Nigeria’s economic policies have been credited to significantly boosted Nigeria’s government revenue, improved credit ratings, and increased export figures, according to a recent report by PricewaterhouseCoopers (PwC).
The report, titled “Navigating Economic Reforms,” projects the economy to grow at 2.9% in 2024, while also highlighting challenges faced by businesses and households due to inflation, naira devaluation, and rising interest rates.
Government Revenue Boost
PwC’s report underscores the significant increase in government revenue resulting from President Tinubu’s twin reforms in the energy and foreign exchange sectors. According to the report, “FAAC disbursements increased by 91.3% from N976 billion in May 2023 to N1.87 trillion in April 2024.” This surge is attributed to increases in distributable VAT, statutory allocation, and exchange rate difference revenue.
A PwC analyst noted, “The reforms have provided the government with a substantial revenue boost, enhancing the country’s fiscal stability and ability to fund essential projects.”
Credit Ratings Improvement
The report also highlights the positive impact of these reforms on Nigeria’s credit ratings. Major credit rating agencies have revised their outlook on Nigeria’s Long-Term Foreign-Currency Issuer Default Rating (IDR). For instance, Fitch Ratings upgraded its outlook from Stable to Positive. This change reflects the increased confidence in Nigeria’s economic trajectory under President Tinubu’s administration.
Surge in Exports and Capital Importation
A remarkable outcome of the reforms is the surge in oil and non-oil exports. PwC’s report states, “Oil exports grew by 200.9% to N15.5 trillion in Q1 2024 from N5.15 trillion recorded in Q1 2023. Non-oil exports also grew by 38.5% to N1.8 trillion in Q1 2024 from N1.3 trillion recorded in Q1 2023.” This growth signifies a diversified export base, which is crucial for long-term economic stability.
Moreover, Foreign Direct Investments (FDIs) and Foreign Portfolio Investments (FPIs) have seen significant increases. FDIs grew by 114% from $86 million in Q2 2023 to $184 million in Q4 2023, while FPIs surged by 190% from $106.9 million to $309.8 million in the same period.
“The rise in FDIs and FPIs indicates heightened investor confidence in Nigeria’s economic prospects,” said a PwC economist.
“These investments are vital for fostering economic growth and development.”
“Increase in FPIs was driven by increase in flows to money market instruments while foreign direct investments were driven by flows to equity investments, it added.
Impact on Naira Stability
Despite the naira’s initial depreciation, PwC predicts long-term stability for the currency due to the Central Bank of Nigeria’s (CBN) monetary tightening policies. The naira depreciated by 67.8% from an average of ₦461.1 in May 2023 to ₦1,433.8 in May 2024. However, PwC believes that CBN’s interventions may eventually stabilize the naira as liquidity inflows increase.
“Interventions by CBN may cause the Naira to stabilise in the long-term. However, these interventions may become subdued in the absence of improved capital flows and export proceeds to the foreign reserves,” PwC said.
Challenges for Businesses and Households
While the reforms have generated positive outcomes, they have also created challenges for businesses and households. PwC’s report notes that inflation, naira devaluation, and rising interest rates have negatively impacted businesses. The Monetary Policy Rate (MPR) was raised by 775 basis points between May 2023 and 2024 to address inflation, leading to higher borrowing costs.
“Although the rise in MPR may attract more investors to the fixed-income market due to higher yields, it has negatively impacted borrowing costs for businesses,” PwC stated. “This increase in costs can reduce margins, decrease revenue, and potentially lead to corporate exits from the industry.”
Effects on Households
Households have also felt the brunt of these economic changes. The report highlights that the reforms have led to increased import input prices, which have subsequently raised domestic prices. This situation has adversely affected consumption, savings, and investments among households, potentially decreasing the standard of living and increasing poverty levels.
“The impact of pressure points on households may lead to a decrease in the standard of living and higher poverty levels,” PwC warned. “Households are struggling to cope with the rising costs, which is a significant concern.”
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If You Ask Me
PwC’s report presents a balanced view of President Tinubu’s economic reforms, acknowledging both their positive impacts and the challenges they pose. The substantial increase in government revenue, improved credit ratings, and surge in exports and capital importation are significant achievements. However, the negative effects on businesses and households highlight the complexities of implementing broad economic reforms.
As Nigeria navigates these reforms, ongoing adjustments and targeted measures will be crucial to ensure that the benefits are maximized while mitigating the adverse impacts on the population.
