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In the absence of significant reversals, the world might again be forced to rely on the US as the globe’s leading economic driver; a role it might be unwilling to play, depending on who ends up in the White House.
Barely a month into the new year, several unfolding events provide an inkling into what 2024 could hold in stock. Three West African coup-hit countries have withdrawn from ECOWAS, and a successful strike claimed the first American lives in the deteriorating Middle East crisis, with a major counter-response expected from the US; one that might provide sufficient deterrence or provoke a wider war. This article provides an insight into 2024 and its uncertainties.
The new year inherited two wars; the Russia-Ukraine war and the Israel-Hamas war. The former continues to fester, while the latter is threatening to grow into a wider conflict. Three US soldiers died and another 30 were injured from a drone strike in Jordan, with an Iran-backed group in Iraq claiming responsibility. The event marks the first direct hit to American soldiers’ lives in the Israel-Hamas war which is fast morphing into a regional, even global war. Expectedly, the US has promised a significant response, especially as the president comes under enormous pressure in an election year. What target is chosen (a navel facility or an oil well) could quickly impact key commodities markets and/or affect maritime trade. More so, whether the response provides sufficient deterrence to Iran and its proxies or triggers a deadly tit-for-tat remains to be seen. Beyond the crisis in the Middle East, the Russia-Ukraine war is at a critical stage as Ukraine faces a funding shortage and US officials warn that Russia could be close to victory if emergency funding is not released. What a Russian victory could mean for Ukraine, for Europe’s safety, and for global stability remains to be seen.
Beyond the geopolitical landscape, the global economy faces serious challenges. Admittedly, the global economy ended 2023 on a relatively positive note, with reduced inflation and unrealized recession predictions. In the US, the Fed’s relentless interest rate hikes drove the annual inflation rate from 6.5% in December 2022 to 3.4% in December 2023, a 47% decline in twelve months. Similarly, the European Central Bank's (ECB’s) tight monetary policy drove the average EU inflation rate from 9.2% in December 2022 to 3.4% in 2023. While the figures remain above both banks’ 2% inflation target, the rapid decline was a key positive for 2023 and a major boon for the economic environment in 2024.
However, the continued stagnation and/or suboptimal performance of key global economic drivers pose serious threats to near-term economic recovery, especially in 2024. Germany, Europe’s largest economy, has faced repeated economic slowdowns in the past two years. Declining purchasing power, a fiscal crisis, tighter monetary policy by the ECB, and the continued impact of the Russian energy shock in 2022 have impacted the country and the larger European economy. Similarly, China, Asia’s largest economy and the world’s second-largest, continues to limp. A combination of chronic unemployment, a real estate bubble crisis, and a strained relationship with the West has severely impacted the country’s economy, with spillover effects on Asia and commodity-exporting economies in Africa and Latin America. Thus, in the absence of significant reversals (which remain doubtful in the short term), the world might again be forced to rely on the US as the globe’s leading economic driver; a role it might be unwilling to play, depending on who ends up in the White House.
The Nigerian economy continues to suffer significant challenges, with the Naira declining by nearly 31% in less than two days and inflation estimated at 28.92%. The latest devaluation stems from the FMDQ’s review of the methodology for determining rates on the official window. However, the steep decline echoes continued doubt over the impact of the apex bank’s exchange rate reforms as it struggles to attract hard currencies into the economy. While the decline is a cause for concern, it is one of a plethora of key challenges facing the Nigerian state, including worsening insecurity in different parts of the country and tepid investor interest. Whether a delayed impact of key policy reforms will be seen in 2024 is an open question.
At the continental level, key uncertainties remain. The coup pandemic that hit West and Central Africa remains a threat, with the latest coup attempt reported in Sierra Leone less than two months ago. ECOWAS’ and the African Union’s indecision combined with a viable lifeline offered by Russia and the Wagner Group is setting the stage for more coup attempts in the new year, with negative consequences for the region’s risk profile and investor interest. In addition to coups, the region continues to suffer from ongoing civil wars (in Sudan and DR Congo), cross-border terrorism, and a brewing conflict over Ethiopia’s recognition of Somaliland. The latter risks spreading into a regional war in the Horn of Africa. Finally, the region remains susceptible to non-kinetic risks, especially climate disasters such as draughts and floods which are expected to increase in both frequency and impact.
Short answer? It depends. On the global stage, key events remain fluid. America’s expected strike in the coming days could send a clear message of deterrence or trigger a wider conflict. Germany’s and China’s ability to weather the current economic crisis could play an important role in supporting or weighing down the global economy. Locally, the new administration’s success in attracting ample investment will play an important role in reversing the current gloomy outlook, supporting the currency, and improving key macroeconomic metrics.
Either way, the new administration’s bold reforms already set the stage for insightful investors to harness some of the opportunities present in the country notwithstanding the aforementioned challenges. The deregulation of the downstream petroleum sector as well as the completion of the Dangote refinery are expected to spur significant activities in the oil trading and supplies niche. Furthermore, the recent focus on non-oil sectors in the blue economy and mining has also opened up opportunities for sizable investments in fisheries, shipbuilding, the mining value chain, and more. In conclusion, 2024 is likely to be challenging. Nonetheless, discerning investors could harness key opportunities in sectors with significant tailwinds.
The Kwakol Research team could provide invaluable insights into key opportunities in Nigeria and Africa. Reach out to us today.
Ethiopia sees unfettered access to the ocean as critical to its continued economic growth. In exchange for a piece of the disputed Somaliland’s coast, it has expressed willingness to recognize Somaliland, a move that’s likely to trigger a conflict with Somalia and other countries in the Horn of Africa region. We’re closely watching as the events unfold.
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