Nigeria

Nigeria’s economy is expected to grow by +3% in 2024 after a sluggish 2.4% expected for 2023, broadly in line with global growth but around 1pp below our forecast for the SubSaharan region. This is due to an economic cycle still favoring second-tier commodity exporters, thanks to a geopolitical premium on several commodities and a self-imposed production quota by top crude oil producers. Hydrocarbons generate about 50% of government revenues and more than 80% of exports, but agriculture and services surpass the energy sector in terms of GDP contribution.

Foreign exchange scarcity will continue in the immediate future. The Central Bank of Nigeria (CBN) has returned to stronger currency supervision after briefly switching to a “managed float” in June 2023 and a freely traded naira is unlikely even in the long run. General elections in February 2023 brought to power Bola Tinubu, the candidate of the ruling party, with a mere 37% of votes. Growing demographics (half of the current population is under the voting age) and declining interest (the actual voter turnout fell from 69% in 2003 to 27%, 7 points lower than in 2019) support the idea that only a small minority of the estimated 215-220mn population actively supports the current leadership. Between late May and June, only a few weeks after he was sworn in, President Tinubu decided to remove the governor of the CBN, devalue the local currency to a level closer to its fair value and phase out the country’s costly fuel subsidies. Faced with the possibility of growing inflation and nationwide protests, a covert petrol subsidy was reintroduced. In the short term, it is likely that a partial subsidy will be maintained as Nigeria will continue to import all its fuel until the second half of 2024, when the long-awaited Dangote refinery, which opened in May 2023, ramps up production. Against this backdrop, it is likely that net exports will be the sole growth driver in 2024 and help the economy accelerate in 2025.

Nigeria has a history of double-digit inflation. Due to rising fuel, utility and food prices, average inflation reached 18.8% year over year in 2022, some 10 points above the CBN target of 6–9%. Due to the surge in inflation, the CBN has raised its policy rate to 18.75%, but the 725bps tightening cycle has proven unconvincing so far, with inflation hitting 28.2% in November 2023. Given the country’s heavy reliance on imported refined petroleum products, international prices may continue to push the fuel import bill up and the local currency down.

Authorities’ comments on the country’s debt management plans have sparked concerns about a debt restructuring in mid-2023 as well as actual data and debt transparency. Yields on 10-year maturities in hard currency remain elevated at 13.8%, compared to 8% in February 2022 and 16% in November 2022. The long-lasting practice of financing the budget through the CBN may add 12–15 points to the debtto-GDP ratio from an IMF estimate of 37% of GDP if shortterm advances by the CBN were converted into government bonds.

Due to its substantial size, Nigeria holds a prominent position in Africa. Despite this, the country follows a protectionist economic policy. Internal security challenges constrain Nigeria’s capacity to contribute personnel to regional military units, as previously done for regional security. The Senate rejected President Tinubu’s request for military intervention in Niger following the July 2023 coup, which lessens the likelihood of creating a regional force.

In recent years, the northeast has grappled with escalating banditry and kidnapping, posing a national destabilization threat. Well-funded criminals, with links to terrorist groups, have broadened their operations. In the oil-rich Niger Delta, there is widespread distrust of the government, with locals feeling unfairly excluded from Nigeria’s oil wealth. Governance challenges persist in the region and criminal activities associated with militant groups continue to jeopardize oil extraction.

Given the broader regional threat posed by Islamist extremist organizations, the US has been a major arms supplier to Nigeria and is likely to persist in providing security assistance. The persistent menace from Islamist terrorist groups, such as Boko Haram and Islamic State West Africa Province, operating in the north and executing attacks nationwide, remains a concern. Prolonged violence between farmers and herders in central Nigeria, driven by factors like rapid population growth and natural resource depletion, presents challenging issues.