Nigeria to Remain Underperformer as SSA Reforms Slowdown
The worsening headline inflation rate in Nigeria, according to analysts remains a downside risk to foreign exchange (FX) rate adjustment among other much-needed reforms necessary to drive momentum.
Pre-election projections show that Africa’s largest economy will remain an underperformer in nurturing, and continuing existing reforms in the Sub-Saharan economic bloc in 2022, according to Fitch Solutions.
As election activities begin gaining momentum, political plays are already taking centre stage in the run-off to the final election year, though the month of August will host two other Africa countries’ elections.
But policy analysts told MarketForces Africa that Nigeria’s election is of interest to large numbers of countries on account of its size, and strategic position in the larger scheme.
Though Nigeria has seen gross domestic (GDP) growth popping, however, there was a slowdown in the first quarter of 2022, according to data from the National Bureau of Statistics (NBS).
Inflation and exchange rates continue to worsen while the unemployment rate remains elevated with stagflation risks hanging on the economic direction. Though still in recovery mode, private sector performance has stayed below the pre-pandemic period.
In their separate financial statements submitted to the regulators, corporate sales revenues appear to be on uptrend across the fast-moving consumers’ goods sector in absolute terms. But a breakdown shows that the growth has been supported by upward price adjustments to the extent that is allowed in the market rather than volume growth.
On reform, Fitch Solutions said, “We have held Nigeria’s score at 3.0 in the second quarter of 2022. We believe that despite a widening budget deficit, the removal of expensive fuel subsidies – which will cost 39.5% of budgeted revenue in 2022 – is looking unlikely.”
Moreover, analysts explained that ahead of the February 2023 general elections, they expect policymaking will slow sharply, as the key political leaders are likely to shift their focus to campaigning.
Any movement by the Central Bank of Nigeria (CBN) toward a fully floating exchange rate is unlikely, and Fitch Solutions said it expects the CBN to continue to intervene to support the naira near its current level, rather than letting the unit depreciate to its market-determined rate.
The firm expects progress on reforms in the largest Sub-Saharan African (SSA) markets to remain slow, after limited progress in the second quarter of 2022. READ: Treasury Bills Yield Slowdown as FX Spread Hits 36%
“While we have revised up the SSA regional reform score by 0.2 points, to 4.2 out of 10.0 in Q2 – on account of a series of investment, labour and financial reforms in South Africa – this is below the 2020-2021 average of 4.7”. According to the report, a higher score indicates stronger reform progress.
With general elections approaching in Angola and Kenya in August 2022 and Nigeria in February 2023, policymaking and reform progress are likely to remain slow over the coming months.
Moreover, economic headwinds stemming from Russia’s invasion of Ukraine and China’s zero-Covid policy will continue to feed through into elevated inflation across SSA, limiting the appetite for unpopular reforms, such as the removal of costly subsidies, over the short term. #Nigeria to Remain Underperformer as SSA Reforms Slowdown
