NIGERIA IN 2022: What to expect from economy

The year 2022 will probably not be significantly different from the current year as widespread poverty, high unemployment, and falling consumer purchasing power are expected to persist.

Economists polled in a BusinessDay survey all tipped Nigeria’s GDP to expand in 2022, albeit at a slower pace than in 2021, as the low base effect that powered growth this year fades. They also highlighted key trends that will shape the economy in the new year.

In the fourth quarter of 2020, Africa’s biggest economy returned to positive growth after recording its worst recession in three decades. The positive growth continued into 2021 as the COVID-19 lockdown restrictions were fully eased.

According to the National Bureau of Statistics (NBS), Nigeria’s Gross Domestic Product (GDP) recorded positive growth of 0.51 percent, 5.01 percent, and 4.03 percent in Q1, Q2, and Q3, respectively.

International financial institutions like the World Bank and the International Monetary Fund have predicted the economy will end at 2.7 percent and 2.6 percent for its full-year (2021). Both institutions expect a slightly higher growth rate in 2022, with the World Bank predicting 2.8 percent growth and the IMF forecasting 2.7 percent.

BusinessDay polled 12 economic experts to obtain their outlook for next year and ascertain the key themes they expect to shape economic performance.

Andrew S. Nevin, partner/chief economist, PwC Nigeria

We really want to see GDP grow faster than population growth. We know it has been below population growth for about seven years now. From PwC’s perspective, the actual numbers don’t capture the true size of the economy. We all know that more than 50 percent of the economy is not all captured in the official statistics.

Our view is that it is growing faster and larger than we think. So, we believe that the NBS is going to rebase the economy in 2022 or 2023. When we rebased the economy about a decade ago, it was larger. Countries like South Africa just did a rebase and declared it 11 percent larger. And, I think if the economy is rebased, it could get significantly larger perhaps 20 or 25 percent.

So with that, I am optimistic that the economy will get better and better but I don’t want to give a growth rate against an efficient GDP that’s already a suspect.

Moses Ojo, chief economist/head, research, PanAfrican Capital Holdings Limited

We estimate the economy to record a real GDP growth rate of between 2.9 percent and 3.2 percent for the year 2022, going by the fact that the effect of the pandemic is gradually moderating.

The growth is expected to be driven by the following sectors: telecoms, trade, manufacturing (food, beverages, and tobacco), and construction. The variables that are expected to weigh on economic output in the New Year are scarcity of foreign exchange, security challenges, and low crude oil production quantity among others.

Muda Yusuf, former DG, Lagos Chamber of Commerce and Industry (LCCI)

Growth has been on a positive upward trajectory, though marginal. A great deal of it has to do with the base effect. The base effect threw up a significantly higher GDP growth and as we get to next year, the base effect is likely to begin to reduce.

And if that happens, we may not see a growth rate as high as five percent. It is likely to remain around three percent or slightly above that. The GDP is not likely to be significantly higher than what we have. If anything it may be slightly lower because of the base effect.

Generally, the efficiency in output, productivity in the economy, foreign exchange situation, and other factors are still largely there. These things affect the growth rate, so fundamentally, nothing is likely to change around these things because many of them are structural related, some are policy-related and it is not easy to fix structural issues within 12 months. And for the policy problems, as long as the policymakers don’t have any significant change of mind, the policy environment is likely to remain the same.

Yvonne Mhango, SSA economist, Renaissance Capital

We think a more secure growth recovery and softening inflation will give Nigeria scope for a one percentage point policy rate hike to 12.5 percent in 2022. We believe this will help to contain inflation, which we see in the lower double-digits and a depreciating naira.

It is encouraging that year-on-year headline inflation slowed for the eighth consecutive month to 15.4 percent in November, albeit slowly, after peaking at 18.2 percent in March. However, imported food price inflation remains elevated. We forecast headline inflation of 14.5 percent and 12.4 percent at year-end 2021 and year-end 2022, respectively, which implies the 6-9 percent inflation target will remain elusive for at least the short term.

While we forecast a policy rate hike in 2022, we expect Treasury yields to remain flat, with upside risk from an increase in the government’s domestic borrowing. We think there is an upside risk to our 2022 inflation forecast from insecurity, Foreign Exchange (FX) depreciation, high transport costs, a below-average harvest, and the high cost of imported food.

Read also: 2021 IN REVIEW: Six themes that shaped the economy in 2021

Ayodeji Ebo, head, retail investment, Chapel Hill Denham

I believe Nigeria’s growth rate will revert to the sub-three percent levels in 2022, given the high base effect. Also, it is the year preceding another election; hence investors will be wary of who becomes the next President given the policy flip flop in Nigeria.

Notwithstanding, government spending level always increases towards the election, which will support growth while pushing up the inflation rate.

By and large, we expect the economy to sustain its positive growth trajectory in 2022. On inflation, there are several downside risks like the removal of fuel subsidies, the adjustment in FX, and the implementation of a cost-reflective electricity tariff that will alter the declining inflation trend in 2022.

Damilare Asimiyu, senior analyst, Afrinvest Securities Limited

Going into 2022, the Federal Government is expecting GDP growth at 4 percent. But looking at all the key indices and drivers, I feel that that is over-ambitious because the government will be focused on politics for the most part of the year.

And with the concern of oil production and price uncertainty for Nigeria, I think the best we should be looking at next year is 2.8 percent or 3.2 percent best case not four percent.

Victor Ofili, head of research, Cowry Asset Management Limited

GDP grew at 4 percent in the third quarter of this year and inflation moderated, but the base effect was responsible for this. So, we expect that in 2022, those numbers will reverse.

We might see some slowdown in government spending in infrastructure but more for recurrent spending as we expect the government to fill its obligations to its workers. So, inflation might begin to pick up and that could affect purchasing power.

And with a decrease in purchasing power and an increase in spending on critical infrastructure, we are seeing GDP slow down. Also, the base effect will slow down or wear out because most part of 2021, we saw an increase in GDP quarterly numbers.

Economists at Cordros Capital Limited

We expect inflationary pressure to persist next year but at a moderate pace. Our base-case scenario suggests headline inflation will average 13.64 percent year on year in 2022 full year, with the year-end figure settling at 13.55 percent year-on-year.

Our forecast is based on the following expectations of a gradual increase in electricity tariffs towards a market reflective price, a depreciation of the currency to N440.0/$, and non-deregulation of the downstream sector, which would keep the price of PMS at the current level.

We also forecast a GDP growth of 2.65 percent year-on-year in 2022 full year. The oil sector is expected to grow by 9.42 percent year-on-year and the non-oil sector to grow by 2.11 percent year-on-year.

We expect the economy to remain on the path of growth. However, we anticipate the growth outcomes to remain below potential as economic activities continue to normalise and the impact of government stimulus fades.

Ayorinde Akinloye, investment research analyst, United Capital plc

I expect the Nigerian economy to sustain expansion in 2022. While I expect the non-oil sector to decelerate from the low-base induced growth in 2022, I expect the oil sector to recover with additional aid from a low base in 2021. Overall, we forecast a base growth of 2.3 percent.

Economists at SBM Intelligence

Nigeria’s 5.0 percent and 4.03 percent growth rates experienced in Q2 ‘2021 and Q3 2022 signify that the country can outperform the World Bank GDP growth forecast of 2.7 percent in 2021.

Regarding 2022, we envisage strong GDP growth due to several factors, including oil price, oil production, expansion of financial services due to the MMO licenses issued to the telcos, and most importantly, an increase in FG spending due to the approaching election year. We project a 2.0 percent to 2.5 percent growth rate for the full year 2022.

Damilola Adewale, a Lagos-based economic analyst

Barring the reintroduction of stricter containment measures, the economy would sustain a positive growth trajectory next year.

From a statistical point of view, growth would be high in Q1-2022, and lower in Q2, Q3 and rebounds again in Q4-2022. Growth would remain fragile in real per capita terms. Again, several challenges such as exchange rate, mass unemployment, high cost of doing business, and subsidy saga facing the economy would be sustained next year

Economists at Vetiva Capital Management Limited

So far in 2021, we have witnessed consistently improving business activities, evidenced by the positive GDP growth in the first three quarters of the year, although much of this growth has been driven by the pandemic-induced weak base of last year.

The year also came with tough challenges that affected the operating climate for several companies. At the fore, we saw how currency-induced inflationary pressures eroded profitability margins, while supply disruptions and insecurity dragged sales volumes.

For 2022, we maintain a cautious outlook as we see the Nigerian economy running scared amidst several intimidating factors that lie ahead. Firstly, we see the possibility of higher borrowing costs amidst pre-election worries and the expectation of a hawkish stance from central banks in advanced economies.

This, we believe, may result in slower Capex roll-outs by corporates. Also, with inflationary pressures likely to remain for most of the year, profitability margins may be further weakened, and the situation could be much worse should the government discontinue fuel subsidies or raise the pump price of PMS in the second half.