…Analysts Label $1trn Economy Target As Unrealistic

…Say Decline In Inflation Will Lead To Increase In Naira Value

The Federal Government has been told to do everything in its capacity to tackle high inflation in the country rather than setting an agenda to build an ambitious $1 trillion economy in eight years.

The National Bureau of Statistics (NBS) on Friday said Nigeria’s headline inflation rate for November increased to 28.20 percent compared to the October 2023 rate which was 27.33 percent, underscor­ing a worsening cost of living crisis in the country.

In its new ‘Consumer Price Index: November 2023’ released on Friday, the National Bureau of Statistics revealed that the head­line inflation, which surged by 0.87 percentage points in November, was a new record high in almost two decades.

NBS said, “In November 2023, the headline inflation rate in­creased to 28.20 percent relative to October 2023 headline inflation rate which was 27.33 percent.

“Looking at the movement, the November 2023 headline inflation rate showed an increase of 0.87 percent points when compared to the October 2023 headline inflation rate.

“On a year-on-year basis, the headline inflation rate was 6.73 percent points higher compared to the rate recorded in November 2022, which was 21.47 percent.

“This shows that the headline inflation rate (year-on-year basis) increased in November 2023 when compared to the same month in the preceding year (i.e., November 2022”.

On a month-month basis, headline inflation in November 2023 was 2.09 percent. Which was 0.35 percentage points higher than what was recorded in October (1.73 per cent), defeating a recent claim by the Central Bank of Nigeria (CBN) that inflation is slowing down m-o-m.

Nigeria’s annual inflation rose in September to its highest level in about two decades at 26.72 percent, amid a worsening cost-of-living crisis in Africa’s largest economy.

The September inflation rate rose for a ninth straight month from August’s 25.8 percent, with millions of Nigerians impover­ished due to the impact of Presi­dent Bola Tinubu’s reforms.

One of those who believe that the chase for a $1 trillion economy is too ambitious is the Chief Exec­utive Officer (CEO) of Financial Derivatives Company Limited, Bismarck Rewane, who said he is not comfortable with the plan.

Rewane cited concerns about current crude oil prices, coupled with production cuts, impacting the feasibility of the government’s economic target.

With crude oil hovering around $74–$76 per barrel, below the benchmark, and OPEC reduc­ing Nigeria’s daily production quo­ta to 1.5 million barrels, Rewane labels the $1 trillion target as in­creasingly unrealistic.

He emphasised the signifi­cance of both price and quantity in revenue generation, indicating challenges on both fronts.

Addressing currency valua­tion, Rewane highlights the under­valuation of the naira, emphasis­ing the need for market structure changes, including a wholesale option where the central bank can participate.

He anticipates a currency ap­preciation in 2024 as these adjust­ments take effect.

In terms of inflation, Rewane foresees a temporary rise in early 2024 due to market reforms and currency volatility.

However, he expects a moder­ating trend by mid-year, projecting an average inflation rate of 23.6 percent in 2024 compared to 24.4 percent in 2023.

He suggested that a decline in inflation will naturally lead to an appreciation of the exchange rate.

Discussing foreign investment, Rewane noted the current low par­ticipation of foreign investors in Nigeria’s market at 11 percent. He projects an increase to 20–25 per­cent in 2024, highlighting potential improvements.

Identifying structural im­balances and an oversized gov­ernment as root issues, Rewane asserts that Nigeria’s economic challenges extend beyond the pres­ent. He points to fiscal dominance and growing external imbalances due to system leakages.

In his opinion, Stephen Iloba, a Lagos-based economist, said though it is good to be ambitious but the Federal Government should find solution to the preva­lent high inflation since the begin­ning of the year.

He said, “No country will at­tain economic success with high inflation. Nigeria should not miss this opportunity of the proceeds coming from petro subsidy remov­al and the floating of the naira. They should look at how to bring inflation down before building an ambitious $1 trillion economy”.

CBN governor, Olayemi Car­doso, while appearing before the joint National Assembly Com­mittee on Banking, Insurance, and Financial Institutions, said inflation and oil revenue will de­cline in 2024.

He said there will also be less revenue from oil in the coming year owing to the production lim­it of 1.78 million barrels per day.

He said his assumptions are based on the outlook for the coun­try’s economy in 2024 which “is very positive”, adding that infla­tion and the foreign exchange market will stabilise.

“Inflation pressures may per­sist in the short-term but are ex­pected to decline in 2024,” Cardoso said.

“Exchange rate pressures are also expected to reduce significant­ly with the smooth functioning of foreign exchange market”.