According to a research analyzed by journalists, economists have drawn another bleak image of the Nigerian economy, and their prediction isolates six variables that are adding problems on already troubled firms and people.
For starters, they predicted that Africa’s largest economy, which has yet to recover from the devastation inflicted by two economic contractions in the last five years, will experience further slowdown , with the next batch of GDP data expected to fall below population growth levels.
Nigeria’s real GDP grew by 3.4 percent in 2021, but the forecast for the entire economy in 2022 is bleak, with agriculture, the single largest contributor to GDP, and oil and gas, as well as industry, facing challenges.
In a March 23 analysis, the Economist Intelligence Unit (EIU) predicted that Nigeria’s economic growth will decline more than projected in 2022 due to power supply concerns, high inflation, and expected monetary tightening.
The EIU now predicts real GDP growth to decline to 3% in 2022, down from a February prediction of 3.3 percent. With growth predictions of 2.5 percent and 2.7 percent, respectively, the World Bank and the International Monetary Fund (IMF) are less optimistic, both lower than the country’s population growth rate.
Recent warnings from the telecom sector, which has fueled growth for the past three years, signal that the sector is also being pressured, which will be another hit to GDP growth in 2022.
A second area of worry for the economy is the paradox of a failure to benefit from the spike in global oil prices and supply shortages.
Africa’s top crude producer has failed to take advantage of oil prices that have been trading at an eight-year high as it has been battling to ramp up output to reach its full OPEC+ quota due to persistent production troubles.
Energy exporting countries across the world are reaping a sudden windfall but not for Nigeria, which for the first time is seeing significant pressures on both foreign exchange supply and public revenues at a time of rising oil prices.
In the fourth quarter of 2021, Saudi Arabia’s oil and gas sector expanded by 10.9 percent, according to the country’s General Authority for Statistics. Nigeria’s oil and gas sector, on the other hand, contracted by 8.1 percent in the same period.
Not surprisingly, while Saudi Aramco declared a 124 percent increase in operating profit to $110 billion, the Nigerian National Petroleum Corporation declared only $700 million in 2020.
The report said Nigeria’s oil and gas sector is hobbled by low crude production amid a scandalous level of crude oil theft, dwindling investment, high cost of production and the debilitating effect of a petrol subsidy regime that has spiraled out of control.
The third strong wind pulling down the Nigerian economy, according to the report, is the worsening external position exacerbated by falling foreign investment.
In 2021, Nigeria’s trade deficit ballooned to N1.94 trillion, according to the National Bureau of Statistics.
Foreign direct investment for the whole year fell to the lowest on record at $698.78 million, according to data from the Central Bank of Nigeria, due to the perceived harsh business environment.
Fourthly, the Nigerian economy is confronted by falling foreign reserves despite rising oil prices, which reached a peak of $139.4 per barrel on March 8, 2022. While the issuance of Eurobonds and support by the IMF helped to shore up the reserves for some time, the impact of that is now fading, according to the economists and data from multilateral agencies.
The report identified the fifth wind blowing against the Nigerian economy to include persistent fiscal pressures rising, with the continuous decoupling of revenues from high oil prices amid soaring public debt.
Nigeria’s public debt rose by 4.2 percent to N39.6 trillion as at the end of 2021 from N38 trillion in the third quarter of 2021. Total debt saw an increase of 20.4 percent in the whole of 2021 and so far this year, Nigeria has borrowed more by way of a Eurobond of $1.25bn and another N296.37 billion in local debt via FGN bond issuance in March 2022.
On a granular level, the net effect for the average Nigerian is that he or she is getting poorer, buffeted by rising inflationary pressures and worsening disposable income for each household in Africa’s most populous nation.
In US dollar terms, real per capita income for the average Nigerian collapsed from $889.82 in 2020 to $775.76 in 2021, a fall of 13 per cent in just one year.
Nigeria’s poverty count (Nigerians who cannot afford N450 a day) has shot up from 85.2 million in 2020 to 90 million in 2021 and is now projected by the World Bank to rise further to 95.1 million this year, despite claims by the government that it is working to cut the number of Nigerians falling into the poverty pit.
At an ongoing investment expo in Dubai, potential investors were expressing worry about Nigeria’s worsening macroeconomic instability symbolised by FX and market volatility and other issues, including security challenges, high operating cost, regulatory insensitivity, and the worrying collapse in public power supply.
The economists concluded their report by saying that Nigeria’s business environment “is highly volatile and is
The number of Nigerians living in poverty has risen from 85.2 million in 2020 to 90 million in 2021, according to the World Bank, and is expected to grow to 95.1 million this year, despite government claims that it is striving to reduce the number of people living in poverty.
Potential investors expressed concern about Nigeria’s worsening macroeconomic instability, symbolized by FX and market volatility, as well as other issues such as security challenges, high operating costs, regulatory insensitivity, and the worrying collapse in public power supply, at an ongoing investment expo in Dubai.
Nigeria’s business environment “is very turbulent and faces a unique set of challenges,” the economists stated in their research.
The economists counselled businesses pummelled by these forces to seek mitigation in cost efficiency, focus on their customers, improve their marketing and to focus on their core competence.
