CEM ANALYSIS, ENERGY | The 2024 budget signed into law a few days ago by President Bola Tinubu has been receiving scrutiny; criticism in some areas and commendation in other areas. The document tagged by the President as ‘budget of renewed hope’, spells out how the sum of ₦28.7 trillion will be generated and spent in 2024 on different sectors of the economy including the power sector having been jacked up by the National Assembly from ₦27.5 trillion earlier proposed.

On an encouraging note, allocation to the power sector received a significant boost from last year allocation to the sector. More significant is the allocation to the two project saddled agencies of the Ministry of Power which are National Rural Electrification Agency (REA) and Transmission Company of Nigeria (TCN).

In the budget, the sum of N344 billion is allocated to the power sector which represent a 43.9 percent increase when compared with the N239 billion allocated to the sector last year. This allocation goes to the Ministry of Power Headquarters, Transmission Company of Nigeria, National Rural Electrification Agency, Nigerian Electricity Management Services Agency (NEMSA), National Power Training Institute and Nigeria Electricity Liability Management Limited.

How does the increased 2024 power sector budgetary allocation translate to prospective improvement in electricity supply to Nigeria homes and businesses? This question is against the fact that the Nigerian power sector has been deregulated where electricity generation and distribution are now in the hands of private GenCos and DisCos respectively living only transmission in the hands of the government. It is good to mention that Gencos only generate power for the national grid being managed by the Transmission Company of Nigeria.

President of the Institute of Power Engineers, Engr Israel Abraham said in a chat that while that is true, “there are other off-grid or mini grid generations directly under the National Rural Electrification Agency which are meant to serve specific or targeted areas, clusters or settlements especially rural communities as the name implies. This arrangement is designed to be a supplementary back-up in order to reduce dependence on the GenCos-TCN-DisCos grid.

Breakdown of Power Sector Allocation

Out of the total of N344,096,570,001, National Rural Electrification Agency (REA) got the lion share of N127,022,557,040 followed by Transmission Company of Nigeria which got N112,123,052,176. Ministry of Power Headquarters got 98,624,397,686, NEMSA got 3,185,514,994, National Power Training Institute got 1,598,306,263 while the sum of N1,542,741,842 went to Nigeria Electricity Liability Management Limited.

In 2023 budget, the sum of N58.646 billion was allocated to REA with a capital expenditure allocation of N57.222 billion. The N127 billion allocated to this agency in the 2024 budget is a whooping 116.59% increase from the 2023 allocation. Out of the N127 billion, the sum of N125 billion is earmarked for capital projects some of which are ongoing and others newly introduced.

According to the 2024 budget document, there are currently 242 ongoing and 71 new projects scattered all over the country under the rural electrification scheme with majority being mainly solar based projects unlike the gigantic and capital gulping thermal and hydro generation. According to Engr Israel Abraham, these projects are either under direct government funding or bilateral/multilateral funding.

Just like REA, the N112.123 billion allocated to Transmission Company of Nigeria (TCN) in this year’s budget is 295.29% increase from the 2023 allocation which is the sum of N28.36 billion. There is an indication from the budget breakdown that more money is voted for counterpart funding of TCN projects this year. Nigeria Electricity Transmission Project (Multilateral/Bilateral Project Tied Loan) got an allocation of N27.732 billion, Nigeria Transmission Expansion Project Phase 1 (NTEP) (Multilateral/Bilateral Project Tied Loan) got N82.036 billion while Northern Corridor Transmission Project (Multilateral/Bilateral Project Tied Loan) got N87.371 million. These are all new projects.

There is also increase in capital allocation to the Ministry of Power Headquarter to the tune of N96.883 billion spread across electricity enhancing projects. These range from Alternative Power Supply for some establishments, provision of transformers to communities and substations to construction of new substations. Examples are Consultancy Services, Supply and Construction of 2x30mva, 132/33kv Substation at Ibiono Ibom, Akwa Ibom State (Ongoing) – N1.6 billion and Conterpart Funding of earmarked Transmission Lines and Substations Projects under Donor Agencies (World Bank,Afdb,Afd,Jica And Isdb) (Ongoing) – N1.0 billion and Nigeria Distribution Sector Recovery Program (DISREP) (Multilateral/Bilateral Project Tied Loan) (Ongoing) – N72.450 billion.

We also have Kashimbilla Transmission (Evacuation of 40mw to be generated from Kashimbilla Hydropower Station (Ongoing) – N630,000,000 and many others being executed by the Ministry of Power.

Power Sector Funding Adequacy

As commendable as this increment in allocation is, the frequent breakdown of the transmission grid is an indication that more is expected to be voted especially to TCN. The place of electricity in the entire industrial development in Nigeria demands that any government poised to develop this nation’s economy must concentrate on funding the power sector and fighting barriers to achieving adequate electricity for the economy.

In responding to the question on adequacy of the 2024 budgetary allocation to TCN, Engr Israel emphasized on the need for the company and indeed the entire value chain to be better funded. He said; “No, TCN need so much infrastructure to strengthen power transmission lines. A lot of funding is required, though since some of the projects are executed from counterpart funding, I may not know how much the other parties are bringing.

Not TCN alone, the entire value chain has problem from generation to distribution. The DisCos, for instance, have liquidity issues, they are not able to collect revenue from electricity consumers. That translate back to TCN not able to deliver power for distribution and that also translate back to GenCos not able to release enough power because they need money to pay gas.

Power sector budget implementation and electricity availability

If things are done properly, this increased funding of the power ministry and agencies should result in sustained decreasing dependence on the national grid and general improvement in power supply. Things being done properly entails that budgeted funds are released timely, leakages are blocked and projects are executed according to specifications. This is what Engr Israel called ‘value for money’ and this is where the government has fallen short over the years especially in the power sector and indeed in other areas of national economic development.

Commenting on the budget implementation, Engr Israel said; “the budget is just signed into law, I urge the government to follow through with its word with respect to what it has earmarked for the sector and ensure that there is value for money. Let government ensure there are no wastages, because that is why the government has not been able to achieve a lot of its objectives.

“If Nigerian government can cut down on things that are not relevant and concentrate on the relevant ones, get professionals to carry out what is needed to be done and not bringing in people that doesn’t know what to do, progress will be made. If you bring in non-professionals, they will also look for experts to do the work and that adds to overhead.

“Nigerian government should learn to use professionals, get good job description and secure qualified contractors that know how to do the job. If this situation persists where people sell contracts from one person to the second person to the third and up to the fifth person who will now do the job, then the job will not be done well. Government should get competent people who will not sell contracts to do these jobs so that we can have value for mon

CEM ANALYSYS, ECONOMY | Nigeria, the largest economy in Africa, is facing many social and economic challenges, such as insecurity, inflation, poverty, and low productivity. However, the country also has a unique opportunity to return to a sustainable and inclusive growth path especially in 2024.

As Nigerians bid farewell to 2023, their gaze shift towards 2024 with a nuanced blend of hope and trepidation. The economic horizon shimmers with potential, yet potentially tempered by inherent challenges. Navigating this intricate landscape requires a keen understanding of emerging trends, informed investment strategies, and a prudent preparedness for potential roadblocks.

The recent reforms undertaken by the new administration of President Bola Ahmed Tinubu including the removal of the petrol subsidy and the unification and liberalization of the exchange rate, are expected to reduce fiscal pressures, improve oil revenues, and correct the critical macroeconomic distortions that held back growth in the past. The World Bank has commended these reforms as “critical steps in the right direction towards improving Nigeria’s economic outlook”.

Possible economic projections and challenges for the year 2024

According to the World Bank, the economy is expected to grow at an average of 3.4 per cent between 2023 and 2025, benefitting from the recovery in the agriculture and services sectors, and increased scope for government development spending. However, the growth rates are still below the population growth rate of 3.6 per cent, which means that the per capita income will remain stagnant.

The International Monetary Fund (IMF) and World Bank forecast moderate real GDP growth of 3.3 per cent and 3.6 per cent respectively for 2024, marking an anticipated uptick from 2023’s figures. This improvement hinges on factors like the Dangote refinery reaching full operational capacity, boosting petroleum product exports and reducing import dependence.

Though currently elevated at around 21 per cent (November 2023), analysts predict a gradual decline in inflation throughout 2024, potentially settling within the Central Bank of Nigeria’s (CBN) target range of 6-9 per cent by year-end. Its present bite erodes purchasing power and complicates investment decisions, this could alleviate pressure on purchasing power and encourage consumer spending.

The high inflation and low growth have adverse effects on the living standards of Nigerians, especially the poor and vulnerable. The World Bank estimates that the number of people living below the poverty line has increased from 95 million in 2021 to 104 million in 2023, and is likely to rise further in 2024.

The Naira’s performance remains shrouded in uncertainty. Optimistic projections anticipate stabilization, while others foresee continued volatility due to dependence on oil prices and foreign inflows.

Solutions

To address these challenges, the World Bank recommends that the government should continue with the reform momentum and ensure coordinated fiscal and monetary policy actions in the short to medium term. This includes ensuring that the improved oil revenues following the subsidy removal accrue to the Federation, and are used to finance development spending on infrastructure, human capital, and social protection. The government should also pursue further reforms to reduce insecurity, strengthen public services, and improve the business environment and openness to trade, which could boost investments and productivity.

Financial possibilities, economic outlook, and investment options for Nigerians in this complex scenario.

Despite the challenges, Nigeria also has many opportunities for investment and economic diversification. Some of the most profitable investment opportunities in Nigeria for 2024 are:

– Agriculture: With fertile land and a vast consumer base, Nigeria’s agricultural sector beckons. Investments in agribusiness, both directly and through innovative fintech platforms, could yield significant returns.

Nigeria has a large and growing population that needs food, and a vast arable land that can be cultivated. Agriculture is one of the key sectors that can drive economic growth, create employment, and reduce poverty. The government has created various incentives and programs to support agriculture, such as the Bank of Agriculture, the Universal Basic Education Commission, and the Basic Healthcare Provision Fund. Some of the sub-sectors that have high investment potential are crop production, livestock, fisheries, agro-processing, and agro-allied industries.

– Technology: Nigeria has a vibrant and innovative tech ecosystem, with many start-ups, hubs, and incubators that are developing solutions for various sectors, such as fintech, e-commerce, health, education, and entertainment. The tech sector has attracted significant foreign and local investments, as well as partnerships with global players, such as Google, Facebook, and Microsoft. Some of the factors that make the tech sector attractive for investment are the large and young population, the increasing internet penetration, the mobile money adoption, and the supportive regulatory environment. Invest in businesses with strong fundamentals and growth potential.

– Real Estate: Nigeria has a huge demand for housing, especially in urban areas, where the population is growing rapidly and the supply is inadequate. The real estate sector offers opportunities for investment in residential, commercial, industrial, and hospitality properties, as well as in infrastructure development, such as roads, bridges, and power. The government has also introduced policies and initiatives to stimulate the sector, such as the National Housing Fund, the Family Homes Fund, and the Mortgage Refinancing Company.

While urban real estate might be cooling down, affordable housing projects and commercial spaces in emerging towns could provide stable returns. Land acquisition for future development holds long-term potential. Conduct thorough research on affordability trends before investing.

– Diversification through Mutual Funds: Spreading risk through mutual funds, which pool resources and invest in diverse assets, offers a safer and more accessible entry point for those with smaller capital.

Recall a CEM report where investment Lawyer, Sunny Kanabe, stated that the Nigerian Stock Exchange Market (NGX) has been enjoying a steady run since the year (2023), stressing that there is no better time to invest in the market than now. He added that stock investment is a viable means of diversifying investment portfolios across various sectors of the economy and protecting such investments from unpredictable inflation.

A Time for Resilience and Prudent Strategies

2024 paints a complex economic picture for Nigerians, one brimming with both possibilities and challenges. Navigating the Nigerian economy in 2024 requires a prudent approach. While cautious optimism is warranted due to projected growth and potential inflation decline, significant challenges remain. By considering these obstacles, exploring diverse investment options with due diligence, and adapting to an evolving environment, Nigerians can strive for financial security and contribute to the nation’s economic progress. Remember, careful analysis, financial literacy, and seeking professional guidance when needed are key to navigating this complex landscape and seizing potential opportunities.

Additionally, the economic outlook for 2024 depends largely on the implementation and continuation of the reforms that have been initiated by the government, as well as on the resolution of the security and social issues that affect the country.

December 9, 2024

2024

Breakdown of Power Sector Allocation

Power Sector Funding Adequacy

Possible economic projections and challenges for the year 2024

Solutions

Financial possibilities, economic outlook, and investment options for Nigerians in this complex scenario.

A Time for Resilience and Prudent Strategies

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