He says the challenges of repatriating capital hinder foreign direct investment
Savings will decline in 2024 as inflation rises
How Emefiele Warned Naira Will Collapse in Floating Forex System in 2019 Bloomberg Report
Emmanuel Adeh In Abuja
A report by PricewaterhouseCoopers (PwC), a global business advisory services firm, said the value of Nigeria’s currency, the naira, has fallen by up to 98 percent due to the federal government’s decision to collapse foreign exchange. Single-window market for investors and exporters (I&E) in 2023.
In a document titled “Nigeria Economic Outlook: Seven Trends That Will Shape the Nigerian Economy in 2024,” PwC said the nearly 100 percent recession occurred over a seven-month period, running from May to December 2023.
The report also noted that much-needed foreign direct investment, which has taken President Bola Tinubu off Nigeria’s shores several times since he took power, may remain elusive this year, if investors cannot easily repatriate. Their capital.
“Foreign investment may remain weak in 2024 due to challenges of repatriating capital,” the report stated.
“The removal of fuel subsidies (which cost $10 billion in 2022), and the collapse of multiple forex windows into a single income and valuation window, which caused the naira to depreciate by 98 percent between May and December 2023, among other monetary policy efforts, were… Fundamental: Programs implemented to stimulate growth and restore investor confidence.
The report said fiscal and monetary policy reforms planned for 2024 are expected to stimulate economic growth, reduce inflation and address foreign exchange challenges to drive investment.
When forecasting $85 per barrel in the first quarter of 2024 due to OPEC+ production cuts, PwC explained that although this may boost revenues from crude oil sales this year, higher oil prices and lower The value of the exchange rate may increase the rise in domestic oil prices. Fuel costs.
According to the document, servicing external debt in foreign currency will become difficult due to exchange rate fluctuations and the depreciation of the naira.
He explained that savings may remain weak in 2024 due to continuing inflationary pressures, which currently stand at around 28.9 percent as of December 2023.
He said that the marginal increase in growth and high levels of inflation indicate a weak macro environment for investors.
PwC explained that implementing fiscal and monetary policy reforms is essential for achieving economic and sectoral growth and development, and a major driver for unlocking much-needed productivity and investments in economic sectors.
According to the audit and accounting firm, sectoral reforms, such as bank recapitalization, Electricity Law, National Agricultural Growth Scheme and Agropocket (NAGS-AP), Petroleum Industry Act (PIA), among others, may push investment into sectors in 2024.
He stated that Nigeria’s deficit grew by 370 percent between 2015 and 2023, resulting in a higher level of debt and debt service.
“Although the debt-to-GDP ratio is relatively low at 37.1 percent, the debt service-to-revenue ratio remains high at 124 percent as of the first half of 2023,” PwC reported.
Regarding the potential risks, the company stated that oil exports represent more than 80 percent of the country’s total exports, which makes relying on them unwise.
She added: “This makes the commodity and the economy vulnerable to price fluctuations in global oil markets.”
As Nigeria’s foreign reserves have declined steadily over the past five years, reaching a two-year low of $33 billion in December 2023, PwC said contributing factors to the decline include an increase in its import bill, which grew by 33 percent. From 6.34 trillion naira in 2020. Q3 of 2022 to 8.46 trillion naira in Q3 of 2023.
Although the capital market performed well in 2023, rising by 46 percent, despite persistent inflation and FX liquidity challenges, the report stressed that investors may remain cautious due to fiscal and monetary reforms to address inflation and FX illiquidity. .
“The governance credibility, policy credibility and institutional credibility of key institutions, especially in communicating and implementing major policy changes, may continue to impact investor confidence,” the forecast stated.
Regarding Nigeria’s infrastructure challenges, PwC explained that limited fiscal space for public investment and difficulty attracting private investment will limit the ability to make fundamental infrastructure improvements.
“Infrastructure financing may remain insufficient in 2024,” she said. “The infrastructure spending budget allocated for 2024 is N1.32 trillion, which is lower than the World Bank’s proposed benchmark of 70 percent infrastructure to GDP (currently at 30 (%)” The annual requirement of $150 billion identified in the National Integrated Infrastructure Master Plan for 2021-2025.
Regarding energy, PwC confirmed that despite the targeted supply of 30 gigawatts by 2030, electricity supply has never exceeded 6 gigawatts.
“This means that not much progress has been made since the target was set,” she said. This huge gap is due to deteriorating capacities of plants/units, poor maintenance due to challenging liquidity and access to foreign exchange, non-binding contracts and payment delays, insufficient gas supply, transportation constraints, limited distribution network and commercial viability of operating discotheques.
While the company expected a marginal decline in inflation, it said the war between Russia and Ukraine, among other factors, could fuel an upward swing.
Meanwhile, THISDAY stumbled upon a report by Bloomberg in 2019, where the former Governor of the Central Bank of Nigeria (CBN), Mr. Godwin Emefiele, warned that the floating of the naira would lead to a free fall in its value.
Under the headline “Free float would lead to currency depreciation,” Emefiele argued at the time that the country’s multiple exchange rate system had produced “the best results compared to other emerging markets in recent times.”
Under Emefiele, who was appointed in 2014, Nigeria has tightened capital controls and closely managed the value of the naira.
The then Governor of the Central Bank of Nigeria constantly said that this was the best way to reduce inflation and boost industrialization by discouraging imports, although many foreign investors faulted this policy and said it exacerbated the economic downturn.
“We will become more aggressive,” he added. “This is because we believe that the central bank’s initiative to reduce imports and diversify the economy is paying dividends.”
The report said the foreign exchange shortage had eased at that time due to rising crude oil prices and CBN opening a currency trading window for portfolio investors allowing them to buy the naira at a weaker level.
The price in that window had roughly converged with the black market rate of about 360 naira to the dollar at that time. The naira is currently valued at over N900 to the dollar in the official market and N1,400 to the dollar in the parallel market.