As Nigeria steps into the promising yet challenging economic terrain of 2024, PwC Nigeria, a leading professional services firm, has unveiled its highly anticipated report titled “Seven trends that will shape Nigeria’s economy in 2024 – PwC’s Economic Outlook.”

In its analysis, PwC delves into the intricacies of Nigeria’s economy, identifying seven key trends that will play pivotal roles in shaping the nation’s economic trajectory throughout the year.

PwC anticipates marginal GDP growth of 3.1% for the year 2024, attributing this positive outlook to sustained policy reforms.

Despite the growth prospects, the forecast acknowledges constraints posed by heightened economic pressures. The driving forces behind this projection include ongoing reforms, recovering oil production, and a proactive policy environment.

However, potential risks loom, including a sustained increase in fiscal debt, elevated interest rates, high inflation, foreign exchange liquidity pressures, and challenges in non-oil revenues and sector development.

Sector-wise, the financial services, information and communication, and utilities sectors have emerged as key drivers of GDP growth. PwC projects that these sectors will maintain their growth momentum in the short term, contributing significantly to Nigeria’s overall economic growth.

The seven trends

1. Executing Fiscal Reforms: Balancing Ambition with Budgetary Implementation

PwC’s Economic Outlook notes the critical importance of fiscal reforms in achieving Nigeria’s ambitious revenue targets for 2024.

While historical challenges have seen actual revenue fall below budgeted figures, the report highlights the potential of proposed fiscal reforms in boosting non-oil revenue.

However, the success of these reforms is contingent upon effective budgeting and execution, with factors such as OPEC oil production quotas, international oil prices, and security in oil-producing regions acting as determining factors for the realization of budgeted oil revenue.

“Nigeria’s ambitious revenue targets for 2024 depend heavily on oil prices and reform implementation,” the report said. “Historically, actual revenue realized has averaged less than 70% of the total budget. Achieving budgeted oil revenue in 2024 will depend on OPEC oil production quota, international oil prices, improved security in the oil-producing regions, and geopolitical factors.”

2. Evolving Monetary Policy Stance: Finding the Right Framework for Price Stability

Despite the Central Bank of Nigeria (CBN) deploying various monetary policy tools, inflationary pressures persist. PwC advocates for an independent pursuit of inflation goals by the CBN, emphasizing the need for coherence and alignment between fiscal and monetary policy to stabilize prices.

Clarity, transparency, and consistent communication from the CBN are identified as crucial elements for enhancing stability in exchange rates and market activities.

“Finding coherence and alignment between fiscal and monetary policy to stabilize prices may enable the achievement of statutory and policy targets in 2024,” the report said.

3. Investors will be cautiously optimistic

The report further notes that as Nigeria positions itself on the global economic stage, foreign portfolio investment flows may remain cautious. This is influenced by challenges such as delays in capital repatriation, and downgrades from FTSE Russell and MSCI, investors’ outlook may be tempered.

Nevertheless, Moody’s, Fitch, and S&P maintain a speculative credit rating, providing a nuanced view. The report anticipates improvements in Foreign Direct Investment (FDI) flows in 2024, driven by expansions in the ICT and Manufacturing sectors.

4. Undulating pathways to unlocking productivity in the economy

Despite the nation’s aspirations for economic growth, limited fiscal space for public investment and difficulties in attracting private investments continue to constrain essential infrastructure improvements.

The allocated infrastructure spending budget for 2024 falls short of recommended benchmarks, impacting the realization of crucial projects. Security spending, totaling N14.8 trillion over the past nine years, has not effectively mitigated insecurity, adversely affecting national stability and investor confidence.

“The allocated infrastructure spending budget for 2024 is N1.32 trillion, falling short of both the World Bank’s suggested 70% infrastructure-to-GDP benchmark (currently at 30%) and the yearly $150 billion requirement specified in the National Integrated Infrastructure Master Plan for 2021- 2025,” the report notes.

5. Persisting vulnerability to external pressures with a potential of ‘shocks’

According to the report, Nigeria remains susceptible to a range of external pressures, including geopolitical, economic, environmental, political, and trade trends.

The escalation of the Russia-Ukraine war, for instance, could lead to global energy and commodity supply risks, impacting inflation and food security. The outcomes of elections in key countries like the USA, UK, and Taiwan may shape global trade and capital flows, presenting both challenges and opportunities for Nigeria’s economic outlook.

The report adds that “Nigeria may experience increased inflation and food security challenges due to grain import disruptions and high petroleum product cost.”

6. Consumers may likely adjust better to the evolving policy and macro realities

In the face of increasing prices of goods and services coupled with lower disposable income, consumer spending in 2024 is expected to come under pressure, according to PWC.

Private consumption, however, is expected to be marginally better than in 2023. The report projects an increase in poverty levels to 38.8%, driven by low consumer spending and purchasing power, exacerbated by the absence of a commensurate increase in the minimum wage.

7. Improved sectoral development riding on reforms

PwC projects marginal GDP growth of 3.1% in 2024, underpinned by sustained policy reforms, recovering oil production, and a proactive policy environment.

While the financial services, information and communication, and utilities sectors have been the main drivers of GDP growth, the report anticipates these sectors continuing to propel short-term growth.

However, potential downside risks include fiscal debt, elevated interest rates, high inflation, foreign exchange liquidity pressures, exposure to global value chain shocks, and poor non-oil revenues.

The firm projects that “sectoral growth will be driven by a combination of demand dynamics, investment, government reforms and trade dynamics.”

The electric vehicle (EV) market is undergoing a significant transformation being pushed by the formidable competition posed by Chinese automakers.

Tesla CEO, Elon Musk, acknowledged the intense rivalry and potential opportunities in the rapidly evolving global EV market in his recent assessment made during a Tesla earnings call.

“Our observation is generally that the Chinese car companies are the most competitive car companies in the world,” Musk said. He went on to express the belief that without trade barriers, Chinese carmakers would “pretty much demolish” their foreign counterparts, underlining the exceptional capabilities of these companies in the EV sector.

This recognition comes as Chinese automaker, BYD, surpassed Tesla in the October-December period by selling a record 944,779 new energy vehicles, including 526,409 pure electric cars.

The rise of BYD, along with fellow Chinese manufacturers such as SAIC Motor Corp., is seen as a transformative moment in the electric vehicle (EV) market. China, directly challenging traditional automotive powerhouses like Japan, has become a leading player in the international export of passenger cars.

As of October this year, China has shipped approximately 1.3 million electric vehicles out of the total 3.6 million worldwide, signaling a significant shift in the dynamics of the global automotive industry.

Bridget McCarthy, Snow Bull Capital’s head of China operations, highlighted the industry’s evolution, stating, “It’s no longer about the size and legacy of auto companies; it’s about the speed at which they can innovate and iterate.”

However, despite the acknowledgment of Chinese automakers’ prowess, Musk clarified that Tesla does not currently see “an obvious opportunity to partner” with them, except for potential collaboration on sharing Tesla’s supercharging network.

“So they’re extremely good,” Musk said, but Tesla does not see “an obvious opportunity to partner” except on sharing its supercharging network.

“We are obviously happy to give any electric car company access to our supercharger network. We’re also happy to license full self driving, perhaps license other technologies, and anything that could be helpful in advancing the sustainable energy revolution,” Musk added.

This cautious approach is seen as a reflection of Tesla’s commitment to maintaining a competitive edge in the market.

While Chinese automakers gain momentum globally, Tesla faces challenges in its crucial Chinese market. Tesla drivers in China are encountering entry restrictions at government-affiliated venues due to data security concerns amid ongoing tensions between the United States and China. This raises questions about Tesla’s future in China, the world’s largest EV market.

In response to intensified competition and policy uncertainties, Tesla has taken measures to maintain its market position. The company lowered prices in China, following several price cuts over the past year.

These price reductions added pressure on Tesla’s profitability. The company reported a second consecutive quarterly profit drop on Wednesday, and said in its Q4 2023 results that its EV sales could grow notably slower in 2024 compared to last year.

Despite the rivalry with BYD, Tesla recognizes the strategic importance of its Chinese counterparts, particularly BYD, as a key battery supplier. Musk expressed gratitude for their suppliers, which include Panasonic, CATL, LG, and BYD.

“We are very appreciative of our suppliers. You know, Panasonic obviously is our longest supplier there. Amazing company. We’ve got CATL, we’ve got LG,” Musk said, adding, “and BYD.”

Looking ahead, Tesla plans to ramp up orders from these suppliers in 2024, reflecting the collaborative nature of the EV industry.

While BYD has experienced significant success in the Chinese market, its expansion beyond borders faces challenges. Europe is considering imposing higher tariffs on Chinese car imports, aiming to protect local manufacturing jobs. This, coupled with trade tensions reminiscent of the challenges faced by Tesla in the US, poses obstacles for BYD in accessing international markets.