Nigeria to be world’s 5th largest economy in 50 years

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Minister of Finance, Wale Edun

By Our Correspondent

Minister of Finance, Wale Edun, has suggested that Nigerians are saving in dollars because they seem to have lost faith in the naira. He, however, observes that the recent appreciation of the naira’s value showed that Nigeria’s effort to boost its currency was yielding results. He disclosed this during his recent presentation to top business leaders in Lagos. He said the country targets all Diaspora funds to boost the naira. He added that the country’s foreign direct investment dropped to N3.7 billion in 2023. He said: “Because of lack of faith in the currency, people have decided to try to hold and save in dollars. “We are targeting all the funds in the Diaspora. There are all these funds that you have brought into your (local foreign currency) accounts; we are targeting them.”

Despite a significant appreciation recorded in the value of the naira in recent weeks, the impacts on the prices of goods and services are yet to be felt by Nigerians. As the naira appreciated further against the United States dollar across both the authorised and unauthorised foreign exchange markets in recent times, inflationary pressures persisted across the country. According to market data published on the FMDQ website, naira closed Monday at N1,136.04/$1 against N1,142.38 recorded in the previous market session last Friday. Monday’s gain represents a 0.6 per cent appreciation from N1,142.38 posted last Friday. The domestic currency experienced an intraday high of N1,000 and a low of N1,227.00 to a dollar before it eventually closed at N1,136.0/$1 on Monday.

The naira recorded a foreign exchange turnover of $251.60 million on Monday, the official market data showed. At the parallel market on Monday, the domestic currency also appreciated. Bureau De Change operators at the Abuja Zone 4 who spoke with this medium said the dollar was exchanged at N1,020 and above to a dollar on Monday and sold at N1,030 and above, as against the N1,100/$1 it was exchanged on Sunday. The recent gains recorded by the local currency at both the official and unofficial markets these past weeks came amidst ongoing efforts by the government to stabilise the currency and address inflationary pressures in the country following an unprecedented drop in the currency value.

Financial experts have attributed the recent gains of the naira to the ongoing reforms by the government after the local currency, on several occasions within the first quarter of the year, plunged to unprecedented lows. The Central Bank of Nigeria (CBN) recently sold $10,000 to each Bureau De Change operator at a considerably lower rate to boost liquidity and curb the price distortions affecting the naira exchange rate in the Forex markets.

While some of these interventions have significantly helped the naira to bounce back from its depreciation run, inflationary pressures persist across the country. Official figures released by the National Bureau of Statistics (NBS) earlier on Monday put Nigeria’s annual inflation rate at 33.20 per cent in March from 31.70 per cent in February. By implication, the statistics office said the March 2024 headline inflation rate increased by 1.50 per cent compared with the February 2024 headline inflation rate. The bureau said the food inflation rate in March 2024 jumped to 40.01 per cent yearly, indicating 15.56 per cent points higher than the rate recorded in March 2023 (24.45 per cent).

Reacting to this development, an Abuja-based commodity analyst, Yusuf Ogunbiyi, said headline inflation, as reflected in the Consumer Price Index numbers released by the NBS, continues to gallop forward despite the multiple hikes in Monetary Policy Rate (MPR). That is most reflected in the Year-on-Year numbers as the Month-on-Month numbers seem to be receding, he argued. “This is expected as there is usually a lag between policies such as the MPR and prices of goods and services in the economy due to higher costs of inventory still being carried by businesses,” he said. Moving away from official data, he said commodity prices have started to reflect the naira appreciation as major export commodities such as Sesame and Soya beans have reflected better Naira-USD conditions. Additionally, Mr Yusuf said other commodities such as maize, sorghum and paddy rice have also witnessed declines due to the availability of imports in the market. “The elephant in the room is how long it will take for the policy change (hike in MPR) to reflect in prices,” he said.

On her part, Praise Ihansekhien, head of Meristem Research, said the naira appreciation mostly impacts the core inflation index first due to the dependence of items contained in the core basket on importation. “Food inflation makes up 51% of the inflation basket. So, as the food inflation continues to rise, headline inflation will also remain high,” she said. She noted that prices increase faster than they often drop, even when the circumstances influencing the direction of prices change. “In the long run, if the FX appreciation persists, we should see some moderation to price levels, but this doesn’t happen as swiftly as one would expect,” Ms Ihansekhien said.

Razaq Fatai, research and advisory lead at Vestance, a data-driven intelligence and advisory firm in Abuja, said the recent appreciation of the naira may not have substantially curbed inflation for several reasons. He said the impact of a stronger currency on inflation typically takes time to materialise and that headline inflation is more sensitive to food prices, which have continued to rise due to domestic issues like insecurity and high production and logistics costs. “Market participants often react more swiftly to currency depreciation than to currency appreciation when adjusting their prices. Lastly, despite the currency’s appreciation, international fuel prices have surged, partially negating the benefits of a stronger naira,” Mr Fatai said.

 Despite these developments and observations, however, Nigeria is on track to become a global economic powerhouse, according to a new report by global investment bank Goldman Sachs. The investment bank forecasted Nigeria’s promotion to the world’s fifth largest economy by 2075 with a Gross Domestic Product (GDP) of $13.1 trillion. The projection builds upon recent, positive economic trends in Nigeria and aligns with similar forecasts from other leading financial institutions. The anticipated economic boom is attributed to the visionary leadership of President Bola Ahmed Tinubu. The current administration’s focus on education, skills development, and infrastructure upgrades has laid a solid foundation for sustainable economic growth. Policies aimed at attracting investment, establishing consumer credit, and implementing sound monetary and fiscal measures are also credited with propelling Nigeria towards a brighter economic future.

Goldman Sachs’ report, titled: 25 Largest Economies in the World by 2075, positions Nigeria ahead of established economic giants, like Germany, the United Kingdom (UK), Brazil, and Egypt. The report predicts a significant global power shift, with China surpassing the United States as the world’s leading economy by 2050, a position it is expected to maintain until 2075. India is projected to secure the second spot, followed closely by the United States and Indonesia in third and fourth places. Nigeria’s projected economic rise is fuelled by its young and vibrant population alongside the rapid growth of key sectors, like agriculture, energy, and technology.

But Goldman Sachs acknowledges potential challenges that could impede this trajectory if not meticulously addressed. The report lauds President Tinubu’s proactive approach in tackling these issues and his commitment to prudent economic decision-making.

Reacting to the report, the CEO of Praefinium Partners, Alpesh Patel, highlighted the 2075 projection as a glimpse into a future with a more balanced global economic distribution where emerging economies play a more prominent role.

“This shift underscores the critical role of effective economic reforms, technological innovation, and demographic trends in shaping the future of the global economy. The ascension of countries, like India, Indonesia, and Nigeria, coupled with the continued influence of established powers, like the United States, China, and Germany, paints a picture of a diverse and dynamic global economic landscape in the latter half of the 21st century,” Patel said.  

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