A huge infrastructure deficit, foreign exchange limitations as well as instability in Nigeria’s agricultural heartlands will mean Africa’s most populous nation will struggle to develop new comparative advantages, leaving the hydrocarbons sector responsible for 80-90% of export receipts until 2026, says a new report by the Economist Intelligence Unit, EIU
Undersupply of electricity arising from huge underinvestment is expected to remain an impediment to economic growth, setting the scene for a very challenging time for the president to be elected in 2023.
In addition, the report says rigidities in the foreign-exchange market will become more pronounced when oil earnings decline (as is expected in 202526). Nigeria’s economic growth will also be tempered by high debt-service costs, a large public-sector wage bill and security expenses elevate the spending profile.
According to the report issued at the weekend, “convertibility restrictions—de facto or de jure—have a record of being imposed during such periods, most recently in 2020.
Read also: Things to watch out for in Nigeria in 2022 – EIU
“The risk of a repeat will have a long-term impact on investor confidence, and partly explains our projection that foreign direct investment (FDI) inflows will be equivalent to less than 1% of GDP a year in 2022-26.”
The EIU expects real GDP growth to rise from an estimated 3% in 2021 to 3.5% in 2022 with growth picking up to an annual average of 3.8% in 2023-24 as credit conditions for the private sector continue to improve with the fiscal deficit narrowing.
However, the report says “these growth rates are well below potential. Elevated domestic interest rates, low FDI, pervasive instability, elevated unemployment and infrastructure deficiencies will curtail dynamism.
“We expect 2025-26 to be more challenging as oil prices and export volumes fall, the naira is devalued and inflation rises, with growth slipping to an annual average of 1.5% in these years.”
While the analysts at the EIU ranks the new Petroleum Industry Act (PIA) a major revamp of the oil sector, “operating costs for onshore and shallow-water basins in Nigeria is high, exacerbated by instability.
“Royal Dutch Shell is already pursuing divestment of such assets in a push towards a greener portfolio, and other majors could follow.
“As domestic oil companies would be unable to match the investment power of outgoing oil majors, and despite offshore exploration investment as a result of the PIA, Nigerian crude output is expected to stay below 2011-14 highs.
The new law outlaws fuel subsidies in Nigeria, but the EIU says While “the government says that it will end petrol subsidies in early 2022, but we continue to assume that price liberalisation will only take place on a sustained basis after the elections in early 2023.”
After subsidies are lifted in 2023 and NNPC Ltd becomes fully commercialised, the downstream industry could become economically viable, which may allow Nigeria to eliminate petrol imports as a 650,000-barrel/day mega-refinery near Lagos comes on stream in 2022.
This, the EIU says will ease pressure on Nigeria’s external balance and the naira by the middle of the forecast period.
