Nigeria’s Imports Spending to Decline – Report
Nigeria’s total imports would decline by 6.7% in 2023 following the devaluation of the naira devaluation and an expectation that Dangote Cement would begin to release output to the market in the latter part of the year.
In its macroeconomic report on Nigeria, Fitch Solutions said when the naira was devalued by almost 50% in 2016, imports declined by 10.4% in that year, informing projection that imports will fall by 6.7% in 2023.
The report said Nigeria would experience some relief as the nation’s net exports will improve starting from the current year. Import has been a major drain on external reserves which settled below $34 billion on Friday.
Inflows have been under pressure as a result of low oil production volume, below 1.88 million barrel per day standard quota for Nigeria before recent voluntary cuts by members of the oil cartels. The research report said crude production in Nigeria will increase by 7.0% this year – following a three-year contraction – as security agreements and wider efforts to reduce theft pay off, increasing Nigeria’s export potential.
In the first half of 2023, crude output rose by 3.3% year on year to an average of 1.3 million barrels per day, according to a research report reviewed by MarketForces Africa.
“While we believe that liquids production will moderate somewhat compared to the first half of 2023 output, the year-on-year growth figure will remain positive due to favourable base effects”, the report added. Nigeria relies heavily on revenue from hydrocarbon to support its fiscal position and drive economic growth. Over the years, growth level achieved depends solely on the performance of the global oil market.
“Hydrocarbons account for roughly 90% of Nigeria’s total exports, which will improve the country’s external trade outlook in the second half of 2023”, the report said. For the rest of the year, analysts at Fitch Solutions said they expect a substantial contraction in imports as a result of weak domestic consumption.
“Rapidly rising inflation on the back of the fuel subsidy removal and the liberalisation of the exchange rate will reduce demand for imported consumer products and capital items over the second half of the year.” The research report noted that when the naira was devalued by almost 50% in 2016, imports declined by 10.4% in that year, informing projections that imports will fall by 6.7% in 2023.
Given the improvement in Nigeria’s trade balance, Fitch Solutions forecast that net exports will add 4.9 percentage points to overall gross domestic product (GDP) growth this year, well above the 2015-2019 average of 1.5 percentage points.
Mixed Outlook For 2024
The firm also forecasts that economic growth will accelerate modestly to 3.2% in 2024. It said the removal of the fuel subsidy and the devaluation of the exchange rate will keep consumer price growth elevated, particularly in the first half of 2024. It expects average inflation of 23.4% in 2024, continuing to put pressure on purchasing power, adding that a weak domestic consumption and the start-up of the Dangote refinery will ensure that import growth remains in contractionary territory.
Oil and gas analysts said they expect production at the new refinery to start in the fourth quarter of the year, reducing the need for imported fuel which is Nigeria’s largest import product from 2024.
“With oil production expanding in 2024 on a more secure and rehabilitated midstream network, exports will continue to outpace imports, providing tailwinds to growth”. Looking beyond 2024, the firm believes that economic reforms and the start-up of the Dangote refinery will improve economic conditions.
“A more liberal exchange rate regime and a lower dependence on imported fuel will ease foreign currency shortages, improve business sentiment, and result in a gradual return of international investors to Nigeria.
“This will lead to stronger fixed capital formation and more employment opportunities, supporting private consumption. In addition, improving public finances should allow the government to increase expenditure on growth-generating investment projects”, the report said. #Nigeria’s Imports Spending to Decline – Report
