Morgan Stanley: Subsidy Removal and Exchange Rate Unification Could Ignite Nigeria’s Economic Growth

Morgan Stanley, a prominent player in the global investment banking arena, recently highlighted the potential for economic growth in Nigeria under President Bola Tinubu’s policies, as outlined in the article “Investment Outlook: Nigeria’s New Dawn” on the multinational investment banking firm’s website. The report emphasizes the transformative impact of Tinubu’s decision to end fuel subsidies and unify the naira’s exchange rate.

According to Morgan Stanley, the interventionist policies of the previous administration, particularly under President Muhammadu Buhari, such as maintaining multiple foreign exchange rates and fuel subsidies, created economic bottlenecks and impeded the private sector’s growth. Despite Nigeria’s status as one of the world’s fastest-growing economies from 2001 to 2014, the nation experienced an average growth of only 1.4% over the past eight years, despite a 2.8% increase in the working-age population.

Morgan Stanley suggests that the removal of fuel subsidies, which amounted to a staggering $10 billion in 2022 and disproportionately benefited only 3% of the poorest 40% of Nigerians, could reignite Nigeria’s growth in the next two to three years. Additionally, President Tinubu’s move to unify the country’s exchange rate is expected to reverse the 60% decline in foreign direct investment witnessed under the previous administration.

The report underscores Tinubu’s commitment to driving economic growth through private investment, foreseeing a potential surge in incomes. Coupled with Nigeria’s youthful and rapidly expanding population, this could give rise to a new consumer class and various investment opportunities.

Morgan Stanley identifies the mobile banking and consumer segments as particularly promising for investors eyeing the Nigerian market. Despite mobile data penetration and usage levels being one-tenth of South Africa’s, there is significant potential for growth in telecommunications-led mobile-money services. With around 55% of the adult population lacking a bank account and only 10% having a mobile money account, increasing penetration levels could enhance financial inclusion and attract investments, especially in telecom operators.

Moreover, the report suggests that investable opportunities will likely emerge in various consumer segments as households experience increased income under the current administration’s policies. If President Tinubu’s strategies succeed, the consumer goods market in Nigeria could witness a remarkable 150% growth from an estimated $240 billion in 2023 to approximately $603 billion in 2030. This opens up investment avenues in sectors such as packaged food and beverages, household and personal care products, education, healthcare, as well as durable goods like appliances and transportation.

Morgan Stanley provides additional insights into the untapped opportunities in Nigeria’s export of services. The 125 million English-speaking Nigerians form a strong foundation for successful service-export industries. The report specifically highlights the music and film industries as potential areas for service exports, citing Nigeria’s dominance in the “Afrobeats” genre and the prolific output of its film industry, known as “Nollywood.” By 2030, these industries, largely driven by Nigerian productions, could be worth $20 billion, creating 20 million jobs.

In summary, Morgan Stanley anticipates that Nigeria, under President Tinubu’s administration, could experience a significant economic upturn in the next two to three years, provided the current policies successfully reverse the adverse effects of past administrations and stimulate sustainable growth across various sectors.