Tinubu: Nigeria's Economy Estimated to Rise 5%
President Bola Tinubu

Tinubu: Nigeria’s Economy Estimated to Rise 5%

Nigeria, Africa’s largest economy by size, could see gross domestic product (GDP) growth of 4% to 5% should government carries out holistic reforms under the new administration, a research report suggests.

The expectation came in stark contrast to the recent sustained decline in GDP growth performance. In the first quarter, figures from the statistics office showed that growth weakened.

However, market analysts think the quality of economic policies and decisions made by Bola Tinubu, Nigeria’s new president could push the gross domestic product growth trajectory upward to 5%. 

In 2021, the Nigerian economy expanded by 3.4%, a record growth after covid-19 pressures. Just a year after, Nigeria could not sustain the momentum as growth declined to 3%.

In the monetary policy committee communique in May, the Central Bank of Nigeria said available data and forecasts for key macroeconomic indicators in the Nigerian economy, suggest that the economy will continue on a moderate recovery path through 2023 as legacy headwinds linger.

Africa’s largest economy faces insecurity in food producing areas; high cost of energy and rising cost of debt servicing. Accordingly, the economy is forecasted to grow in 2023 by 3.03 percent (CBN), 3.75 per cent (FGN), and 3.29 per cent (IMF)

In a recent report by Fitch Solutions, experts said they expect that growth in Nigeria will slow again in 2023, slipping from 3.1% in 2022 to 2.3% in 2023.

The firm said consensus expectations have converged towards its downbeat forecast in recent months, but this remains a more pessimistic outlook than most analysts.

The IMF, for example, expects growth of 3.2% in the current year. Fitch Solutions however explains three key factors that inform its downbeat short-term view.

According to National Bureau of Statistics data, fuel shortages, payment problems, and election-related disruptions impacted consumer spending in the first quarter of 2023.

Amidst plans to remove subsidies, fuel shortages had worsened in recent months, which has led to long lines at petrol stations and forced many businesses to reduce their operations.

In the first quarter, the private sector was confronted with disruptions caused by the Central Bank of Nigeria’s decision to demonetise the existing NGN200, NGN500 and NGN1,000 notes. Things fell apart across the country when Nigerians were asked to deposit their cash savings at a bank or exchange them for 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.

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