Nigeria’s growth all but stalled in the last quarter of 2021, dashing hopes that Africa‘s most populous country will recover quickly from Covid-19.
Capital Economics, a London-based economic research firm, has built a model that suggests growth slowed significantly in the fourth quarter after falling from 5% in Q2 to 4% in Q3.
The company said “hard activity indicators” like imports and oil production paint a “far less rosy” picture of Nigerian growth than other economic analyzes suggest.
Oil production in Nigeria’s lagging sector fell from 1.38 million bpd in November to 1.34 million bpd in December, despite a gradual increase in the country’s OPEC+ quota.
“Over the fourth quarter as a whole, the oil sector likely held back overall growth in quarterly terms,” said Virag Foriz, emerging markets economist at Capital Economics.
Imports also fell sharply in December, according to Capital Economics’ model which uses data from Nigeria’s top three import partners rather than national statistics.
In fact, imports declined at the fastest pace seen since July 2020, as Nigeria’s Omicron wave in late 2021 and currency issues weighed on demand for imported goods.
Taking the consensus into account, Capital Economics predicts that Nigeria’s GDP will only grow by 2.3% in 2022.
Against this backdrop, “the central bank should refrain from tightening monetary policy in the coming months,” he said.
The IMF predicts growth of 2.7% this year as Nigeria’s economy gradually recovers on the back of rising oil prices and government support.
Other positives include a drop in headline inflation from 18.2% year-on-year in March 2021 to 15.6% in December, boosted by a new harvest season and the opening of closed land borders during the pandemic.
“After recording a historic deficit in 2021, the current account improved in 2021 and gross foreign exchange reserves improved, supported by the allocation of IMF SDRs and Eurobond placements in September 2021” , said the global lender.
However, the IMF added that low immunization levels in Nigeria will hamper growth.
According to the Africa Centers for Disease Control and Prevention (Africa CDC), only 2.75% of Nigeria’s 215 million people are fully immunized. Authorities hope to vaccinate 26.6% of the population by January 2022.
The government’s budget deficit is also expected to widen in 2021 to 5.9% of GDP due to fuel subsidies and increased security spending aimed at countering armed bandits and jihadists in many parts of the vast country.
The IMF said Nigeria’s consolidated government revenue to GDP ratio of 7.5% remains among the lowest in the world.
“Increasing debt service relative to government revenues (through higher U.S. interest rates and/or increased borrowing) poses risks to fiscal sustainability. insecurity could also derail the recovery,” he said.
Future prospects: oil and elections
Looking ahead to 2022, with the February 2023 elections approaching, uncertainty about policy changes from a new administration will be high with the resignation of President Muhummadu Buhari.
Economic activity is expected to slow in the pre-election quarter as investors take a wait-and-see approach. Activity is expected to remain subdued in the two quarters following the election due to the transition from one administration to the next, says Yvonne Mhango, sub-Saharan Africa economist at Renaissance Capital.
“In the case of Nigeria, it takes several months to appoint a cabinet, as it must be representative of all 36 states. When Buhari won the presidential election in March 2015, it took him six months to assemble a full cabinet.
In January, some candidates began expressing their intention to run for president, the most notable so far being Bola Ahmed Tinubu, the national leader of the ruling All Progressives party.
Tinubu, a Muslim from the South West region, served as Governor of Lagos State from 1999 to 2007, where he rose to prominence as the ‘godfather of Lagos’ by leveraging his political capital in the city to influence regional and national affairs, says Mhango.
“His influence and wealth, along with his track record as governor of Nigeria’s wealthiest state, lead us to
thinks he is perhaps more effective than his predecessor in achieving political results.
His tenure as Governor of Lagos State suggests he would encourage investment in
education and transportation infrastructure if he becomes president.
As oil climbs to $80 a barrel, rising prices are giving a boost to Nigeria’s external sector, generating limited GDP growth of 2.9%, mainly driven by the non-oil economy, Mhango says.
“The Dangote refinery is expected to start production in 2H22, which should help boost manufacturing activity. However, the uncertainty in the oil sector implies a limited contribution from this sector to growth,” she says.
“The oil price recovery is obviously a big deal for Nigeria,” said Charlie Robertson, chief economist at Renaissance Capital.
But how much does this help Nigeria’s exports? Based on Nigeria’s booming population growth, the economic benefits will be limited, he adds.
“A country like Nigeria, yes, it has a lot of oil, but not when it’s divided by over 200 million people.”
“To be as rich as Botswana [with a population of 2.3 million]for example, we would need to see the oil price at $400/bl, not $88… obviously we’re not going to see that,” he told a conference earlier this month.