‘Nigeria’s macroeconomic outlook remains tough’

Nigeria’s macroeconomic outlook remains tough and companies and governments may continue to face low financial performance.

In its latest macroeconomic review, analysts at FSDH Capital said while Nigeria’s Gross Domestic Products (GDP) growth has remained strong in 2022, driven mainly by the non-oil sector, the country will continue to face structural fiscal and monetary challenges.

The report outlined that national growth in recent period has been driven by improved consumer spending in the service sectors with sub-sectors such as trade, transport, finance and information and communication technology (ICT) playing key roles in driving growth, although their impact on quality job creation and living standards are unclear.

According to the report, developments in the oil sector show that Nigeria’s oil production dropped to 1.1 million barrels per day in August 2022 from 1.2mbpd in June, according to OPEC. This lower oil production is not only affecting government revenue but also GDP growth as the oil sector has been in recession since the third quarter of 2020.

The report noted that with the recent efforts by the government to curtail oil theft and illegal bunkering, official oil output figures are expected to improve marginally, although the revenue gains may be limited as oil prices trend downwards.

“Beyond oil theft, petrol subsidy is massively draining the government’s financials. The government had planned to remove subsidies in 2022 but this was suspended due to rising inflation and worsening economic conditions. Given the fast-approaching 2023 general elections, this burden of subsidy will likely be passed on to a new administration as the chances to make critical reforms are slimmer in an election year. The implication of this is more borrowing to finance recurrent expenditure and subsidy payments given the slow growth in revenue.

“Structural problems are not giving way anytime soon in Nigeria. Inadequate infrastructure, poor power supply, limited access to affordable finance are common problems faced by businesses, resulting in a less competitive business environment. In addition to these problems, insecurity and foreign exchange challenges are prevalent and are largely responsible for the upward trending inflation rate, which exceeded 20 per cent in August 2022. The extent to which the economy can grow rapidly and become inclusive relies a lot on the government’s ability to address these problems going forward,” the report stated.

Analysts pointed out that that the proposed 2023 budget does not present any significant hope to the myriad of challenges facing the country noting that with debt servicing gulping about one-third of the total expenditure, the figure will likely be higher at the end of 2023 when actual figures are released for several reasons.

“First, interest rates are trending upwards. Second, revenue will likely underperform leading to more borrowing to cover the gap. Thus, only about a quarter of total expenditure will be spent on capital projects in 2023. Already, figures from the budget office show that debt servicing exceeded revenue by 19% in the first four months of 2022. This trend is expected to continue in coming quarters,” FSDH Capital stated.