Africa’s largest economy by area, Nigeria could grow 4-5% in gross domestic product (GDP) if the government implements sweeping reforms under the new government, a study said. This forecast was in stark contrast to the recent slowdown in GDP growth. Statistics from the Bureau of Statistics for the first quarter showed growth slowing.
But market analysts believe the quality of Nigeria’s new president Bola Tinub’s economic policies and decisions could push the country’s gross domestic product (GDP) growth trajectory to as high as 5%. The Nigerian economy will grow by 3.4% in 2021, a record growth due to the impact of COVID-19. After just one year, Nigeria’s growth slowed to 3% and failed to sustain momentum.
In its May Monetary Policy Committee communiqué, the Central Bank of Nigeria said the available data and forecasts on key macroeconomic indicators for the Nigerian economy indicate that the economy is on a gradual recovery path through 2023 as old headwinds persist. He said he suggested staying.
Africa’s largest economy faces insecurity in food-producing regions. Soaring energy costs and rising debt service costs. Economic growth in 2023 is therefore expected to be 3.03 percent (CBN), 3.75 percent (FGN) and 3.29 percent (IMF). In a recent report by Fitch Solutions, experts expect Nigeria’s growth to slow again in 2023, falling from 3.1% in 2022 to 2.3% in 2023.
The firm said consensus forecasts have moved closer to its optimistic guidance in recent months, but remain more bearish than most analysts. The IMF expects 3.2% growth this year. However, Fitch Solutions explains three key factors that give it a bearish view in the short term.
Fuel shortages, payment issues and election-related disruptions impacted consumer spending in the first quarter of 2023, according to the National Bureau of Statistics. Fuel shortages have worsened in recent months amid plans to cut subsidies, creating long lines at petrol stations and forcing many businesses to cut back on operations.
In the first quarter, the private sector faced turmoil caused by the Central Bank of Nigeria’s decision to phase out existing 200 Nigerian, 500 Nigerian and 1.000 Nigerian notes. The situation across the country collapsed when Nigerians were asked to deposit their savings in banks or convert them into new currency.
“While the policy may prove beneficial over the long term by pulling more people into the formal banking system, shortages of new notes and problems with the country’s electronic payment infrastructure have disrupted commercial operations and prevented payments”.
Policymakers have already had to delay the demonetisation once, and the disruption lasted throughout Q1-2023. The period was also coloured by elections.
Citing historical records, Fitch analysts said they note that growth slowed markedly in Q1-2015 and Q1-2019 after the previous two elections. Analysts projected that private consumption will stagnate or even fall before recovering later in 2023. In its report, Fitch Solutions said private consumption will only grow by 2.4% in 2023, saying the oil sector will do very badly.
According to the report, crude oil production in Nigeria fell by 14.4% in 2022, the worst performance in over 30 years, driven by unplanned outages, security problems and the lagged effect of previous underinvestment. Fitch expects that the decline in production will slow to 4.6% in 2023 as the security situation improves and off-shore output is ramped up. However, analysts said lower oil prices will cut revenue and keep pressure on incomes.
“We expect that the drag from net exports will ease from 2.5 percentage points in 2022 to 1.9 percentage points in 2023… we think that investment spending will disappoint”, Fitch Solutions said.
Given low oil prices and uncertainty surrounding the election, analysts projected that public and private investment would weaken in 2023. In 2015, for example, the transition to a new president resulted in delays to government spending, which contributed to investment spending real growth slowing from 13.0% in 2014 to 0.3% in 2015.
The report added that investment will also be held back by moderating oil prices and concerns about the exchange rate. In 2024, however, analysts said they expect the economy to accelerate.
“We are more optimistic than the IMF about growth between 2024 and 2026. This is primarily because we think that oil production will slightly recover in 2024 and 2025 as offshore production increases.
“While output will remain low by historical standards, the year-on-year increase will remove a key drag on the economy and cause a brief acceleration in headline GDP growth.
“We stress that growth will remain weak compared with other emerging markets (EMs). Per capita GDP, which is important for raising living conditions, will remain essentially stagnant in real terms”.
“If the next president launches reforms to encourage trade and investment, boost capital spending, and put the fiscal position on a more stable footing, there is no structural reason why growth in Nigeria should not move to 4.0-5.0%”, Fitch Solutions said.
