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Insights and analyses on Nigeria's economy and business
Exploring the latest updates on inflation, budget proposals, oil production, and more, with a special Deeper Dive feature.
Samuel Okocha
November 18, 2024
Hello, and welcome to this Monday's edition of 234Digest. I’m Samuel Okocha, your dedicated curator and editor, committed to delivering incisive and comprehensive coverage of Nigeria's economy and business landscape, distilled for clarity and brevity.
A quick reminder: 234Digest now comes to you three times a week—twice between Monday and Friday, and a special Sunday edition that includes our popular Deeper Dive section. Due to unforeseen circumstances, we were unable to release our Sunday edition yesterday. To make up for it, today’s edition will include the Deeper Dive section as a special feature.
Today's edition delivers critical updates and analyses that are essential for navigating the intricate landscape of our nation's economic dynamics. Let's dive in.
Word for word:
"The Central Bank of Nigeria now appears to have little choice but continue its hiking cycle."
Today’s briefs
Nigerian inflation jumped to 33.9% year-on-year in October, up from 32.7% in September and surpassing analysts' expectations, Bloomberg reported. The sharp acceleration is likely to force the Central Bank of Nigeria's hand, potentially extending its streak of 13 consecutive rate increases since May 2022. With consumer prices spiraling, policymakers face mounting pressure to tame the inflationary beast.
The inflation spike comes as the government sets out a 47 trillion naira ($28.18 billion) spending plan for 2025, announced by Budget Minister Atiku Bagudu. The proposal rests on optimistic assumptions: an oil price of $75 per barrel and daily production of 2 million barrels. It forecasts a deficit of 13.8 trillion naira (3.87% of estimated GDP) and an exchange rate of 1,400 naira to the dollar—markedly stronger than the current official rate.
In a related economic move, Nigerian business tycoon Aliko Dangote is seeking to raise billions of dollars to step up production at his $20 billion oil refinery on the outskirts of Lagos. The industrialist is in talks with commercial lenders, development banks, oil traders, and other industry participants to raise funds for crude supplies to turn into refined products. Dangote Industries has bought crude from the US and Brazil, and in July was in talks with African suppliers such as Libya and Angola.
To bolster its fiscal stability, Nigeria plans to issue $1.7 billion in eurobonds and $500 million in Islamic sukuk bonds. Finance Minister Wale Edun says the government is hustling to secure lawmakers' approval for the borrowing plan. This follows a $900 million domestic dollar bond sale in September, as Africa's largest oil producer scrambles to match public spending with dwindling revenues.
On the diplomatic front, Indian Prime Minister Narendra Modi's state visit to Nigeria—the first by an Indian premier in 17 years—yielded agreements to bolster cooperation in maritime security, intelligence, and counter-terrorism. The leaders also explored avenues for collaboration in economic development, defence, healthcare, and food security, signalling a potential shift in geopolitical alignments.
In corporate finance news, Africa Finance Corporation (AFC) has arranged a $200 million corporate finance facility for Nigeria's BUA Group, provided by Afreximbank. This deal, AFC's second successful advisory mandate for BUA, underscores its growing role in facilitating transformative transactions across the continent. AFC's recent portfolio includes advisory work on power infrastructure and sustainable financing solutions for Nigeria's electricity distribution sector.
Deeper dive: Nigeria’s 2025 budget
Nigeria's latest budget proposal for 2025 paints a rosy picture of the country's economic future, but closer inspection reveals a canvas of optimistic assumptions and potential pitfalls.
Driving the news: The 47 trillion naira ($28.18 billion) spending plan, unveiled by Budget Minister Atiku Bagudu, rests on a trio of ambitious projections:
An oil price of $75 per barrel
Daily production of 2 million barrels
An exchange rate of 1,400 naira to the dollar
Why it matters: These figures might seem within reach, but Nigeria's recent history of falling short of its oil production targets casts doubt on the 2 million barrels per day assumption. In October, the country pumped just 1.4 million barrels per day, according to figures from OPEC’s monthly oil market report. Achieving the targeted output would require a Herculean effort to combat oil theft and attract investment to ageing fields.
The big picture: The exchange rate projection of 1,400 naira to the dollar is perhaps the most eyebrow-raising element of the budget. It implies a significant strengthening of the naira from its current official rate of 1,683—a tall order given Nigeria's persistent foreign exchange shortages and recent policy shifts towards a more market-determined rate.
By the numbers:
Proposed budget deficit: 13.8 trillion naira (3.87% of estimated GDP)
Debt servicing consumed 96% of government revenue in 2022, according to the World Bank
Between the lines: While the proposed deficit falls within the 5% limit set by Nigeria's Fiscal Responsibility Act, it adds to an already hefty debt burden. President Bola Tinubu's administration argues that its fiscal efforts are on track, with non-oil revenue streams performing better than anticipated. Yet the gap between ambition and reality remains stark.
What to watch: The 2025 budget's success hinges on a delicate balancing act: boosting oil production, stabilising the naira, and significantly increasing non-oil revenues. The budget's optimistic outlook may be designed to instill confidence in Nigeria's economic trajectory. However, it also risks setting unrealistic expectations.
The bottom line: If these targets prove unattainable, the government may find itself forced to either increase borrowing or slash spending, potentially derailing its development plans. As Nigeria navigates its complex economic challenges, the 2025 budget serves as both a roadmap and a litmus test for the Tinubu administration's economic management. The coming months will reveal whether this ambitious plan can translate into tangible progress or if it will join a long list of Nigerian budgets that promised more than they could deliver.
Quote of the day:
"The only limit to our realization of tomorrow is our doubts of today." - Franklin D. Roosevelt
Photo of the day
Building on the fringe: A construction worker plasters the façade of a two-story hotel on the outskirts of Abuja, Nigeria's capital. This renovation and expansion project reflects the growing economic activity beyond the city centre and hints at a burgeoning hospitality sector. As demand for accommodation surges among domestic travellers, hotels are rushing to increase capacity, painting a picture of cautious optimism in Nigeria's service economy despite broader economic challenges. Photographer: Samuel Okocha/234Digest
And that's a wrap for today. Thank you for joining us for this edition of 234Digest. As we continue to navigate Nigeria's complex and dynamic economic landscape, your engagement and feedback remain invaluable. Remember, our newsletter now comes to you three times a week, aimed at unpacking relevant updates with insights with clarity and brevity. Until next time, stay well and keep thriving.