We begin our outlook conversations with context. Nigeria, a country with 37.0% of its population living on less than $1.9 per day, is facing an inflation rate of over 28.0%, an inability to produce its most important economic resource optimally, and the threat of sustained departure of some of its finest human resources. The preceding gives a sense of the weight of burden ongoing reforms must have placed on the population and the level of responsibility on economic managers to carefully track and report execution to ensure the short-term pains someday yield sustainable long-term benefits.
Indeed, Nigeria was not alone in the revolutionary swing of new helmsmen, with Kenya and Argentina other examples of countries which saw new presidents withdraw fuel subsidies or implement other shock economic measures. While Kenya quickly backtracked on its subsidy removal following heavy backlash from its citizens, there appears to be lingering debate on whether Nigeria has retained the full subsidy removal it fervently declared in May 2023, especially given the relative stability of the price of PMS vis-à-vis the sharp increase in that of diesel between May and December. The debate subsist because both products are meant to be fully deregulated, dictated by forces of demand and supply, and have similar drivers (i.e. exchange rate, crude oil prices, freight charges, and others).
Whatever the case (partial or full subsidy removal), this report acknowledges that the country appears to be taking the difficult but economically sustainable path, with efforts to unify the exchange rates, remove the cap on standing deposit facilities, and review of electricity meter prices among proactive decisions taken. The report also joins economic managers to do a review of developments since the introduction of the policies, delineate the outlook for the economy, as well as suggest potential opportunities these initiatives and expectations can throw out to investors. After all, even in the challenging 2023, a passive investor could still have earned a staggering 45.9% just by tracking the Nigerian All-Share Index (ASI), while those who played at the short end of the bond curve had intermittent opportunities to book implied yields in excess of 21.0% on 1-year instruments.
We hold the view that 2024 would also be slightly tough but filled with opportunities for those who proactively seek alpha. Thus, we adopt a top-down approach to help readers assess what potential macroeconomic gyrations could mean for investments and opportunities in 2024.
