February 21, 2023
Although 2022 started with a plethora of positive expectations due to the post Covid recovery, the year brought unexpected global economic disruption amidst existing economic challenges such as rising inflation rates. Specifically, the Russia- Ukraine war and its attendant supply chain disruptions led to a spike in oil prices rising above $100/barrel which put an upward pressure on inflation; hence, almost all economies reacted by tightening monetary policies to curb the rising inflation.
2023 still shoulders some of the burdens in 2022 and is set to face its ripple effects. With the ongoing Russia-Ukraine war, oil prices are expected to remain at a relatively high price above its peak in 2021. Although, this is supposed to be an advantage to Nigeria due to its status as the largest oil producer in Africa, the Nigerian oil sector has been plagued with pipeline vandalism and oil theft which have hampered the sector growth and also led to low oil productions. However, measures by the Federal Government to combat the pipeline vandalism and theft measures are expected to boost oil production levels in Q4 2023.
Furthermore, the commencement of the Port Harcourt Refinery by end of Q1 2023 and the Dangote Refinery by H2 2023 are expected to increase domestic processing of the crude oil thereby reducing demand for foreign exchange to purchase refined fuel products from abroad and help strengthen the naira against the dollar. Finally, the external reserves which continuously depleted in 2022 is also expected to grow marginally in H2 2023 as a result of the commencement of local refinery of the crude oil, proposed subsidy removal which will ensure that money spent on subsidy payment are either retained or invested, increase in oil production levels in Q4 2023, and the rising brain drain which is expected to increase foreign remittances.
On the growth of the economy, the economy is expected to slow down in 2023 as a result of the overarching domestic and global economic challenges and uncertainties. Continued high inflation rates way above the CBN’s benchmark target of 9% means that the MPR will remain high even if it reduces marginally in the second half when the high inflation rates are expected to taper off and start a gradual decline. The relative high cost of borrowing means investments by businesses will be hampered contributing to the slow down of economic growth. Furthermore, global uncertainties such as the end of the Russian-Ukraine war and economic performance of major trading partners such as China could hamper growth in the economy. Finally, from a sectoral perspective, the continued high performance of fast growing sectors such as the telecommunication and financial services sectors as well as key sectors that contribute more significantly to the GDP such as agriculture, trade and manufacturing will be critical in driving economic growth.
From a socio-economic impact perspective, the rising inflation rate has led to a negative impact on cost of living for citizens as the prices of goods and services have increased without a commensurate increase in wages whilst unemployment rate remains high. It is not surprising that Nigeria’s ranking has worsened in global socio-economic rankings such as the Human Development Index (HDI) with Nigeria currently ranking 163rd out of 191 countries in United Nations Development Programme (UNDP)’s HDI. Other pressures such as the foreign exchange fluctuations and scarcity still persists and the Naira is expected to see a devaluation in the official rate especially to help close the significant gap between the official and parallel exchange rates. The country is also expected to witness significantly increased migration of skilled workers which will lead to further brain drain thereby reducing the productivity of the workforce and contribute to the slowing down of economic growth.