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Nigeria’s GDP growth prospects for the second half of 2023, have improved with the oil and non-oil sector expected to rebound due to a more business friendly climate and crackdown on oil theft.
“For the non-oil sector, we anticipate a significant improvement to business activities in the second half of the year, compared to the challenging first half, which was impacted by a cash shortage,” said analysts at Meristem Securities in their 2023, Half Year outlook report.
“However, the business environment faces additional challenges due to the removal of fuel subsidies, resulting in a substantial increase in petrol prices. Additionally, the introduction of a 7.50% Value Added Tax (VAT) on diesel imports adds further pressure on manufacturers and firms.”
According to World Bank lead economist for Nigeria, Alex Sienaert, Nigeria could save up to N3.9 trillion ($5.10 billion) in 2023 after reforms to its foreign exchange market and removal of fuel subsidy.
President Bola Tinubu, who is embarking on the country’s biggest reforms in decades to tackle issues including a high debt burden, scrapped the popular but expensive subsidy when he took office last month.
The Central Bank of Nigeria has unified the country’s exchange rates, following Tinubu’s criticism of a currency regime that had hampered Africa’s biggest economy for years.
World Bank lead economist for Nigeria Alex Sienaert said “the FX and subsidy reforms stopped Nigeria from going over the cliff,” adding that this “set the stage for an upward trajectory in fiscal conditions.”
Nigeria’s 36 sub nationals or States also have more reason to smile in the coming months as the devaluation of the Naira should lead to an increase in FAAC revenue allocation from the Federation account.
“Another angle that many may not be seeing yet in this new FX liberalisation is that it potentially increases Federation Account Allocation Committee (FAAC) allocation to states by about 15% to 20%, as the dollar component of the government revenues settle into the federation account at the new official rate,” Abiola Rasaq, former Economist and Head, Investor Relations at United Bank for Africa Plc, told MoneyCentral.
“This should hopefully help some of the states to clear their salary arrears and free up some funds for the FGN for infrastructure spending, with hope that it should also slightly improve the debt service ratio of the government, as it creates a nominal boost to revenue numbers.”
Challenges however remain for firms and consumers as Nigeria’s inflation rate rose to a new high of 22.41 percent in May 2023, from 22.22 percent in April, according data from the National Bureau of Statistics (NBS).
Nigerian manufacturers are feeling the pains of rising raw material costs brought on by geopolitical tensions, foreign exchange illiquidity and currency devaluations that are squeezing profit margins.
The most liquid and capitalised manufacturers, collectively incurred N2.85 trillion, as input costs in December 2022, which is 36.36 percent higher than 2021’s N2.09 trillion, according to data gathered by MoneyCentral.
“Supply chains continue to be challenged by volatile price of commodities, FX sourcing, and logistics bottleneck. Players have been hit by high agricultural commodity prices and difficulty in sourcing FX to ensure efficient supply of raw materials,” said analysts at Afrinvest Securities Limited.
For the second half (H2) of 2023, Meristem Securities analysts are bullish on Information and Communication (ICT), Mining and Quarrying, and the Financial and Insurance sectors.