EIU Raises Nigeria’s 2024 Economic Growth Forecast to 2.5% on Rising Oil Output

* Saudi’s oil giant, Aramco, rakes in $121bn profit in one year

Emmanuel Addeh in Abuja

The Economist Intelligence Unit (EIU) at the weekend revised Nigeria’s 2024 economic growth forecast figures from 2.2 per cent to 2.5 per cent on the back of the country’s rising crude oil output.

In its latest country report, the organisation stated that aside premising the prediction on higher-than-expected crude output, it is also based on earlier-than-expected production from the new mega-refinery in Nigeria.
The Economist Intelligence Unit (EIU) is the research and analysis division of the Economist Group. It provides forecasting and advisory services through research and analysis, such as monthly country reports, five-year country economic forecasts, country risk service reports and industry reports.

According to the EIU, hydrocarbons generate about 50 per cent of government’s revenue and more than 80 per cent of export receipts, but explained that agriculture and services dwarf the industry’s contribution to the Gross Domestic Product (GDP).

“The oil sector constitutes about 6 per cent of GDP. The higher growth forecast has come despite sharper-than-expected monetary tightening in February 2024. We now expect the Central Bank of Nigeria (CBN) policy rate to peak at 23.75 per cent, 200 basis points higher than our previous forecast,” it added.
Commenting on the current reforms by the administration of President Bola Tinubu, Nigeria’s Proshare quoted the EIU as highlighting that market reforms were intended to attract investments but did not constitute a coherent plan.

 The two flagship policies, the elimination of petrol subsidies and the liberalisation of the exchange rate,  have an inner contradiction.
“As Nigeria imports virtually all its fuel, naira devaluations, the latest being a 45 per cent drop in February 2024, should be reflected in the pump price. However, owing to the threat of industrial action, there has been little movement since June, despite the naira having weakened from N461/$1 in May 2023 to N1,600/$1 in late February 2024. This indicates the return of (large) subsidy,” it said.

It further stated that a large naira devaluation in early February will likely herald further depreciation, as inflation remains high and real short-term interest rates remain negative.
“Falling risk premiums on government international bonds make tapping the international capital market another viable (albeit costly) option once US interest rates start to fall from the second half of 2024.

“For most of this year, the naira will be highly volatile, leading to regulatory erraticism that can affect businesses, especially those holding foreign currency. The CBN lacks the liquidity to support the naira itself; out of $33 billion in foreign reserves, a large share (estimated at nearly $20 billion) is committed to various derivative deals,” the report said.
According to the EIU, the Nigerian business environment will remain highly challenging, undermined by corruption, cronyism, rampant insecurity, and a giant infrastructure gap.
Looking at investments, the report observed that multinationals are increasingly deciding to quit Nigeria or reduce their presence.

 It estimated that there was a net withdrawal of Foreign Direct Investments (FDI) in 2023, to be repeated in 2024 as naira losses exert pressure on balance sheets carrying large foreign liabilities.

“The exodus includes oil majors selling onshore assets, which are high-cost and vulnerable to insecurity, leading to the sector’s indigenisation over time. Although, in principle, this is positive for foreign exchange accumulation, local companies will be unable to match the investing power of outgoing multinationals,” the EIU argued.

The intelligence unit also predicted that Nigeria’s crude oil production will rise from 1.23 million bpd in 2023 to 1.48 million bpd in 2028, although this remains about 250,000 bpd below the 2019 level.

However, Nigeria hit 1.42 million bpd in January and from all indications, is expected to exceed that in the production February circle when the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) releases the output data.

Meanwhile Saudi Arabia’s state-owned oil giant, Aramco, boosted its dividend despite net profit falling 24.7 per cent to $121.3 billion in 2023 on lower oil prices and volumes, showing the state’s continued reliance on oil revenue as it seeks to diversify.

The profit, down from $161.1 billion in 2022, was still the company’s second-highest on record, Aramco said on Sunday as it reported total dividends for the year of $97.8 billion, up 30 per cent. Oil revenues made up 62 per cent of total state revenues last year, Reuters reported.

The Saudi government, which directly holds about 82.2 per cent of Aramco, relies heavily on the oil giant’s generous pay-outs, which also include royalties and taxes.

The world’s top oil exporter is spending billions of dollars trying to diversify its economy and find alternative sources of wealth having relied on oil for decades.

“Our balance sheet remains strong, even after our significant growth programme and dividend pay-outs,” Chief Executive, Amin Nasser said.

Aramco declared a base dividend, paid regardless of results, of $20.3 billion for the fourth quarter. It expects to pay out $43.1 billion in performance-linked dividends this year, including $10.8 billion to be paid out in the first quarter.

The base dividend was increased 4% year on year, and the performance-linked dividend was about 9% higher.

The company said capital investments were at $49.7 billion in 2023, up from $38.8 billion in 2022. It forecast capital investments between $48 billion and $58 billion this year, growing until the middle of the decade.

The Saudi government in late January ordered Aramco to scrap its expansion plan to boost production capacity to 13 million barrels a day , returning to the previous 12 million bpd target.

The capacity decision “is expected to reduce capital investment by approximately $40 billion between 2024 and 2028,” Aramco said. Free cash flow fell to $101.2 billion in 2023 from $148.5 billion in 2022.

Upstream investments including gas will be almost 60 per cent of capex in 2024-2026, including external investments, Nasser said, while downstream will be around 30 per cent and “new energies” around 10 per cent.

“As we go beyond that, over the next 10 years, upstream will be around 50 per cent, downstream is around 35 per cent and new energies around 15 per cent,” Nasser said.

Investing in gas will help free up more oil for export, as well as produce more liquids associated with gas extraction, he said.