According to a Fitch Ratings assessment, Nigeria’s gross domestic product (GDP) would be $474 billion at the end of 2022. According to World Bank data, the country’s GDP in 2014 was $574 billion.
However, Africa’s largest economy shrank dramatically during the year to $477 billion by the end of 2022, according to World Bank statistics — a figure that is $3 billion more than the Fitch Ratings forecast. Analysts have emphasized that the prospects for economic development are dependent on oil.
For an economy that relies heavily on imports to feed its expanding population, the magnitude of foreign exchange revenues from crude oil exports has always had a direct influence on the rate of expansion.
Nigeria had planned to join the 20 largest economies in the World by targeting a $900 billion GDP size by 2020, according to details from its Vision 202:2020 document reviewed by MarketForces Africa. World Bank data showed that the economy was under pressure over the last 8 years under former president, Muhammadu Buhari. Still among the top investment destinations due to the country’s strong economic fundamentals that provide the growth-starved economy with some unfair advantage. However, policy misnomers triggered macroeconomic pressures that kept foreign investors on the side.
Fitch said investors started to expand their investment universe beyond traditional emerging markets more aggressively over a decade ago, as they sought opportunities to boost returns and diversify portfolios. Back then, frontier markets (particularly in Africa) were in vogue, as debt-relief programs freed resources for increased investment to support growth of local economies; though much of this investment came from cash-rich emerging markets, such as China.
According to a Fitch Report, substantial natural resources were discovered in several African countries, highlighting Africa’s mineral potential. Nigeria’s ‘B’ rating with a stable outlook is supported by a favourable public debt/GDP ratio, a large economy, a developed and liquid domestic debt market, and large oil and gas reserves, according to the rating agency.
The firm however noted that the country’s rating is constrained by weak governance, security challenges, high inflation, structurally very low non-oil revenue, high hydrocarbon dependence, and weakness in the exchange-rate framework.
It said the new government’s quicker-than-expected removal of the fuel subsidy and unification of the exchange rate are positive developments for Nigeria’s credit profile.
Oil production has also picked up from last year’s lows and we think the domestic debt market has sufficient capacity to compensate for severely constrained access to Eurobond financing. However, higher debt servicing costs, and inflationary constraints to continuing deficit monetization present risks to public finances.
Nigeria is the largest economy in Africa, with a GDP of USD474 billion in 2022, Fitch said adding that the nation has large oil and gas reserves, as well as strong untapped potential in agriculture and solid minerals. Nigeria has a developed and liquid domestic debt market that supports the sovereign’s financing flexibility. General Government debt, at 35% of GDP at end-2022, is well below the ‘B’ median of 59%.
Dependence on the hydrocarbon sector is high, with oil and gas revenue accounting for around 42% of general government revenue and 55% of current account receipts on average a year over the past five years. The general government revenue-to-GDP ratio is the lowest among Fitch-rated sovereigns, partly reflecting structurally weak non-oil government revenue mobilization.
This translates into high debt/revenue and interest payment/revenue ratios and weakens debt sustainability. Security challenges from terrorism, banditry and communal violence cause repeated disruptions to economic activity.
Inflation is well above peers’, with a three-year average of 18.5%, versus a historical ‘B’ category median of 5.5%. Nigeria’s economic prospects in 2023 remain centred around the oil price and the currency position except that a large part of its oil export has been swapped for loans.
