Nigeria’s Output Gap
According to recently released NBS data, Nigeria in 2024 ended with an overall annual GDP growth rate of 3.40% from 2.74% reported in 2023. 2024 year end GDP came in at US$195 Billion a decline of US$168 Billion from 2023 GDP of US$363 Billion. The impact of the massive devaluation and free fall of the currency from =N=500-1600/$.
The GDP growth numbers are suboptimal for a 200 million population growing at 3% as GDP per Capita has fallen to an all time low, with an economy struggling with stagflation.
This highlights “The Output Gap” problem in the Nigerian economy where we are falling short of our productivity and growth potential.
FGN has to revamp its trade policy and reform HS Codes, realignment of Industrial policy to address the declining productivity in Manufacturing, Industry and Agriculture in an effort to boost growth. Investment policy incentives also need to be amplified.
Excessive Fiscal spending with a 150 Trillion Naira debt burden, 2 years cumulative 40 Trillion Naira deficit is a source of concern. 16 Trillion Naira for debt service in the 2025 budget exceeds the defense, education, health and infrastructure budgets combined at 14 Trillion Naira. While the sovereign risk spreads have fallen to an 5 year low on our sovereign bonds, our credit rating remains at junk bond status.
Government therefore has to optimize equity in its Capital Structure by selling assets in an effort to reduce its debt profile and achieve investment grade credit ratings.
The direction of government should be to enact policies that will enhance productivity, create employment, close the output gap and grow the economy.
Relative stability has been achieved in the economy. To build on this, we must implement deliberate industrial policies to achieve import substitution in targeted sectors of the economy. We must replicate the success with cement, fertilizer and petroleum refining.
A suggestion is to put in place a roadmap for the three massive sugar refineries in Nigeria owned by Dangote, BUA and FMN, to stop importing raw sugar. This is a potential FX earner and AfCFTA project, as the three refineries have capacity to meet regional demand. Deliberate policies therefore must be put in place to develop local supply chain with Nigeria farmers, in an effort to boost local sugar cane production, increase agricultural productivity and create employment along that value chain.
Closing the output gap is the only way to achieving the desired Trillion Dollar Economy.
Adetilewa Adebajo
The CFG Advisory
