Nigerian growth grinds to a halt in 2021

Despite a bump in oil prices the Nigerian economy is stagnating, with vaccine rates, insecurity and upcoming elections all dragging on current and future growth.



Nigeria’s growth came to a near standstill in the last quarter of 2021, dimming hopes that Africa’s most populous country will make a swift recovery from Covid-19.

Capital Economics, a London-based economic research firm, built a model which suggests that growth slowed dramatically in the fourth quarter after decreasing from 5% in Q2 to 4% in Q3.

The firm said that “hard activity indicators” like imports and oil production paint a “much less rosy” picture of Nigerian growth than other economic analysis has suggested.

Oil production in Nigeria’s laggard sector fell from 1.38mn bpd in November to 1.34mn bdp in December, despite a gradual increase in the country’s OPEC+ quota.

“Over Q4 as a whole, the oil sector was probably a drag on headline growth in quarter-on-quarter terms,” said Virag Foriz, emerging markets economist at Capital Economics.

Imports also dropped sharply in December, according to Capital Economics’ model which uses data from Nigeria’s three largest import partners rather than national statistics.

In fact, imports decreased at the fastest pace seen since July 2020, as Nigeria’s late 2021 Omicron wave and foreign exchange issues weighed on the demand for imported goods.

Holding a below-consensus view, Capital Economics predicts that Nigeria’s GDP will grow by just 2.3% in 2022.

Against this backdrop, “the central bank is likely to refrain from tightening monetary policy over the coming months,” it said.

IMF predictions

The IMF projects growth of 2.7% this year as the Nigerian economy gradually rises to its feet based on the rise in oil prices and government support.

Other positives include a decline 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 land borders closed during the pandemic.

“After registering a historic deficit in 2021, the current account improved in 2021 and gross FX reserves have improved, supported by the IMF’s SDR allocation and Eurobond placements in September 2021,” the global lender said.

However, the IMF added that low levels of immunisation in Nigeria will hold back growth.

Only 2.75% of Nigeria’s 215 million population are fully vaccinated, according to the African Centers for Disease Control and Prevention (Africa CDC). The 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 higher security spending aimed at countering armed bandits and jihadists in many areas of the vast country.

The IMF said that Nigeria’s 7.5% consolidated government revenue to GDP ratio remains among the lowest in the world.

“Higher debt service to government revenues (through higher US interest rates and/or increased borrowing) pose risks for fiscal sustainability. A worsening of violence and insecurity could also derail the recovery,” it said.

Looking ahead: Oil and elections

Looking ahead to 2022, in the run-up to elections in February 2023 uncertainty over policy shifts by a new administration will run high as President Muhummadu Buhari steps down.

Economic activity is expected to soften in the quarter preceding the elections as investors adopt a wait-and-see approach. Activity is expected to remain muted in the two quarters following the election due to the transition from one administration to the next, says Yvonne Mhango, an economist for Sub-Saharan Africa at Renaissance Capital.

“In Nigeria’s case, 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 put together a full cabinet.”

In January, some candidates began to express their intention to run for the presidency with the most notable so far being Bola Ahmed Tinubu, the national leader of the ruling All Progressives
Congress (APC).

Tinubu, a Muslim from the south-west region, was governor of Lagos State in 1999-2007 where he gained repute 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, and track record as governor in Nigeria’s wealthiest state lead us to
believe that he may be more effective at delivering policy outcomes than his predecessor.
His tenure as governor of Lagos State suggests that he would promote investment into
education and transport infrastructure if he became president.”

As oil climbs to $80/bl the higher price provides a boost for Nigeria’s external sector, delivering limited GDP growth of 2.9%, mainly driven by the non-oil economy, says Mhango.

“The Dangote refinery is set to start producing in 2022, which should help boost manufacturing activity. However, uncertainty in the oil sector implies a limited contribution from this sector to growth,” she says.

“The pickup of oil price is a big deal obviously for Nigeria,” says Charlie Robertson, chief economist at Renaissance Capital.

But how much does it help Nigeria’s exports? Based on Nigeria’s burgeoning 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 over 200 million people.”

“To be as rich as Botswana [with a population of 2.3 million], for example, we’d need to see the oil price at $400/bl, not at $88…we’re obviously not going to see that,” he said at a conference earlier this month.

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