"Weak naira threatens Tinubu\u2019s $1 trillion economy ambition as devaluation lessens GDP value in dollar terms"

" Weak naira threatens Tinubu\u2019s $1 trillion economy ambition as devaluation lessens GDP value in dollar terms \r\n\r\n \r\n \r\n\r\nThe instability in the forex exchange market and the weakness of the naira pose a significant threat to Nigeria\u2019s ambition of becoming a $1 trillion economy.\r\n\r\nAnalysis by\u00a0 Nairametrics \u00a0shows that naira devaluation has triggered a loss of about $193 billion in the country\u2019s gross domestic product (GDP) when converted from naira to dollar.\r\n\r\nOur analysis reveals that the country amassed a total GDP of N224.54 trillion for the year-long period from Q4 2022 to Q3 2023.\r\n\r\nConverted to U.S. dollars at the exchange rate on the website of the Central Bank of Nigeria (CBN) at the end of September 2023 (N768.76\/$1, Nigeria\u2019s GDP stands at approximately $292.08 billion.\r\n\r\nHowever, using the exchange rate before the FX unification policy of about $462.88\/$, Nigeria\u2019s GDP would have been at approximately $485.09 billion.\r\n\r\nThe naira devaluation of 39.79% also triggered a loss of value in the GDP in dollar terms at the same rate.\r\n\r\nAlthough there was a decline in dollar terms, an increase was observed in the quarterly naira value of the country\u2019s GDP.\r\n\r\nIt hit a high of N62.05 trillion in Q3 2023, which is higher than the value in Q2 2023 (N52.76 trillion) and Q1 2023 (N51.95 trillion), and even Q3 2022 (N53.18 trillion).\r\n\r\nDespite the growth in naira terms, Nigeria has witnessed a depreciation of up to 40% in its currency\u2019s value for the current year, based on official exchange rates, which means that the country is plagued by currency volatility.\r\n\r\n Nigeria still leading African economy \r\n\r\nAfter Nigeria, South Africa is the next country in line, but they haven\u2019t released their GDP numbers for Q3 2023 yet.\r\n\r\nThe South African economy generated ZAR4.6 trillion, according to GDP Q2 figures from the country\u2019s statistics bureau.\r\n\r\nSouth Africa\u2019s GDP is around $243.4 billion when converted to US dollars using the official exchange rate of about ZAR18.98\/$1. With these figures, Nigeria is the leading economy in Africa.\r\n\r\nJust like Nigeria, South Africa\u2019s currency has also declined but not as high as the naira. The value of South Africa\u2019s currency declined by around 15%.\r\n\r\nFurther analysis demonstrates that for Nigeria\u2019s GDP to fall below South Africa\u2019s when measured in US dollars, the naira would need to decline to approximately N900\/$1.\r\n\r\nAlthough the naira\u2019s black market rate is currently above N1000\/$1, this analysis has just considered the official exchange rates, assuming they are not artificially fixed.\r\n<div class=\"ai-viewport-1\" data-insertion-position=\"prepend\" data-selector=\".ai-insert-19-11634107\" data-insertion-no-dbg=\"\" data-code=\"PGRpdiBjbGFzcz0nY29kZS1ibG9jayBjb2RlLWJsb2NrLTE5JyBzdHlsZT0nbWFyZ2luOiA4cHggMDsgY2xlYXI6IGJvdGg7Jz4KPCEtLSBBY3RpdmUgLS0+CjwhLS0KPGRpdiBhbGlnbj0iY2VudGVyIj48YSBocmVmPSJodHRwczovL2phaXpiYW5rcGxjLmNvbS8iIHRhcmdldD0iX2JsYW5rIiByZWw9Im5vb3BlbmVyIG5vcmVmZXJyZXIiPjxpbWcgY2xhc3M9ImFsaWduY2VudGVyIHdwLWltYWdlLTE3NzAzMyBzaXplLW1lZGl1bSIgc3JjPSJodHRwczovL2kuaWJiLmNvL2JkdlFjRGcvTkFJUkFNRVRSSUNTLUNSRUFUSVZFLUZPUi1SRU5FV0FMLTEuanBnIiBhbHQ9IkphaXogYmFuayIgLz48L2E+PC9kaXY+LS0+CjwvZGl2Pgo=\" data-block=\"19\">\r\n \r\n \r\nAnd while the official rates have often sold above N900\/$1, the NAFEX rates have yet to touch the N900\/$1 rate.\r\n\r\nThe base year for constant prices utilized by both nations is another important factor to think about. While South Africa has changed its base year to 2015, Nigeria is still using 2010 for constant prices.\r\n\r\nAlthough the current figures still favour Nigeria, this can change the relative values of the GDPs of the two nations.\r\n\r\nAlso, South Africa reported a real GDP growth rate of 1.6% for the second quarter of 2023. This is lower than Nigeria\u2019s real GDP growth rate of 2.51% in the same period and 2.54% in Q3 2023.\r\n FG not anticipating a $1 trillion economy by 2026 \r\nIn its 2024-2026 Medium-Term Expenditure Framework and Fiscal Strategy Paper (MTEF\/FSP), which was recently approved by the National Assembly, the Federal Government targets an exchange rate of 669.79\/$ and GDP of N292.52 trillion.\r\n\r\nBased on the projection in MTEF\/FSP 2024-2026, Nigeria\u2019s GDP will be $436.73 billion by 2026, which is far from its $1 trillion ambition.\r\n\r\nThis may either mean that the Federal Government is not serious about this ambition or is just throwing figures around to attract investors.\r\n\r\nFor Nigeria to hit the $1 trillion economy by 2026 at a GDP of N292.52 trillion, naira must appreciate to N292.52\/$ which is highly unlikely given the current macroeconomic conditions.\r\n\r\nThe current exchange rate, however, implies that Nigeria\u2019s economy will need to quadruple in growth over the next three years if it is to reach $1 trillion in GDP.\r\n\r\nThat is, assuming, of course, the exchange rate remains unchanged, which is highly improbable.\r\n\r\nRebasing the economy, as the NBS did in 2010, is another possible means by which it could approach there more rapidly.\r\n\r\nAccording to some economists, the economy needs to be rebased because the economy\u2019s form has evolved and the existing method of calculating GDP may not be reflecting its true size, particularly in areas such as healthcare, real estate, fintech, and trade.\r\n\r\n More Insight \r\n\r\nIn June 2023, the CBN\u00a0 announced \u00a0the unification of all segments of the forex market, collapsing all windows into one.\r\n\r\nThis was part of an effort to drive liquidity and stability in the forex market in Nigeria.\r\n\r\nHowever, this seems to have had a counter-effect, as it triggered further instability in the market.\r\n\r\nPresident Bola Tinubu recently set an ambitious target of growing the economy to $1 trillion by 2026 and increasing it to $3 trillion by the end of the decade in 2030.\r\n\r\nThe President disclosed this while delivering the opening address at the 29th edition of the Nigeria Economic Summit held in the nation\u2019s capital, Abuja.\r\n\r\nTinubu also assured Nigerians and investors that his government inherited the assets and liabilities of the government concerning the foreign exchange and financial market.\r\n\r\nHe noted that the administration has a good line of sight about FX liquidity and will honour all foreign exchange forward contracts entered by the government.\r\n\r\nThe CBN said it has made tranche payments to 31 banks to clear the backlog of foreign exchange forward obligations.\r\n\r\nThe apex bank has also established some foreign exchange frameworks to address the FX issues in the country.\r\n\r\nIt is hoped that the recent reforms will eventually strengthen the naira against the dollar, and boost Nigeria\u2019s GDP in dollar terms.\r\n\r\n \r\n "

"Weak naira threatens Tinubu\u2019s $1 trillion economy ambition as devaluation lessens GDP value in dollar terms"

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