GDP growth hits 3-year low on naira crises, subsidy removal

The Nigerian economy grew at the slowest pace in three years in 2023, official data released on Thursday show, largely on the back of naira scarcity, petrol subsidy removal and devaluation.

The National Bureau of Statistics (NBS) said the country’s Gross Domestic Product growth fell to 2.74 percent from 3.10 percent in 2022.

The country’s full-year growth is lower than the World Bank and International Monetary Fund’s projection of 2.9 percent.

The NBS said the performance of agriculture and service sectors fell in 2023 relative to 2022, while that of the industry sector improved.

“The slowdown last year compared to other years is a combination of the impact of the currency crunch in the first quarter as well as the pass-through impact of some of the reforms initiated by the new administration in the second half on the economy,” Omobola Adu, senior economist at BancTrust & Co, said.

Muda Yusuf, chief executive officer of the Centre for Promotion of Private Enterprises, said the macroeconomic headwinds were very profound largely from the reforms, naira crunch, and uncertainty around the new policy of the new administration and elections.

“These factors contributed to the slowing of the growth. But when compared globally, the country’s growth is still not bad. Growth is one thing but the welfare of people is a different matter because growth does not always translate to development. So, we need to connect. Because in terms of development and welfare, things have deteriorated significantly,” he added.

In the fourth quarter of 2023, the country’s GDP grew by 3.46 percent, down from 2.54 percent in the previous quarter.

“This growth rate is lower than the 3.52 percent recorded in the fourth quarter of 2022. The performance of the GDP in the fourth quarter of 2023 was driven mainly by the services sector, which recorded a growth of 3.98 percent and contributed 56.55 percent to the aggregate GDP,” the NBS said in the GDP report.

It said the agriculture sector grew by 2.10 percent as against 2.05 percent in the fourth quarter of 2022.

“The growth of the industry sector was 3.86 percent, an improvement from -0.94 percent recorded in the fourth quarter of 2022. In terms of share of the GDP, industry, and the services sectors contributed more to the aggregate GDP in the fourth quarter of 2023 compared to the fourth quarter of 2022,” it said.

A breakdown of the data showed that much of the surprise strength was driven by a rebound in the oil sector, according to David Omojomolo, Africa economist at UK-based Capital Economics.

“This surprisingly strong data is likely to be followed by a slowdown. The recent devaluation has seen the naira weaken sharply, which will bring further increases in inflation and higher interest rates. The boost from the oil sector is also likely to fade. We expect growth of a below-consensus 1.8 percent this year,” he said.

A breakdown of the NBS report showed that the ICT sector slowed to 7.91 percent in 2023 from 9.76 percent in 2022. The manufacturing sector grew by 1.40 percent, down from 2.45 percent; while trade’s growth slowed to 1.66 percent from 5.13 percent.

The growth of the construction sector also slowed to 4.54 percent from 3.57 percent, and transportation and storage contracted by 30.17 percent as against 15.20 percent. Financial and insurance sector improved to 26.53 percent from 16.36 percent.

“Despite the reported growth rate in the GDP, the country exhibits signs of economic vulnerability, with the growth momentum declining by 0.36 percent. This challenging scenario is compounded by the simultaneous rise in inflation, soaring by 0.98 percent to reach 2.99 percent, and an increase in the unemployment rate by 0.8 percent, reaching 5 percent,” analysts at Comercio Partners Research said in a note on Thursday.

They said as the Central Bank of Nigeria (CBN) approaches the upcoming Monetary Policy Committee meeting, a critical decision looms regarding the interest rate

“The committee must weigh the option of maintaining a bullish stance, risking the exacerbation of growing inflation and potential adverse effects on the economy, or adopting a more assertive approach to address inflation, potentially at the expense of immediate considerations for people’s welfare.”

In the first quarter of last year, Nigerians were buffeted by a chronic shortage of cash, which disrupted economic activities and the livelihoods of many people.

Data from the CBN shows that the currency in circulation dropped to the lowest level in 14 years and five months to N982.1 billion in February from N1.39 trillion in the previous month. But it picked up by 71.41 percent to N1.68 trillion in March.

Then in the second quarter, President Bola Tinubu scrapped a costly but popular petrol subsidy and lifted currency controls, which he said was to save the country from going under.

The removal of the petrol subsidy tripled the petrol price to N617 from N184, causing public transportation providers such as buses, tricycles and motorcycles to raise their fares.

The liberalisation of the foreign exchange regime in June as part of measures to revive the economy led to a large devaluation of the naira.

The currency depreciated from N463.38/$ to N 1542.6/$ as of February 21. At the parallel market, the naira depreciated to close to 2,000/$ from 762/$.

According to the NBS, the high cost of petrol and FX pushed up the country’s headline inflation rate for the 13th consecutive time in January to 29.90 percent from 28.92 percent in the previous month. Food inflation rose to 35.41 percent from 33.93 percent.

Total investment into Nigeria stood at $3.89 billion in 2023, down from $5.42 billion in 2022.

A recent report by the Nigerian Economic Summit Group said since the economy rebounded from the recession induced by the COVID-19 pandemic, its growth has exhibited fragility.

“This deceleration was attributed to policy adjustments and reform shocks, prominently the implementation of the Naira redesign policy, resulting in a cash crunch that impacted various sectors, particularly the informal economy,” it said.

It said eliminating fuel subsidies and harmonising exchange rates increased the costs associated with productive activities and strained the capacities of businesses across sectors.