Nigeria’s projected growth which has been reversed downwards by the World Bank group points to the challenges posed by prevailing inflation, debt, low crude oil production, capital flight and unemployment.
These, coupled with internal issues caused by petrol subsidy removal, paints a bleak future as the weak economic performance could last longer than necessary.
The World Bank Group, in a recent report, reviewed downward Nigeria’s economic growth expectations for 2023, to 2.9 per cent.
This adjustment is attributed to the combination of lower international oil prices and currency pressures, which are affecting both the oil and non-oil sectors of the Nigerian economy.
Specifically, Nigeria has struggled to meet its OPEC+ quota due to capacity constraints and the impact of declining global oil prices. Additionally, the World Bank’s bi-annual publication suggests that non-oil activities, particularly in the industry and services sectors, will continue to provide support for the country’s economic growth.
However, it also highlights that short-term challenges may arise from policy actions such as the removal of fuel subsidies and the unification of exchange rates.
Examining Nigeria’s recent economic performance, the report indicates that the country saw a 2.5% year-on-year growth in the second quarter of 2023.
Although this represented a slight improvement from the previous quarter, it was notably lower than the 3.5% growth observed in the same quarter of 2022. Economic activities, as evidenced by the Purchasing Managers’ Index (PMI) data for August, remained weak, driven by waning business confidence and rising input costs.
Furthermore, the report highlights that Nigeria’s cash crunch issue, witnessed earlier in the year, began to ease as the central bank extended the deadline for exchanging old naira notes for new ones until the end of the year.
This extension supported economic activity, with a 3.6% year-on-year growth in the non-oil economy, particularly driven by the services sector. However, the underperformance of the oil sector continued to hold back overall economic growth, contracting by 13.4% year-on-year.
Taking a broader view of the sub-Saharan African (SSA) region, the World Bank paints a challenging outlook. It anticipates a slowdown in economic growth for the region, projecting a rate of 2.5% for 2023 compared to 3.6% in 2022.
Per capita growth in Sub-Saharan Africa has remained stagnant since 2015, and the region is expected to contract at an average annual rate of 0.1% per capita from 2015 to 2025. The Eastern and Southern Africa sub region is expected to grow at 1.9% in 2023, down from 3.5% in 2022, while the Western and Central Africa sub region is forecasted to achieve 3.3% growth in 2023, down from 3.8% in 2022.
Despite these challenges, the World Bank identifies “pockets of resilience” in the region. In 2023, the Eastern African community is expected to achieve a growth rate of 4.9%, and the West African Economic and Monetary Union (WAEMU) is projected to grow by 5.1%.
The report also notes that certain countries, such as Benin, Côte d’Ivoire, Ethiopia, Mauritius, Rwanda, and Uganda, have demonstrated economic resilience, with growth rates exceeding 2.5% both before and after the pandemic. However, concerns remain regarding the quality and sustainability of this growth in the future.
Looking ahead to 2024-2025, the World Bank projects an average economic growth rate of 3.7% for Nigeria. This anticipated growth will be driven by key sectors including services, trade, construction, manufacturing, and agriculture.
While oil production is expected to recover during this period, it is likely to remain below OPEC+ quotas. Additionally, with the ramp-up in production of a new refinery, fuel product imports are expected to decline.
Cowry Research opines that Nigeria should urgently diversify its economy by incentivizing private sector investments in agriculture, manufacturing, and technology to help mitigate the country’s heavy reliance on oil, which has proven vulnerable to global price fluctuations.
Also, fiscal reforms should be implemented to enhance revenue generation and rationalize subsidies gradually, while maintaining prudent budget management to ensure fiscal sustainability. In addition, exchange rate unification must be carefully managed to stabilize the currency and attract foreign investment.
Finally, improving infrastructure, maintaining a balanced monetary policy, and ensuring transparency and good governance practices are crucial components of a comprehensive strategy to foster economic growth and stability in Nigeria.
Meanwhile, Nigerian businesses also need to boost production and expand exports to enhance investments, and create new jobs.
As productions become more profitable through exports, they become rightly placed to offer higher remunerations, pay higher taxes and also help to bring more people into the tax net.
The salary growth extends above trading activities as it usually benefits workers across various sectors. When incomes eventually begin to rise, individuals will then have more liquidity to address more needs brought to bear by rising .
Export-led growth can also mitigate domestic inflation and play a key role in boosting investments, improving productivity and creating new jobs. When businesses earn foreign currency through exports, they reduce their reliance on the domestic market for revenue. In conclusion, the Nigerian government must reduce the cost of governance and support the private sector to create a more sustainable and prosperous economy for all Nigerians