This article presents a summary of a presentation made by Bismark Rewane for the Lagos Chamber of Commerce and Industry regarding his 2024 outlook.

Introduction

Economic resilience is defined slightly differently depending on who you ask. But no matter who is responding, their answer usually revolves around:

The ability of an economy to withstand and recover from shocks

This ability can often be inferred from a country’s status in social development and good governance indices. For example, the top 10 most economically stable countries include: Sweden, Finland, and Denmark. The top 10 most efficient governments also include Sweden, Finland, and Denmark. And guess what, the top 10 countries according to their Human Development Index, similarly include Sweden, Finland, and Denmark.

The Human Development Index is a statistical tool used to measure a country’s overall achievement in its social and economic dimensions. The social and economic dimensions of a country are based on the health of people, their level of education attainment and their standard of living.

The Economic Times

In these various rankings, Sweden, Finland, and Denmark, hold different positions but the point is, by succeeding along these other indices, they achieved some form of Macroeconomic stability.

Now where does that put Nigeria? On both HDI and Governance rankings, we fall in at 162 out of the 195 countries. So at least according to these indices, we are looking poor. But we need to take a closer look to have an idea of the whole story. What do our Nigerian Indices say?

First, although GDP declined last year, an increase is projected for 2024 and 2025. However, many sectors are currently in recession, like Textile and Apparel, Oil Refining, Crude Petroleum, and Natural Gas, with a few, namely Finance, Telecommunications, and Construction, being positive.

There are poor economic conditions across the country, from spiralling inflation to Increasing income inequality. Currency pressures have driven down the value of the Naira, and we see high poverty and unemployment. As inferred from the global indices, the local indices also reflect poor Macroeconomic stability.

The Way Forward

Due to these poor circumstances, some policy changes are strongly recommended in 2024. These include but may not be limited to:

• Debt rescheduling (externally)
• Increasing interest rates (internally)
• Petrol subsidy reduction
• Wage review
• Manage money supply more efficiently
• Creating an efficient foreign exchange market
• Having a cost-reflective electricity tariff

It is advisable to take these steps in small doses so that their impact can be controlled and adjusted to. Of the policy changes suggested above, we shall likely see this year:

1. The Petrol subsidy reduction
2. The Electricity Tariff review
3. The Wage review

Other measures that may be taken include:

1. Increase in Interest rates
2. A movement towards a more efficient foreign exchange market
3. More aggressive tax collection

These changes will then have a cascading impact on the various industries and businesses in the country. For example, a minimum wage review will drive up the cost of labour while at the same time increasing consumer demand. And a more cost-reflective electricity tariff will increase power supply, while at the same time reducing reliance on other energy sources. You can imagine how such changes will then impact the Manufacturing sector with its heavy reliance on power and the Agricultural sector with its heavy reliance on labour.

When you think through each change like this, it becomes apparent how things like a tax increase, which boosts state government revenue and allows the government to pay its contractors, logically end up with contractors consequently having the money to buy more cement and other commodities thus boosting the economy of the nation.

Where the 2024 Budget Fits In

Budgets can be thought of as tools of Economic Management. They can be used to help you manage debt, and equitably distribute income and wealth, amongst other things. With any budget, one is determining how much to spend, how much to earn, and how this spending and earning is to be distributed. The 2024 budget is no different.

Looking at the trend of budget size over the last 9 years, we can see that it has been growing. However, even though the naira value of the budget has increased at an even steeper rate since 2022, in dollar terms, it has been decreasing (as depicted in the chart above). This decline combined with the fact that Nigeria is running a deficit budget means that we have our work cut out for us.

A breakdown of the budget reveals that we expect to make N19.6trn in revenues and spend N28.78trn in expenditure, leading to a N9.18trn fiscal deficit which we intend to fund through borrowing. It must be said that Nigeria has consistently underperformed its revenue target over the last 5 years. So these numbers may be worse by the end of the year.

That said, a deficit budget is not in and of itself a bad thing, and neither is borrowing money. The government does have several economic goals it wishes to achieve which put it in this position. Some of them are:

• Achieve job-rich economic growth
• Reduce fiscal deficit
• Poverty reduction
• Reduce the cost of living
• Reduce the cost of doing business
• Create a better investment environment
• Achieve macroeconomic stability

As you can see, the government does have some things in mind for the money it wishes to earn and spend. But it is yet to be seen whether the budget will live up to its projections. Especially when many of its assumptions haven’t proved true in the past. Below is a quick look at budget performance over the last 2 years.

Conclusion

Nigeria’s economic indicators of macroeconomic stability both from a global perspective and a local one, don’t look good. But with the implementation of the right policies in the right doses, things could be turned around.

Beyond policies, we can also look at the 2024 budget for a path to achieving our desired outcomes. But historically, the results haven’t been that great. Despite this, we mustn’t lose hope. Because there remains a path, however slim, to prosperity. With the right policies, timing, earning and spending, 2024 can still be the start of our economic redemption.