An economist, Johnson Chukwu, has warned that the country is currently at risk of hyper-inflation. According to him, inflationary pressure is likely to be sustained for most parts of 2024 due to the CBN funding of the federal government expansionary budget, naira depreciation and inability to improve food production due to continued insecurity in the north.
In a report titled: ‘Nigeria Economic Outlook 2024′, Chukwu argued that efforts by the government to introduce price controls and commodity boards would worsen the pricing of basic commodities.
Chukwu, who is also the Chief Executive Officer of Cowry Asset Management Limited, also predicted that the naira would suffer additional depreciation in 2024 possibly at a higher magnitude than the 2023 decline.
He noted that the rate of depreciation of naira has accelerated in the past few days as virtually every economic agent embarked on a flight to safety, even as several directives and policy action points from the apex bank are indicative of confusion and panic by the monetary authorities and therefore sending wrong messages to economic agents.
On a sectoral basis, Chukwu predicted that the agricultural sector which grew by 1.13 per cent in 2023 and down from 1.88 per cent in 2022 would continue at marginal rates as the government struggles to improve the security situation of the country.
In addition, he said the withdrawal of intervention funds from the sector will further constrain investment in the sector, causing prices of most stable commodities to rise above consumers’ income.
For the trade sector, the expert noted that aside from recording a downturn from 5.13 per cent in 2022 to 1.66 per cent in 2023, the sector will witness weak growth as a result of weak consumer demand and foreign exchange scarcity.
He added that the frequent adjustments in customs duties have added to the uncertainties in the sector as traders now find it difficult to determine their replacement costs.
Chukwu pointed out that the manufacturing sector having recorded an annual growth of 1.4 per cent in 2023, lower than 2.45 per cent in 2022 will likely witness negative growth in 2024 because of increased cost of borrowing, scarcity of foreign exchange, slowdown in consumer demand and poor infrastructure.
On the fixed income market, he said the Central Bank of Nigeria’s (CBN) commitment to maintaining price stability and return to orthodox monetary tools suggests a sustained contractionary monetary policy.
Hence, he noted that the Central Bank and the Debt Management Office’s withdrawal of about N6.26 trillion from the financial system since the beginning of the year has severely impacted liquidity.
With the development, he pointed out that most banks are now depending on the CBN-standing lending facility to meet their obligations.For the equities market, which has already gained 36.5 per cent as of the close of trade on February 23, 2024, Chukwu said the market will witness some southwards price adjustments in 2024 driven by the current over-valuation of many stocks beyond their intrinsic value, expected further increase in fixed income yields with the attendant portfolio rebalancing by fund managers, as well as likely weak performance by many of the quoted companies due to the country’s harsh economic environment.
“Continuous flight to dollar assets by high-networth individuals and some institutional investors in their efforts to preserve their wealth and the CBN’s efforts to attract portfolio investors through attractive yields in the fixed income market, coupled with further liquidity tightening will present the equities market as an unattractive investment option in the short-medium term.
He urged investors to focus on value stocks, identifying sectors with relatively strong prospects to include, the banking sector, industrial goods, construction industry and oil and gas sector.
