Will rising oil output shore Nigeria’s growth?

Nigeria's economic landscape is poised for growth, according to the Economist Intelligence Unit, which projects a 2.5% increase this year driven by rising crude oil output. As the government implements a series of reforms to tackle inflation and currency volatility, there are mixed opinions on whether Nigeria can achieve these growth targets. Opeyemi Agbaje, CEO of RTC Advisory Services, discussed the intricacies of these reforms in a recent interview with CNBC Africa. Agbaje highlighted the importance of striking a balance between fiscal policies, reforms, and economic growth. He emphasized the necessity of making strategic trade-offs to effectively manage the current economic challenges facing Nigeria. While acknowledging the government's objective of attracting more investment as a positive step, Agbaje also noted the need for better implementation to ensure coherence in policy actions. One of the key reform measures that drew attention was the abrupt removal of fuel subsidies and the subsequent devaluation of the Naira. Agbaje pointed out that while these decisions may have been necessary, better timing and communication could have mitigated some of the negative impacts. However, he praised the proactive stance taken by the Central Bank in addressing the economic vulnerabilities and stressed the importance of avoiding reactive measures. Amidst the challenges, there are some positive indicators for Nigeria's economy. Agbaje cited the recent increase in GDP to 3.5% in the fourth quarter, largely driven by higher oil output. Both the EIU and IMF project further GDP growth, with the IMF forecasting a 3% increase. Additionally, revenue collection is reportedly improving with better systems in place, signaling progress on the fiscal front. However, lingering issues such as high inflation, currency devaluation, and interest rates continue to pose significant hurdles. Agbaje acknowledged that short-term interest rates remain high, inflation is elevated, and the Naira's value has been negatively impacted. The recent sharp decline in the Naira raised concerns about its fair valuation and the sustainability of economic growth solely based on improved crude oil output. Addressing the fair value of the Naira, Agbaje referenced a Goldman Sachs report predicting an appreciation to 1,200 Naira in the next year. He expressed confidence in the country's improved fiscal position and Central Bank's efforts to address contractual obligations, suggesting a fair value range of 850 to 1,000 Naira. Despite these optimistic projections, Agbaje noted that confidence and speculation remain key factors influencing the currency's performance. Looking ahead, Agbaje offered cautious expectations for the Monetary Policy Committee meeting, predicting a modest impact on interest rates. He suggested a potential 1% increase and emphasized the need for a balanced approach to monetary policy adjustments. While uncertainties persist, Agbaje underscored the importance of continued assessment and policy alignment to navigate Nigeria's economic challenges effectively. In conclusion, Nigeria's path to sustainable economic growth hinges on effective policy implementation, coherent reforms, and prudent decision-making. With a dynamic landscape shaped by global market forces and internal complexities, the country must remain agile in its response to economic developments. As stakeholders monitor key indicators and policy shifts, the trajectory of Nigeria's growth will undoubtedly be influenced by the ability to address volatility, inflation, and currency challenges with resilience and adaptability.