Unlocking productivity: PwC predicts seven trends that ‘ll shape Nigeria’s economy in 2024

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Global professional services firm, PwC Nigeria last week launched its version of Nigeria Economic Outlook for 2024, highlighting seven trends that will shape the Nigerian economy in the year. FESTUS OKOROMADU writes on some of the critical areas of focus for economic transformation.

The year 2024, like every other, has witnessed an array of projection and forecast by financial experts and economist pundits.

A good number of them paint a gloomy picture of the economy such that the ordinary Nigerian keeps wondering when the much advocated dividend of democracy propagated during the electioneering session will ever come to fruition.

Thursday last week, leading professional services firm, PricewaterhouseCoopers Nigeria, released its latest report, Nigeria Economic Outlook, highlighting the seven key trends that will shape the nation’s economic trajectory in 2024.

The PwC report projected a marginal decline in inflation and 3.1 percent rise in GDP, but emphasized that achieving sustainable growth in 2024 requires balancing ambitious fiscal reforms with an effective budget implementation.

It also stressed the importance of aligning fiscal and monetary policy to stabilise prices and reach target goals.

But more worrisome is the forecast of the likelihood of consumer spending facing pressure in 2024 due to rising prices of goods and services (increasing food and transportation costs), coupled with lower disposable income.

The report hinted that poverty levels are projected to increase to 38.8 percent in 2024.

“Despite the low unemployment rate in the country, low consumer spending and purchasing power remains an issue, especially in the absence of commensurate increase in minimum wage to mitigate the inflationary growth in the economy,” the report stated.

“Security situation will remain challenging, despite the allocation of N3.25 trillion (12 percent of the total budget) to the security sector in the 2024 budget”

However, the report authored by PwC Nigeria’s Partner and West Africa Lead, Olusegun Zaccheaus; Lead Economist and Researcher, Omomia Omosomi; and Senior Economist & Researcher, Adesola Borokini, offered a pathway to economic recovery. They emphasized the need for the government to focus on infrastructure development, provision of security and the implication of the newly signed Electricity Act on the economy.

Infrastructure funding

According to PwC, infrastructure funding may remain insufficient in 2024 due to budgetary constraint, stressing that limited fiscal space for public investment and difficulty in attracting private investments constrain the ability to make essential infrastructure improvements.

“The allocated infrastructure spending budget for 2024 is N1.32 trillion, falling short of both the World Bank’s suggested 70 percent infrastructure-to-GDP benchmark (currently at 30 percent) and the yearly $150 billion requirement specified in the National Integrated Infrastructure Master Plan for 2021- 2025,” the report stated.

Speaking of persistent depreciation of infrastructure funding in the past, and the need to fast-track investment initiatives, the report said, “Gross fixed capital formation grew marginally by 1.85 percent in Q2 2023 from 3.71 percent in Q2 2022. Also, the consumption of fixed capital contracted by -25.01 percent in Q2 2023 from a growth of 9.17 percent in Q2 2022. The marginal growth in gross fixed capital formation and the contraction in consumption of fixed capital are due to very low investment and replacement rate relative to the depreciation of existing assets.

“Critical infrastructure gaps are hindering Nigeria’s economic growth, with a projected need for $3 trillion investment over the next 30 years, according to Moody’s 2020 estimate. Limited fiscal space for public investment and difficulty attracting private investments constrain the ability to make essential infrastructure improvements. Inadequate provision of ports, power, and roads is impeding economic progress, leaving large parts of the country without essential services. This has led to the loss of agricultural produce due to delayed transportation, delays for ships caused by inefficient ports, increased waiting time for traders to move goods across the country, etc.”

Insecurity and economic growth

PwC expressed serious concerns over the insecurity in the country stressing that it remains a perennial challenge. It noted that insecurity not only jeopardies national stability but also negatively affects economic activities and undermines investor confidence.

Backing its stand with figures while evaluating the import on the nation’s economy, the report said, “Security spending in the past nine years amounted to N14.8 trillion. Despite increased spending and better coordination among security agencies, reported insecurity and associated deaths remain high, with 3,920 deaths recorded as of June 2023.

“The herder-farmer conflict in the North West and Middle Belt zones has resulted in the killing and kidnapping of farmers, leading to a decline in agricultural output and a surge in food prices. In the Niger Delta, the oil and gas sector faces security challenges such as vandalism, oil theft, and piracy, resulting in daily losses in petroleum production and impacting the country’s revenue. In the North East, the prevalence of illegal mining has led to the increase in conflict and death in the region.”

Interestingly, PwC is of the view that the government seems to be addressing this critical issue from the wrong perspective of throwing funds at it.
“Security situation will remain challenging, despite the allocation of N3.25 trillion (12 percent of the total budget) to the security sector in the 2024 budget.”

While emphasizing that the root causes of insecurity like increasing poverty, inequality, high unemployment coupled with double digit inflation will continue to exacerbate the security challenges, these root causes may also precipitate isolated social unrest, it stated.

Security risks drivers

In proffering solutions to security challenges in the country, PwC specifically identified five key risk areas demanding attention, namely, Macroeconomic headwinds, High population growth and unemployment, Environmental risks, Humanitarian crisis and internal displacement, and Religious and ethnic tensions.

Macroeconomic headwinds: The macroeconomic landscape is pressured partly by macroeconomic headwinds significantly increasing the cost of living, the report said, adding that, continued economic strain and high inflation may likely perpetuate social unrest in 2024, warning that persistent security concerns, particularly in the North and South-South, may worsen social tensions and hamper economic growth.

High population growth and unemployment: “Population is estimated to have grown to 213 million as of 2022 with nearly 100 million below 18. The World Bank projects that the share of Nigerians living below the international poverty line will peak in 2024 at 38.8 per cent before beginning a gradual decline, as inflation cools down and economic growth picks up. The business environment has seen little foreign investment, limiting job creation. Unfavourable demographic distribution and high incidence of unemployment may continue to hinder improvements in living standards posing a persistent danger to stability and economic growth.”

Environmental risks: “Diminishing resources due to climate change are heightening tensions in resource-scarce regions, particularly where ethnic and religious lines intersect such as Kwara, Kogi and Niger. In the H2 2022 Nigeria witnessed the most devastating episode of seasonal floods in a decade, causing over 600 deaths and 1.3 million displacements from homes. Poor planning for seasonal floods and governments limited capacity to manage tensions may heighten the risk of displacement and economic disruption in 2024.”

Humanitarian crisis and internal displacement: “The UN reports 2.7 million people of concern in Nigeria, with 2.2m internally displaced and over 690,000 returned refugees. Food shortages and regional insecurity contribute to this displacement. Heightened insecurity and cholera outbreaks due to lack of sanitation, healthcare and clean water especially among displaced individuals may likely continue to persist, hampering economic cohesion if not addressed.”

Religious and ethnic tensions: “The country will remain polarised along religious and ethnic lines as observed in Northern Nigeria. The incidence of terrorist acts and the existence of militants in northern Nigeria, particularly in regions like Borno, severely obstruct the prospects for investment and regional progress. Limited opportunities and substandard living conditions may continue to drive ethnic, sectarian, and religious divisions if the underlying macroeconomic and social issues are not solved.”

The Electricity Act

While it is globally accepted that industrial transformation is enabled by the provision of electricity, the sector remains one of the most undermined in Nigeria. Unfortunately, Nigeria remains backward in this critical area of modern society.

“Nigeria’s electricity generation per capita was 147 kWh in 2022, which is lower than the figures for the other four largest economies in Africa: South Africa 3,566 kWh, Algeria 2,041 kWh, Egypt 1,875 kWh, and Morocco 1,099 kWh. This is despite Nigeria being the largest economy and having the highest population on the continent. Such a disparity has a negative impact on growth and productivity,” the PwC report stated.

One critical challenge that has bedeviled the sector is lack of liquidity, an issue some industry experts blamed the legal framework guiding the industry. But the new Electricity Act has brought some succour as it vests states, companies and individuals with the legal authority to generate, transmit and distribute electricity.

“If implemented by the states, the Act is expected to minimise the annual economic losses estimated at $28 billion (N10 trillion); enhance electricity access to the 85 million Nigerians that lack access to the electricity grid in the various unserved and underserved areas.”

Perhaps this is why the PwC projects that the Electricity Act may minimise annual economic losses estimated at $28 billion annually, even as Nigeria will require an investment of about $1.87 billion to increase power generation capacity to 350 GW by 2043.

Nigeria is a multi-ethnic and culturally diverse federation of 36 autonomous states and the Federal Capital Territory.

The political landscape is partly dominated by the ruling All Progressives Congress which controls the executive arm of government and holds majority seats at both the Senate and House of Representatives in parliament, and majority of the states.

President Bola Tinubu was sworn into office on May 29, 2023, having won the February 2023 Presidential election.

Nigeria continues to face many social and economic challenges that include insecurity such as banditry and kidnappings especially in the North West region, continued insurgency by terrorist groups in the North East, and separatist agitations in the South East.

President Tinubu has continuously pledged to turn around the economy and ensure security across the country.

Civil society, the media and other civil groups have committed to sustain advocacy for reforms and actions towards better economic and social outcomes for citizens.

Economic overview

Between 2000 and 2014, Nigeria’s economy experienced broad-based and sustained growth of over 7% annually on average, benefitting from favourable global conditions, and macroeconomic and first-stage structural reforms.

From 2015 to 2022, however, growth rates decreased and GDP per capita flattened, driven by monetary and exchange rate policy distortions, increasing fiscal deficits due to lower oil production and a costly fuel subsidy programme, increased trade protectionism, and external shocks such as the COVID-19 pandemic.

Nigeria’s inflation rate for December 2023 rose to 28.92% from 28.20% recorded in the previous month according to the latest National Bureau of Statistics inflation report.

The increase marks the eleventh consecutive increase in the inflation rate from February 2023.

Examining the trend, the headline inflation rate for December 2023 experienced a rise of 0.72 percentage points in comparison to the November 2023 headline inflation rate.

When compared to December 2022, which had a headline inflation rate of 21.34%, the year-on-year basis for December 2023 saw a substantial increase of 7.58% points, indicating a rise in the headline inflation rate during the same month of the previous year.

Additionally, on the month-on-month comparison, the headline inflation rate for December 2023 reached 2.29%, surpassing November 2023’s rate of 2.09% by 0.20%.
This signifies that the average price level increased at a higher rate in December 2023 compared to the preceding month, November 2023.

Food inflation

In December 2023, the year-on-year food inflation rate surged to 33.93%, primarily driven by increased prices of Oil and fat, Meat, Bread and Cereals, Potatoes, Yam & Other Tubers, Fish, and Milk, Cheese, and Eggs.

This represents a notable increase of 10.18% points compared to the rate registered in December 2022 (23.75%).

On a month-on-month basis, the food inflation rate for December 2023 reached 2.72%, representing a 0.30% increase from the rate observed in November 2023 (2.42%).

Core inflation

The core inflation rate for the month was 23.06% on a year-on-year basis, marking a 4.85% increase compared to the 18.21% reported in December 2022.

The notable surges were observed in the prices of Passenger Transport by Road, Medical Services, Actual and Imputed Rentals for Housing, Passenger Transport by Air, Pharmaceutical products, Accommodation services, and more.

On a month-on-month basis, the core inflation rate for December 2023 was 1.82%, reflecting a 0.29% increase from the 1.53% recorded in November 2023.

The average twelve-month annual inflation rate stood at 20.76% for the twelve months ending December 2023, marking a 4.74 %-point increase from the 16.02% recorded in December 2022.

Urban inflation

For December 2023, the year-on-year urban inflation rate surged to 31.00%, indicating an increase of 8.98% points compared to the 22.01% recorded in December 2022.

On a month-on-month basis, the urban inflation rate for December 2023 reached 2.42%, showing a 0.19% point rise from the rate observed in November 2023 (2.23%).

“Strengthening macroeconomic fundamentals will allow structural reforms to be pursued and economic growth to be restored”

Rural inflation

In December 2023, the year-on-year rural inflation rate rose to 27.10%, marking a 6.38% increase from the 20.72% recorded in December 2022.

On a month-on-month basis, the rural inflation rate for December 2023 reached 2.17%, reflecting a 0.18% point uptick compared to November 2023 (1.99%).

The corresponding twelve-month average for the rural inflation rate in December 2023 stood at 23.25%, representing a 4.91% increase from the 18.34% recorded in December 2022.

Following a change in administration in May 2023, the country is now at a crossroads, and has a unique opportunity to return to a sustainable and inclusive growth path. Recognizing the need to change course, the new administration has undertaken key reforms to restore macroeconomic stability by removing the gasoline subsidy and unifying and significantly liberalizing the exchange rate.

These reforms, together with global oil prices remaining above their historical averages, are expected to begin to reduce fiscal pressures, and unwind the critical macroeconomic distortions that held back growth in the past.

The economy is expected to grow at an average of 3.4% between 2023 and 2025, benefitting from the reforms undertaken, a recovery in the agriculture and services sectors, and, over time, increased scope for government development spending.

If the reform momentum is maintained, concerted efforts to achieve fiscal and monetary policy consolidation, reduce insecurity, strengthen public services, and improve the business environment and openness to trade, could boost investments and productivity, allowing Nigeria to return to a high growth path.

Yet, downside risks to the outlook are high, and include fading or reversing the reform drive, domestic and regional instability, as well as climate change effects.

Recent reforms offer a launching pad to a new social compact for Nigeria’s development.

Strengthening macroeconomic fundamentals will allow structural reforms to be pursued and economic growth to be restored.

The current low social and economic equilibrium could be switched to one marked by a better funded and more effective State that provides efficient public services, public goods, and a conducive economic environment for the private sector to flourish and create more quality jobs for Nigerians.

Case for urgent transformation

The PwC report may not have come at a better time, as it emphasized the threats ahead and proffer solutions.

It beholds those in government to take heed and do the necessary stuff. In summary, to unlock the productive potentials of the country infrastructural development must take the front row. Taking cognancy of the reports insisting that, “Critical infrastructure gaps are hindering Nigeria’s economic growth, with a projected need for $3 trillion investment over the next 30 years, according to Moody’s 2020 estimate. Limited fiscal space for public investment and difficulty attracting private investments constrain the ability to make essential infrastructure improvements.

“Inadequate provision of ports, power, and roads is impeding economic progress, leaving large parts of the country without essential services. This has led to the loss of agricultural produce due to delayed transportation, delays for ships caused by inefficient ports, increased waiting time for traders to move goods across the country,” PwC said.