Oil rally, Dangote refinery brighten growth prospects – World Bank

The World Bank has said the increase in oil prices and the Dangote refinery have brightened the growth prospects for the Nigerian economy.

The multilateral institution, in its Africa’s Pulse report released on Wednesday, said persistent fuel subsidies, increasing military spending for security purposes, and rising debt servicing costs were weighing heavily on public finance to keep public debt at a sustainable level in Nigeria.

It said: “Nigeria’s economy is still dependent on the oil sector; oil-related revenue contributes 40 to 60 percent of fiscal revenue, while oil and gas account for 80 to 90 percent of total exports. Weak oil production, below the OPEC quota, held back the recovery process.”

“Although at a slower pace than the average 7 percent during the boom period, growth prospects for the Nigerian economy are somewhat bright thanks to high oil prices coupled with reforms initiated by the passing of the Petroleum Industry Act and the completion of the Dangote refinery expected in 2023.”

According to the report, the recovery of the three largest economies in sub-Saharan Africa – Nigeria, South Africa, and Angola – will continue to be sluggish.

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“In oil-rich countries, the elevated debt was mostly in line with rising debt in Nigeria and South Sudan but held down by Angola and the Republic of Congo. It is projected to go down in 2022 supported by high oil prices,” it said.

The World Bank said inflation dynamics in Nigeria painted a completely different picture from the one in South Africa.

It said: “Unlike South Africa, where inflation has been within the target band of 3 to 6 percent since 2017, inflation in Nigeria has been above the upper limit band of 6 to 9 percent since the recession in 2016. It reached a four-year high in 2021, reaching 17 percent, from 13.2 percent a year earlier.

“Rising food prices are the underlying factor behind the surge of headline inflation in Nigeria. Food prices have increased due to import restrictions and a nonflexible exchange rate management. The current regime is keeping the official exchange rate of the naira artificially strong while the naira has weakened significantly on the parallel market.”

According to the report, high oil prices will support growth in Nigeria and Angola.

It said the recovery in South Africa, while benefiting from persistently high commodity prices, would continue to be held back by structural problems including electricity shortages, transport and logistic inefficiencies, as well as labour and product market rigidities.

“Regional oil exporters, such as Angola, Nigeria, and the Republic of Congo, have not benefited from elevated oil prices partly due to weak investment in the oil sector, which predated the recession,” the World Bank said.