2024 and Unresolved Economic Issues

 The year 2024 has intensified Nigeria’s unresolved economic issues, with rising inflation, currency instability, and high costs of living severely impacting businesses and households, straining their survival and growth, writes Festus Akanbi

As the curtain falls on the year 2024 on Tuesday, and Nigerians, like other members of the international community herald the new year on Wednesday, there is a need for Nigerians to be worried that certain economic issues will be carried over to the new year with the potential to blur the gains of the government’s plans for 2025.

Perhaps one issue that has a profound impact on Nigerians the most is the unreliable power supply. In a year where the power sector experienced the collapse of the power grid 12 times, it was a tale of woes for businesses and individuals who had to contend with the high cost of petrol and the attendant strains on businesses.

The performance of the power sector was so abysmal that some critics were surprised that the Minister of Power, Chief Adebayo Adelabu, survived the much-publicised cabinet reshuffle in the last quarter of the year. 

The minister had assured Nigerians that the country’s power grid would achieve significant stability with the completion of phase one of the Presidential Power Initiative (PPI), also known as the Siemens project. However, a report showed that despite the huge investment in the power sector, the national grid collapsed about 105 times under the administrations of President Bola Tinubu and his predecessor, Muhammadu Buhari.

Findings also showed that Nigeria secured about 10 loans worth $4.36bn from the World Bank over the past decade to address key challenges in its power sector. Although not all 10 World Bank loans have been disbursed completely, the Federal Government and other multilateral agencies have supported the country’s power sector financially.

Pressure on Naira

One of the economic losses in the outgoing year is the pressure on the naira. The naira is one of the worst-performing currencies in sub-Saharan Africa for 2024. According to the latest edition of Africa’s Pulse, a report by the World Bank, as of August 2024, the naira had depreciated by 43% year-to-date, placing it among the weakest currencies in the region, alongside the Ethiopian birr and South Sudanese pound.

The naira’s sharp decline has been attributed to surging demand for US dollars in the parallel market, limited dollar inflows, and delays in foreign exchange disbursements by Nigeria’s central bank. Financial institutions, money managers, and non-financial end-users have driven the demand for dollars, adding to the pressure on the currency.

Despite the federal government’s efforts to stabilise the naira by liberalising the official exchange rate in June 2023, the currency has continued to struggle. The depreciation has worsened inflation, particularly for imported goods, and has increased costs for Nigerian consumers.

On Thursday, December 26, a dollar was exchanged for N1,595 at the black market. This drop in value highlights the persistent pressures on Nigeria’s foreign exchange market and represents a new low point for the currency.

Nigeria’s Forex Market

Nigeria saw a significant rise in foreign capital inflows during the first half of 2024, with an increase of 177% compared to the same period in 2023. According to the National Bureau of Statistics (NBS), these flows totalled $5.98 billion. This surge was largely driven by the return of portfolio investors, following the government’s easing of foreign exchange controls. The United Kingdom and the Netherlands were the top sources of foreign capital for Nigeria between January and June 2024, with the banking sector receiving most of the portfolio investments.

However, according to Fitch Ratings, in 2024, the nation’s foreign exchange market failed to stabilise despite several initiatives by the Central Bank of Nigeria. This view slightly contrasts with a report by the International Monetary Fund, which suggested that the naira was showing signs of stability, owing to recent interest rate hikes and CBN efforts to address outstanding FX obligations.

In its Global Financial Stability Report, the IMF pointed to policy actions by Nigerian authorities, crediting CBN’s efforts to clear overdue FX commitments as key to the naira’s apparent stabilisation. “Policy actions by local authorities have also resulted in positive developments; for example, in Nigeria, rate hikes and the clearing of overdue domestic central bank foreign exchange obligations have helped the naira show more signs of stability,” the IMF noted in its report.

Inflation

The year 2024 also saw inflation figures trending upward as Nigerians have to pay higher for food and transportation, among others. Nigeria’s inflation rate rose for the third straight month in November 2024, soaring to a near 30-year high of 34.6%, up from 33.9% in the prior month. Food inflation surged to 39.93% in November, a sharp increase from 32.84% in November 2023, mainly due to higher prices of staple foods, including yams, water yams, cocoyams, guinea corn, maize, rice, beer, and vegetable oil.

The cost of food increased 39.93 per cent in November of 2024 over the same month in the previous year. Food Inflation in Nigeria averaged 13.86 per cent from 1996 until 2024, reaching an all-time high of 40.87 per cent in June of 2024 and a record low of -17.50 per cent in January of 2000.

Food Insecurity

One major problem that reared its head in the outgoing year was that of food insecurity. A new assessment has found that a staggering 33 million people will face acute food insecurity in Nigeria in 2025, with the number of people facing emergency levels of need projected to almost double.

The report said that nationally, the number of people experiencing emergency levels of food insecurity is projected to increase from 1 million people in the peak of the 2024 lean season to 1.8 million people during the same period in 2025, representing a worrying 80 percent rise.

It explained further that approximately 5.4 million children and nearly 800,000 pregnant and breastfeeding women are at risk of acute malnutrition or wasting from six of the most affected states of Borno, Adamawa, and Yobe in the northeast, and Sokoto, Katsina, and Zamfara in the northwest. Of these, an alarming 1.8 million children could face Severe Acute Malnutrition (SAM) and require critical nutrition treatment.

Nigeria grapples with economic hardship, coupled with record-high inflation. This is a record increase in food prices amid record-high transportation costs. According to the National Bureau of Statistics (NBS), the price of beans in October 2024 was 282 per cent above the same period in 2023. Similarly, the price of local rice rise by 153 percent compared to October last year. These economic shocks resulted in the continuous devaluation of the local currency (Naira) against the United States Dollar (USD), external economic factors, and last year’s policy changes on discontinuation of the fuel subsidy. 

Industry

In the year under review, industrial performance was nothing to cheer about as a combination of high energy costs and unreliability of government policies are killing local initiatives. According to findings of a survey that provided materials for the economic review, the capacity utilisation in the Nigerian manufacturing sector showed a slight year-on-year decline to 56.4 per cent in H1 2024, from 56.5 per cent in H1 2023. The trend continued till the end of the year.

In addition, the inventory of unsold finished products in the manufacturing sector also surged by 357.57 per cent year-on-year; reaching N1.24 trillion in H1 2024. Also, the employment generation capacity of the manufacturing sector continued its decline, with only 2,606 jobs created in H1 2024, which represented a 29.99 per cent reduction from H2 2023.

Fuel Price

One of the issues that Nigerians contended with in the outgoing year was that of the indiscriminate hike in petrol price. So far, this has attracted a  488 per cent jump from N175 in May 2023 when the current administration came into being to N1,030 in October 2024. Although there was a reprieve by the coming onstream of the Dangote Refineries and the resumption of oil production at the Port Harcourt Refinery, analysts said the reprieve is not strong enough to make a difference in the coming year.

However, the local production of petrol hasn’t been able to bring down the product’s price to its pre-May 2023 threshold. The rising fuel cost, which now sells for above N1,000 in many stations nationwide, has complicated the nation’s inflationary position. As the high cost of fuel put pressure on manufacturers of goods and services, the Nigerian people are always at the receiving end as they have to cope with the corresponding hike in prices of goods and services.