January 18, 2024/CSL Research
Yesterday, we published our outlook for the economy and the financial markets. For growth, we forecast a moderate improvement in GDP growth to 3.37% in 2024 from an expected 2.55% in 2023. In the last 8 years, the Nigerian economy has been embattled, stemming from external shocks and weak political will to implement necessary economic reforms. 2023 ushered in a new set of reforms (discontinuation of subsidy and currency unification), the first in many years.
These reforms offer some renewed hope for the economy in the long run, but not without short-term brunts, as economic activities slowed materially in 2023. Other downsides to growth in the review period were the Naira redesign in the first quarter of 2023 which led to a cash crunch, and electioneering activities.
The oil sector remains in recession, as underinvestment and elevated theft have squeezed Nigeria’s oil output from around 2mbpd five years ago to about 1.45mbpd in 2023. In our assessment, it appears that the oil sector has reached a bottom, and there are indications of potential growth in 2024.
We anticipate an enhancement in oil production to reach 1.56 million barrels per day (mbpd) in 2024, driven by the government’s proactive initiatives to reactivate inactive oil terminals and revive dormant oil wells. Our overall projection suggests a 6.90% growth in the oil sector for 2024, marking a notable improvement compared to the 4-year average of -9.55%.
The manufacturing sector was rattled by troika factors in 2023. First, the 49% (June-December 2023) currency devaluation by the CBN and FX scarcity dampened the import capacity of the manufacturing sector. For context, we highlighted that about 60.0% of companies on the NGX30 have significant FX needs either for import or foreign debt services. In fact, FMCGs (over half of the manufacturing sector) were badly beaten, with many of the listed players recording a negative equity position after the devaluation.
Secondly, in 2023, interest rates reached unprecedented levels, leading to elevated finance costs for numerous manufacturing companies. Additionally, the high borrowing costs significantly constrained the expansion of manufacturing activities. Thirdly, inflation introduced an additional layer of pressure, as diminished purchasing power resulted in lower sales volumes and output. Consequently, we anticipate manufacturing growth to stabilize at 1.44% in 2023.
In 2024, we are optimistic about the manufacturing sector, largely stemming from the commencement of the Dangote refinery. The facility could add over 0.7% to the GDP of Nigeria. In addition, we see legroom for higher oil refining, as the 60,000 barrels Port Harcourt Refinery is anticipated to come on stream in the first quarter of 2024.
Also, mechanical completion of the 125,000 barrels Warri Refinery has been slated for Q1-2024 and operation will begin fully in Q2-2024. That said, we are quite skeptical about the ability of these refineries to produce considering several previously failed resuscitation attempts. We forecast 2.01% for the sector in 2024 from 1.44% in 2023.
The CSL Outlook 2024 – Navigating Hopeful Ambiguity can be accessed here here .
