Nigerian economy: Reform options for 2024, By Uddin Ifeanyi

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Most analysts’ forecasts is that 2024 will deliver better economic outcomes for Nigeria than 2023 did. At the very least, most expect domestic output this year to be, on average, a percentage point higher than it was last year. Reforms to the pricing regimes in the downstream oil and gas sector and the markets (there were quite a lot of them until recently) for foreign exchange are indicated as the driving force for this optimism. The external environment, alas, is expected to remain constrained by China’s dwindling appetite for imports and cutthroat competition from newly emergent “tigers” in the global South.

Against these headwinds, the Tinubu government seems stuck at the threshold of the next set of reforms. Arguably, any serious attempts at strengthening the naira, improving the domestic money transmission mechanism, and reforming the financial services sector, will be consequential for the Federal Government. If nothing at all, much of such reforms will drive up the cost of servicing the local component of the public debt. Still, questions around the Federal Government’s medium-term fiscal sustainability will not go away on this administration’s watch

not with the fiscal deficit still as large as announced in the 2024 appropriation act, and the financing required no less fraught.

Yet, an economy is a lot more than what (and how) government spends. Businesses also spend money (on more inventory and plants

maintaining and upgrading these, or simply buying new plant and equipment at improved levels of technology), as consumers spend more on goods and services. Depending on the level of development attained, a healthy economy might see its exports exceed its imports along the way. And where imports exceed exports, it is better that this happens because of a hunger for resources that would support additional growth. The problem with the Panglossian reading of the economics of 2024, nonetheless, is that it disregards the current state of both business investment and consumer spending.

Given that the Federal Government’s wayward borrowing from the domestic economy over the last ten years has had the bipartite effects of crowding out private sector borrowing, while pushing the consumer price index up stratospherically, an increase in domestic borrowing costs that curtails the Federal Government’s unhealthy appetite for borrowing (by aligning its cost with the benefits from the activities that the borrowed monies will be spent on) will not be such an unwelcome outcome.

What is clearly not welcome is the discontinuation of on-the-ground operations by companies (including major multinationals) and their adoption of imports and distributor-led business models. It is easy to point to the prohibitive cost of doing business in Nigeria as a probable reason for these decisions. Against the background of the rising cost of finance, globally, these higher costs of doing business erode both profits and returns on investment. Another erosion

of personal spending

could not have failed to play a role in domestic businesses’ choice of less risky models for engaging with the local economy. How to address this cohort of problems, given that consumer spending, alone, accounts for more than 60 per cent of our gross domestic product?

An obsession with the foreign exchange market has most commentators focussed on the impact that the recent rapid deterioration of the naira’s exchange rate has had on domestic prices. In truth, though, the destruction of final demand that inflation has wrought on the economy is a chronic process that has been on for a while now. It is doubtful, therefore, whether the economy’s near-term outlook will be as positive as the analysts are currently calling it without attention being paid to the processes by which consumer demand may recover and business investment boosted.

Uddin Ifeanyi, journalist manqué and retired civil servant, can be reached @IfeanyiUddin.

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