costs, and impending debt repayments. “Amid the challenges, sub-Saharan African countries will need additional support from the international community to develop a more inclusive, sustainable, and prosperous future,” they stated. To the specific impact these global and SSA trends would have on Nigeria, the Lead Capital assembled team of analysts, they noted as follows: “As stated earlier, global output is expected to slow to 2.84 percent in 2023 due to monetary tightening, weak currencies and fiscal imbalances. “Currency pressures will linger as high global interest rates continue to stem capital inflows. “It will be difficult to visit the international capital market as the global interest rates remain elevated.  “Inflationary pressures to ease as global commodity prices moderate from their peak. “Nigeria’s sub-optimal oil production will limit it from benefiting from higher oil prices,” they stated. For Nigeria that depends largely on crude oil for its foreign exchange earnings, they pointed out that international oil prices are likely to stay near $80 a barrel in 2024, but drew attention to a Reuters poll where analysts predicted that weak global growth would cap demand, while geopolitical tensions could provide support.  The analysts observed that the global benchmark Brent crude has averaged around $82.17 a barrel so far this year. On overall economic growth, they stated that the positive growth experienced so far could be sustainable in 2024. “Reflecting the hike in commodity prices sparked by the Russian – Ukraine war, our growth forecast for 2024 remains between 3.0 percent and 3.3 percent in line with the IMF forecast,” they wrote. They, however, stated that the expansion of the growth possibility frontier can only be achieved by developing and growing new sectors. With regards to inflation, the analysts stated that inflation will remain in double digits in the medium term and its likely to hover between 32 and 35 percent per arum due to the following drivers:

• Imported inflation due to exchange rate devaluation would likely continue
• Increase in electricity tariffs may be fully implemented in 2024
• Structural imbalances as well as supply chain bottlenecks will remain for the rest of the year
• Further increases in a wide variety of indirect taxes expected 

Focusing on interest rates, they said owing to the high rate of inflation ravaging the economy, medium-term interest rates are projected to rise as dollar demand rises, they said, adding that a persistent inflationary threat would encourage the CBN to maintain its hawkish stance. “In addition, if interest rates rise, borrowing costs for businesses and the government will also rise. Businesses may fail on loans more frequently as a result of the rising interest costs, which would likely result in higher impairment costs for banks,” they stated. “Consequently we project that MPR would rise to above 26.55% in 2024,” the analysts further stated. On exchange rate, they observed that initially, the CBN standardised the exchange rate and greatly lowered the barriers to accessing foreign exchange, especially those relating to domiciliary accounts. “However, this policy has blown in the face of policy makers as the value of the naira continues to deteriorate. Although the adoption of the "willing buyer, willing seller" model denotes a liberalisation of the foreign exchange market, the CBN has not yet made a clear decision regarding whether it would run a managed or unmanaged system,” the stated They noted that in June, the naira's exchange rate at the Importers & Exporters window fluctuated between N1,450 and N1,475 but eventually dropped to $1,445/$ by the end of the month. “We believe that the naira may test close to N1,850/$ at the parallel market before the end of 2024,” the analysts said. In their observations on Nigeria’s external reserves dynamics, the analysts noted that the country’s foreign exchange reserves continued to decline as dollar revenue falls, noting, however that there were concerted efforts in June to beef up the reserves above $34 billion  “Lower oil production was mostly to blame for the decrease in foreign external reserves in the first place,” they stated, adding that “with the new trajectory we see a strong possibility of the level of external reserves rising to $33 billion by the end of the year.”