Nigeria’s Economy Will Expand in 2023 -Adedipe

Contrary to the 2.9 per cent growth projection of the World Bank for Nigeria for 2023, analysts are optimistic of a stronger growth for the country.

They however, noted that tackling the exchange rate crisis will be key step that would help consolidate the country’s growth prospect.

Economist and chief consultant of B. Adedipe Associates Limited (BAA Consult), Mr. Biodun Adedipe , saying, the economy would record growth of 3.25 and 3.32 per cent by the end of this year.

Adedipe said, his belief was that the Nigerian economy   would expand in 2023 whilst speaking at National Economic Outlook: Implications for Businesses in 2023,” organised by the Chartered Institute of Bankers of Nigeria(CIBN) Centre for Financial Studies in collaboration with B. Adedipe Associates Limited.

Basing his projection on the decrease in population growth and data gotten from the purchasing managers index (PMI) and other economic variables, he said: “for 2023, manufacturing will expand because the data available shows that in using purchasing managers index (PMI) that shows confidence within key sectors of the economy, point to the expansion of this economy between now and the next  six month the least.

“When the index is above 50, It means the economy is going to expand because it means orders have been placed at least six months ahead. PMI data also shows that in the last 25 months up to December 2022 points that the economy is expanding.

“So, when you look at the growth rate of the Nigerian economy vis-à-vis population growth rates which has dropped from 3.2 in the last 10 years to 2.55 it means that whatever anybody is saying about this economy, it is growing faster than the rate of growth of our population.

The latest World Bank reduced the projection for this year to 2.7 per cent. We said no we don’t agree with that because this is the basis.”

President and chairman of CIBN, Mr. Ken Opara, in his opening remarks, at the event, said: “looking at the year 2023, in as much as we are optimistic that better days lie ahead for Nigeria’s economy especially because it is the year that will usher in a new government and leadership structure in the nation, we need to gain insight into the impact of several economic indices to help us undertake a comprehensive assessment of the opportunities, challenges and indeed the threats that businesses may encounter during the current year.

“Every organisation needs to be fortified with adequate information to give them insights into what the New year holds. This will undoubtedly serve as a guide in making informed decisions critical to the growth of businesses and in reviewing strategic plans as the need may arise.

“As we look forward with great expectations and more growth in the banking industry and the economy generally, there will be a need to implement a comprehensive and system-driven economic agenda which requires a set of reforms that ensure a conducive and enabling environment for generating economic benefits and prosperity.”

Analysts at Access Pensions on their part, said the incoming government should focus on resolving the lingering foreign exchange crisis, amongst other issues.

They urged the Central Bank of Nigeria(CBN) to work more on improving foreign exchange inflow in the country. Analysts in their 2023 outlook, noted that, they expect the economy to grow by 3.5 per cent irrespective of the elections.

The analysts noted that, winner of the 2023 presidential elections will likely be facing a much higher oil price environment but will need to tackle a host of issues across insecurity, a growing debt burden, burdensome petrol subsidies and a broken exchange rate system. In between the election and transition, they expected economic activities to muddle through the year and see real GDP growth around at 3-3.5 per cent in 2023, flattered by a recovery in oil output from the depressed theft driven levels of 2022 and stabilisation in the non-oil sector.

Against this backdrop and clarity on the political scene after the elections, they thought the CBN could look to improve dollar supply within the official segment and tolerate some weakening in the IE window exchange rate towards levels north of NGN500/$.

In the face of potential adjustments to petrol prices and persisting Naira weakness, the experts expected inflation to remain elevated over 2023 (18%-20%) which will likely see the CBN retain a hawkish stance on interest rates over the year.

“In terms of investment opportunities, we view the combination of inflation remaining sticky at elevated levels (18-20 per cent), the potential for further Naira adjustments and large government borrowing requirements with limited fiscal recourse to CBN financing as suggestive of a high interest rate environment over 2023.

“After two years of unorthodox monetary policy, we expect the CBN will look to tighten policy to bring down inflation and stabilize the currency by raising the returns for holding Naira.

“For equity markets, while a smooth transition of power is positive for investment outlook, we expect offshore investor appetite for Nigerian equities to remain weak pending a credible adjustment in the Naira and increased flexibility in the exchange rate system,” they pointed out.

On fiscal policy, Access Pensions analysts said:  “pending a clean break from the petrol subsidies currently funded via the crude-for-refined product swap we think revenues are likely to tail projections, as such financing requirements will remain large in the face of potentially reduced funding from the CBN.

“The latter point reflects likely conclusion on the planned securitization of Ways & Means debt. Our view on high global interest rates suggests limited recourse to Eurobond markets.

“Key risks to our 2023 outlook revolve around political risks and commodity prices.

“On the former, in the event of disorderly conclusion to the general elections resulting in widespread violence, markets could react negatively as investors scamper for safety.”

For Nigeria, whichever way the elections pan out, they believe focus will quickly shift towards decisions on key economic issues: insecurity, FX policy and petrol subsidies which could bring near term inflation.

To them, “given Nigeria’s weak fiscal position however, our base case scenario is for a partial adjustment to petrol pump prices in 2023 alongside further weakening of the official exchange rate. In response to the elevated inflation levels, we expect monetary policy to remain tight, which alongside large government borrowings, speaks to a higher interest rate environment.”

January 20, 2023