Contradictory Policies, Courageous Ambitions and Confusing Numbers

The conundrum that is the Nigeria Economy

Yesterday was Thanksgiving in the USA—happy Thanksgiving to everyone who celebrates! For the rest of us, we be thanking God for life.

Anyone who tells you they understand the Nigerian economy has not studied it well enough. Today’s digest dives into the dilemma of Nigeria’s economic governance. In the midst of all this, a bank has managed to remain vision-driven. Let’s get into it!

Macro Economics

Battle Between Fiscal and Monetary Policies

Source: Whitaker-Myers Wealth Managers

In recent weeks, Nigeria has witnessed two significant economic developments. The Finance Minister announced the government’s plan to issue $1.7 billion in Eurobonds to address revenue shortfalls in the 2024 budget. Shortly after, the Central Bank of Nigeria (CBN) raised the Monetary Policy Rate (MPR) by 0.25% to 27.50%, aiming to curb inflationary pressures. These moves highlight the ongoing tug-of-war between fiscal and monetary policy.

Nigeria's plan to issue $1.7 billion in Eurobonds involves tapping international markets by offering dollar-denominated bonds to foreign investors. The proceeds are intended to finance critical projects and bridge fiscal gaps caused by declining domestic revenue. However, this strategy increases Nigeria’s external debt burden and exposes the country to exchange rate risks. With interest payments tied to foreign currency, any further naira devaluation could significantly raise the cost of servicing this debt.

On the monetary side, the MPR—Nigeria's benchmark interest rate—guides borrowing costs across the economy. By increasing the rate, the CBN aims to reduce liquidity and manage inflation. However, this approach has trade-offs: higher interest rates can discourage investments, increase borrowing costs for businesses and households, and potentially slow economic growth.

So What?
While issuing Eurobonds may provide much-needed funding for critical government projects, it also worsens Nigeria’s foreign debt profile and increases vulnerability to exchange rate fluctuations. A depreciating naira could escalate debt servicing costs, leaving less fiscal space for public services. Additionally, reliance on external borrowing may crowd out domestic financing options, limiting funds available for local development.

Conversely, the CBN’s decision to raise the MPR to 27.50% demonstrates a commitment to stabilizing prices amidst persistent inflation. This strategy helps preserve purchasing power and maintain investor confidence. However, it also imposes higher borrowing costs on businesses, limiting expansion and job creation, while households face greater difficulty accessing affordable loans. These pressures could exacerbate financial strain amid rising living costs.

Market Highlight

Shopping Spree

Access Bank’s Pan African Acquisition steak continues.

Source: Thisday

In the past two weeks, Access Bank has completed the acquisition of a majority stake in a Mauritian bank and the Angolan and Sierra Leonean subsidiaries of Standard Chartered Bank. Last year, Access reached an agreement with Standard Chartered Bank to buy all of Standard Chartered's Sub-Saharan subsidiaries except Nigeria.

Access acquired a majority stake in Afrasia Bank, the fourth largest bank in Mauritius. This acquisition provides Access Bank entry into Mauritius’ renowned and robust financial services sector. The Angolan and Sierra Leonean acquisitions are part of a larger strategy to establish Access Bank’s presence in key markets across Africa. Access is also in the process of acquiring the Cameroon, Gambia, and Tanzania divisions of Standard Chartered Bank.

So What?

Access Bank has been on an acquisition spree over the past three years, focusing on expanding its footprint across Africa with the goal of becoming the “World's Most Respected African Bank.” Since 2021, the bank has gained or expanded its operational footprint in South Africa, Namibia, Angola, Tanzania, Zambia, and Sierra Leone. Once the rest of its Standard Chartered subsidiary acquisitions are completed, it will expand its presence in Cameroon and Tanzania.

While Access Bank’s acquisitions signal its Pan-African ambitions, they expose the bank to significant financing pressures as it uses a combination of equity and debt to finance these acquisitions. More important to the success of these acquisitions is the success of the continent. The bank is positioning itself as the “Bank for Africa,” with a desire to be the go-to bank for businesses operating within Africa. It is focusing on supporting small and medium enterprises (SMEs) and corporate clients in key African markets. It also has a retail goal of banking one hundred million unique customers across the continent. However, Access will have to find ways to mitigate the various macroeconomic challenges facing Africa. The recent rise in global inflation rates and the devaluation of the currency in its home market pose significant challenges. Moreover, the current low levels of intra-African trade mean that for Access to profit from trade within the continent, it will need to go beyond just financing and actively support market creation.

Access Bank has been ambitious from its inception. This new acquisition phase is part of a longer-term strategy for not just African but international expansion. However, that international future is rooted in the effective execution of its African strategy.

Learn Finance

Unemployment Rate in Nigeria – The Numbers vs. Reality

Nigeria’s unemployment rate currently stands at 5.3%. You might wonder how this figure is calculated and why it feels disconnected from the daily realities faced by many Nigerians. The unemployment rate, as calculated by the Nigerian Bureau of Statistics (NBS), is one of the most critical economic indicators. It assesses the health of an economy and the productivity of its labor market.

In 2022, the NBS revised its unemployment calculation methodology to align with international standards set by the International Labour Organization (ILO). Under this updated approach, individuals who engaged in any economic activity for at least one hour during the reference week are now classified as employed. This marks a departure from the previous threshold of 20 hours, broadening the scope of what qualifies as employment.

Additionally, unemployment is now defined more rigorously, focusing on individuals who did not work at all, were available for work, and actively sought employment. The revisions also refine the measurement of underemployment to include time-related underemployment (working less than 40 hours per week while being willing and available for more) and inadequately employed workers.

While these changes improve the comparability of Nigeria’s unemployment rate with international standards, they have drastically lowered the reported figures. For instance, the unemployment rate dropped to 5.3% in Q4 2022, a stark contrast to the 33.3% recorded in 2021 under the previous methodology. This dramatic shift has drawn skepticism, as the numbers seem disconnected from the lived experiences of many Nigerians.

A significant issue lies in the nature of Nigeria’s informal economy. A large portion of the workforce is engaged in informal or part-time jobs, such as street vending or gig work. While these jobs technically qualify as employment under the new criteria, they often provide irregular hours, low pay, and no benefits. As a result, the new classification fails to reflect the economic precarity many Nigerians face.

Similarly, the prevalence of “survival jobs” clouds the picture. For example, university graduates selling petty goods or working in roles far below their qualifications are counted as employed, but this does not reflect meaningful utilization of their skills or contributions to the economy.

Regional disparities further complicate the narrative. The national unemployment rate masks sharp contrasts between regions. Northern states, for instance, often experience higher unemployment due to security and economic challenges, while southern regions may fare relatively better. Underemployment also remains a pervasive issue, with many Nigerians working long hours in roles that fail to provide adequate income or stability.

The revised NBS methodology provides a more standardized view of labor dynamics, aligning Nigeria with global practices. However, it does not fully capture the realities on the ground—realities shaped by an informal economy, widespread underemployment, and regional economic disparities.

To truly assess the health of Nigeria’s labor market, it is essential to complement unemployment statistics with measures of job quality, living standards, and income stability. Only by addressing these gaps can we develop a more accurate understanding of the challenges facing Nigeria’s workforce—and design policies to create meaningful, sustainable employment opportunities.

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