- Johnson Chukwu, the founder and MD of Cowry Asset Management Limited, gave his outlook for the Naira's exchange rate in 2024 at a review of the Nigerian economy and outlook event on Wednesday, January 19, 2023.
- He said the Naira could range from N800 to N1,500 per dollar in 2024, depending on the government's policies and crude oil production. He urged the federal government to increase oil output to boost dollar earnings.
- He also shared his views on the Nigerian economy's potential, the role of the construction sector in driving growth, and the reasons behind the exit of multinationals from the country.
The Naira's exchange rate against the US dollar has been a source of concern for many Nigerians, especially in the wake of the COVID-19 pandemic and the decline in oil prices. The Naira has depreciated significantly in the past year, reaching a record low of N1,200 per dollar in the parallel market in December 2023.
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| The Nigerian currency may depreciate to N1,500 per US dollar, according to Cowry Asset Management Limited. Image source: crowyasset/Getty Images |
What will the Naira's performance be in 2024? This was one of the questions that Johnson Chukwu, the founder and managing director of Cowry Asset Management Limited, addressed at the investment house's 2023 Quarter 4 & full Year review of the Nigerian economy and outlook for 2024.
Chukwu, a seasoned financial expert and analyst, said he expects the Naira to continue to lose value in the forex markets in 2024, unless the federal government implements some drastic measures to stabilize the currency and boost the economy.
He projected that in a worst-case scenario, the Nigerian currency may depreciate to N1,500 against the dollar during the year, while in a best-case scenario, the exchange rate would be at N800 per dollar. He said a moderate-case scenario pegs the rate at N1,000 per dollar.
He explained his projections as follows:
"The worst-case scenario is that the naira could worsen to N1,500 against the dollar while the best-case scenario, the exchange rate would be at N800 per dollar, a moderate-case scenario pegs the rate at 1,000/$. The worst-case scenario will happen if the government does not address the structural imbalances in the economy, such as the fiscal deficit, the current account deficit, the inflation rate, and the low foreign reserves.
The best-case scenario will happen if the government implements some bold reforms, such as removing fuel subsidies, devaluing the official exchange rate, increasing the tax base, and attracting foreign direct investment. The moderate-case scenario will happen if the government maintains the status quo, without making any significant changes to the economic policies."
Chukwu also called on the federal government to strengthen crude oil production to boost dollar earnings, as oil remains the main source of foreign exchange for Nigeria. He said Nigeria needs to increase its oil output from the current 1.4 million barrels per day to at least 2.5 million barrels per day to meet its revenue targets and reduce its dependence on external borrowing.
He said:
"Oil is still the lifeline of the Nigerian economy, and we need to produce more oil to earn more dollars. We have the capacity to produce up to 2.5 million barrels per day, but we are constrained by the OPEC quota and the security challenges in the Niger Delta region. We need to resolve these issues and increase our oil production, otherwise we will continue to face pressure on the exchange rate and the foreign reserves."
Nigerian economy outlook
During his presentation, Chukwu also expressed doubts about President Bola Tinubu's $1 trillion economy projection. He said Nigeria's gross domestic product (GDP) is currently around $400 billion, and it would take a miracle to grow it to $1 trillion by 2024.
He said:
"I don't see how Nigeria can achieve a $1 trillion economy by 2024. That would mean growing the GDP by more than 20% annually, which is unrealistic. Even if we assume a nominal growth rate of 10%, which is very optimistic, we would still need a stable exchange rate of N400 per dollar to reach $1 trillion. But we know that the exchange rate is not stable, and it is likely to depreciate further in 2024. So, I think the $1 trillion economy projection is just a political slogan, not a realistic target."
However, he expects the construction sector to drive the Nigerian economy in 2024 due to an increased budget allocation to capital projects by the three tiers of government. He said the construction sector has a multiplier effect on other sectors, such as manufacturing, services, and agriculture, and it can create employment and stimulate growth.
He said:
“We think the sector that will drive growth is the construction sector in 2024. The federal government has allocated N4.9 trillion to capital expenditure in the 2024 budget, which is about 30% of the total budget. The state and local governments are also expected to increase their spending on infrastructure projects, especially as the 2024 elections approach. This will boost the demand for cement, steel, iron rods, and other construction materials, as well as create jobs and income for the workers and contractors involved. The construction sector has a positive spillover effect on other sectors, such as manufacturing, services, and agriculture, and it can enhance the productivity and competitiveness of the economy."
On the exit of multinationals, Chukwu explained, is due to the business environment in Nigeria. He said many foreign companies have decided to leave the country due to the challenges they face in operating and making profits in Nigeria.
He noted:
“In 2023, major multinational firms publicly declared their intention to cease operations due to the challenging business environment. This environment, marked by incoherent foreign exchange policies hindering profit and dividend repatriation, has left many companies incapacitated. Some of the companies that have exited or announced their exit plans include Shoprite, Unilever, Procter & Gamble, Etisalat, and Shell. This is a worrisome trend, as it signals a loss of confidence in the Nigerian economy and a reduction in foreign investment and technology transfer. The government needs to address the issues that are driving away these companies, such as the exchange rate volatility, the multiple taxation, the insecurity, and the regulatory uncertainty."
SOURCE:PULSEHUBS