Against all odds, Nigeria, the biggest economy in Africa recorded a growth in Gross Domestic Product in 2023. This has been described as a surprise by some economic analysts who now project higher growth in 2024, citing reasons for their optimism. BAMIDELE FAMOOFO writes.
Financial analysts have predicted that Nigeria’s economy will sustain its growth in 2024 though they could not agree on the level of increase the GDP will record at the end of the ongoing fiscal year.
The International Monetary Fund in its growth outlook for the most populous black nation in the world had said the economy would expand by 2.9 percent in 2024, but the Federal Government of Nigeria had a different view as it disclosed in its 2024 budget document that GDP growth would hit 3.76 percent.
President Bola Tinubu’s administration hopes to drive growth to 6.0 percent in 2025, targeting a $1 trillion economy.
Nigeria’s GDP growth seen in Q4 2023 represents the 13th consecutive quarter the country has recorded growth since Q3 2020 during the COVID-19 pandemic which caused a slowdown in economic activity.
This is contrary to the United Kingdom’s economy which slipped into a recession in the last quarter of 2023.
“Britain’s gross domestic product shrank by 0.3 percent in the last three months of 2023, after contracting 0.1 percent in the third quarter,’’ The Office for National Statistics recently disclosed.
The United Kingdom slipped into a technical recession in the second half of last year after its economy registered two consecutive quarters of negative economic growth.
In Sub-Saharan Africa, South Africa’s near-term growth remains constrained by lower commodity prices and structural limitations with Real GDP growth estimated at 0.6 percent in 2023, down from 0.8 percent projected in the previous year.
South Africa’s Statistics Office disclosed that growth is projected to average 1.6 percent between 2024 and 2026, supported by new energy projects and lower inflation.
Meanwhile, Nigeria’s economy posted a positive figure of 2.74 percent in 2023, reaching N76.68 trillion in real GDP value, exceeding market expectations for a slower growth momentum below the projected 2.5 percent.
“This surprising upside comes in the face of challenges such as a rising inflation rate, flattering unemployment numbers, and a mild economic slowdown. However, this acceleration represents the lowest in three years when compared to the 3.40% and 3.10% reported in 2021 and 2022, respectively,’’ Financial analysts at Cordros Research disclosed in a report.
The report further noted, “The year 2023 was marked by significant events impacting Nigeria’s economy, from the CBN’s cash crunch to the political landscape, demonstrating resilience despite challenges like the COVID-19 pandemic and ongoing security issues. While challenges persist, Nigeria’s economy has exhibited resilience and positive growth trends, with sectors like Services and Agriculture contributing significantly, and the non-oil sector playing a vital role in economic dynamics.’’
According to the latest publication by the National Bureau of Statistics on Nigeria’s growth, the economy recorded a year-on-year growth of 3.46 percent in real terms in the fourth quarter of 2023, amounting to N21.77 trillion.
Key Growth Drivers
The non-oil sector drove this expansion, marking the 13th consecutive quarter of positive growth and the strongest since 2021, with the non-oil sector remaining the major driver.
The non-oil sector grew by 3.07 percent in real terms in Q4 2023 and by 3.04 percent on an annual basis in 2023, compared to 4.84 percent in 2022. In real terms, the non-oil sector contributed 95.30 percent to the nation’s GDP in Q4 2023, lower than the share recorded in Q4 2022 (95.66%) and higher than Q3 2023 (94.52%).
Examining the drivers of this acceleration, the services, agriculture, and industry sectors contributed more to the aggregate value of the GDP in Q4 2023 compared to Q4 2022.
Notably, the services sector recorded a growth of 3.98 percent, contributing 56.55 percent to the aggregate GDP, primarily due to finance & insurance (+29.8%) and information & communication (+6.3%).
The Agriculture sector exhibited positive growth, expanding by 2.10 percent year on year, with crop production activities being the primary catalyst, constituting a significant 90.03 percent of the total nominal value in Q4 2023.
Meanwhile, the decline recorded in the Industry sector in the last quarter of 2022 stemmed through 2023, as this sector grew by 3.86 percent year on year.
Oil Sector Rebounds
For the oil sector, there was a sharp rebound by 12.1 percent, ending over three years of contraction, as production increased to 1.55 million barrels per day, from 1.34 million barrels a year earlier.
Growth also increased by 12.96 percent points compared to Q3 2023, which was –0.85 percent. The Oil sector contributed 4.70 percent to the total real GDP in Q4 2023, up from the figure recorded in the corresponding period of 2022 and down from the preceding quarter, where it contributed 4.34 percent and 5.48 percent, respectively.
“Higher investment inflows will improve economic growth and create more job opportunities in the country. As the employment level increases, so will consumers’ disposable income and the standard of living in the country”
On crude production, Nigeria recorded an average daily oil production of 1.55 million barrels per day (mbpd), higher than the daily average production of 1.34mbpd recorded in the same quarter of 2022 by 0.21mbpd and higher than the third quarter of 2023 production volume of 1.45 mbpd by 0.10mbpd.
A Positive Outlook
The Nigerian government is currently targeting a growth rate of about 3.76 percent in 2024 and 6.0 percent or more in the coming years, signaling cautious optimism from the current administration for the current year 2024 and beyond.
Looking ahead to 2024, there is an anticipation of higher real GDP growth than in 2023, with expectations of accelerated growth in the oil sector, aligned with the recovery in crude oil production. Additionally, the normalization and permeation of new government reforms and policies are expected to propel growth in the non-oil sector, particularly supported by the Services sector.
Johnson Chukwu, Group Managing Director, and his team of researchers at Cowry Asset Management Limited, predicted a 3.25 percent year-on-year real GDP growth in 2024, acknowledging positive momentum.
Experts at United Capital Plc said Nigeria’s economy is expected to recover in 2024, aligning with the IMF’s projection that the economy will grow by 2.9 percent.
“Looking ahead, we still envisage that the Nigerian economy will recover modestly in 2024, driven by a rebound in the oil sector and a slow but steady growth in the non-oil sector. We align with the International Monetary Fund’s (IMF) projection that Nigeria’s real GDP will increase modestly to 2.9% in 2024.’’
“In the oil sector, the economy may capitalise on envisaged favourable developments, fostering positive momentum in 2024. Anticipated increases in net exports are forecasted to serve as the primary growth catalyst. Expected improvement in security conditions in the Niger Delta and production from the Dangote Refinery is expected to drive up oil export volumes, thereby reducing a significant portion of fuel and chemical imports in 2024. Consequently, this shift is likely to result in a reduction in total goods and services imports and bolster the country’s trade surplus.
“Government reforms are expected to crystallize in 2024 with petrol subsidy removal projected to enable the Nigerian National Petroleum Corporation Limited (NNPCL) to settle its arrears and fully cover the government’s share of costs in Joint Venture (JV) operations, facilitating a gradual increase in oil production over time.
“In the non-oil sector, we expect sustained growth in the services and industrial sub-sectors. Consequently, we foresee the Financial Services, Manufacturing, and Information & Communication Technology (ICT) Sectors to advance as the current administration’s reforms crystalise.’’
Financial pundits at Commercio Partners, however, said, “Despite the reported growth rate in the GDP, the country exhibits signs of economic vulnerability, with the growth momentum declining by 0.36%. This challenging scenario is compounded by the simultaneous rise in inflation, soaring by 0.98% to reach 29.9%, and an increase in the unemployment rate by 0.8%, reaching 5%.’’
They believe that as the Central Bank of Nigeria approaches the upcoming Monetary Policy Committee meeting scheduled for this week, a critical decision looms regarding the interest rate.
“The committee must weigh the option of maintaining a bullish stance, risking the exacerbation of growing inflation and potential adverse effects on the economy, or adopting a more assertive approach to address inflation, potentially at the expense of immediate considerations for people’s welfare. Looking ahead, it remains to be seen how the CBN will navigate this dilemma. Furthermore, achieving the goal of elevating Nigeria to a trillion-dollar economy will require substantial efforts. Addressing the current economic challenges necessitates strategic planning, policy adjustments, and comprehensive measures to propel the nation toward its ambitious economic milestone.’’
Bismarck Rewane, Chief Executive Officer, Financial Derivatives Company Limited and his team share the sentiment of their counterparts at Commercio Partners on inflation.
FDC Ltd is of the opinion that rising inflation could impact economic growth negatively, noting, “Still, food production could inch up as the Federal Government intensifies its efforts to support food technology, partnering with key players in the food value chain. The crucial directive, though, is for the Federal Government to address the lingering issues stifling agricultural sector productivity.
“This means solving insecurity and providing the necessary infrastructure and facilities to reduce food wastage and ease the impact of seasonality on food production. Food accounts for over 56 percent of household consumption, and the longer prices stay elevated due to supply shortages, the more consumers rebalance their spending to suit the current economic climate. This means that consumption which accounts for over 60 percent of GDP will keep declining, dampening growth,’’ FDC said.
Nigeria’s January inflation reached 29.9 percent, the highest in 27 years, and averaged 24.52 percent in 2023. This was 5.75 percent higher than its average in 2022 (18.77%).
FDC has also advocated the need for the government to attract foreign capital to boost economic growth.
“Nigeria will bolster investors’ confidence and drive investment inflows into the country,’’ it said.
In the third quarter of 2023, Nigeria’s capital importation dropped by 43.55 percent from $1.16 billion recorded in the third quarter of 2022 to $654.65 million.
“Higher investment inflows will improve economic growth and create more job opportunities in the country. As the employment level increases, so will consumers’ disposable income and the standard of living in the country.’’
According to the data released by the National Bureau of Statistics, capital importation into Nigeria increased by 2.6 percent y/y to USD1.09 billion in Q4-23 (Q4-22: USD1.06 billion).
“Analyzing the breakdown, we highlight increases across foreign direct investments (+118.4% y/y to USD183.97 million) and portfolio investments (+8.6% y/y to USD309.76 million), amid a decline in other investments (-14.0% y/y to USD594.75 million).
“However, on an annual basis, capital importation declined for the fourth consecutive year, dipping by 26.7 percent to USD3.91 billion in 2023FY (2022FY: USD5.33 billion). We believe the persistent slowdown in capital importation reflects foreign investors’ lackluster interest in the country given the (1) lingering FX liquidity constraints, (2) uncompetitive domestic interest rates and (3) the adverse macroeconomic environment. We anticipate that foreign investors will adopt a cautious stance in the near term, closely monitoring the activities of the apex authorities in improving FX liquidity and ensuring sustainability.
“At the same time, we envisage an improvement in foreign participation over the medium term, to be driven by (1) the complete clearing of the FX backlog, (2) substantial inflows from foreign sources through multilateral borrowings or Eurobond issuances, and (3) meaningful intervention and support of forex liquidity by the CBN,’’ FDC said.
Business Climate Improves
In January 2024, business activities across Nigeria relatively increased, exemplified by the 3.42 percent uptick in the Stanbic IBTC PMI reading to 54.5 points from 52.7 points in December 2023. This increase, driven by robust new orders and output rates, marked the highest increase between 2023 and 2024.
Noteworthy was the substantial growth in new businesses.
Across all major sectors surveyed, improvements in output were evident despite exchange rate challenges and elevated transport and raw material costs.
Nevertheless, companies increased their new orders, leading to augmented inventories. Employment growth, however, remained restrained, with firms encountering difficulties in meeting wage obligations.
Despite the prevailing inflationary pressures, purchasing activity expanded, elevating business confidence to its highest level in 13 months.
The PMI index, a key metric of private sector performance, underscored a solid improvement in January, with an optimistic outlook for increased output in the foreseeable future. With the PMI remaining above the 50 expansionary benchmark, output levels are bound to increase, supporting economic growth.
