Key highlights
- Analysts at KPMG say that fuel subsidy removal will impact domestic prices in 2023 as the government plans to remove subsidies as early as the second quarter of 2023.
- Nigeria’s oil sector growth has been slow in recent times due to crude oil theft and a few other factors.
- However, a possible recovery in the oil sector in 2023 is expected to contribute to GDP growth in 2023.
In its latest Global Economic Outlook, multinational advisory, KPMG said that the expected fuel subsidy removal will keep pressure on domestic prices in 2023. According to the outlook, inflation in Nigeria has been driven by persistent structural issues which impacted domestic food production and transportation. A part of the outlook stated:
“These issues include insecurity, floods in key agricultural producing areas, and rising international food and energy prices following the Russia-Ukraine conflict as well as other policy-related bottlenecks which continue to impact the cost of doing business.
“Additionally, the expected fuel subsidy removal and the 2023 Fiscal Bill are expected to keep pressure on domestic prices in 2023.”
More insights on the country’s GDP
KPMG analysts expect Nigeria’s gross domestic product (GDP) to continue to grow at a relatively slow pace of 3% in 2023 due to the slowdown in economic activity that typically characterizes periods of political transition in Nigeria. In addition to this, the spillover from an expected slowdown in the global economy in 2023 and its trade and financial flow implications are expected to drag on GDP.
Analysts also say that growth will be negatively affected by the Naira Redesign Policy introduced in Q4 2022 and Q1 2023 and its implications on key non-oil sectors like manufacturing, trade, accommodation and food services, transportation, and other services, further slowing down overall GDP growth in 2023.
The Nigerian economy ended the past year with a GDP growth rate of 3.52% in Q4 2022 compared with 2.25% in Q3 2022, with growth averaging 3.10% over 2022. This represents eight consecutive quarters of growth, following its exit from the pandemic-induced recession in Q3 2020.
Focus on oil and non-oil sectors
KPMG analysts say that growth in 2022 was driven by the non-oil sector, as continuous recovery in household consumption boosted spending, particularly in the finance and insurance services, telecommunications, and transportation and storage services. A part of the outlook stated:
“While the non-oil sector grew by 4.84%, the oil sector contracted by 19.22%, largely attributed to worsening oil theft, pipeline vandalization, underinvestment, and other operational challenges inhibiting oil production. Accordingly, oil output (including condensates) declined from 2.07 million barrels per day in Q1 2020 to 1.34 by Q4 2022.”
However, analysts at KPMG expect telecommunications, trade services, as well as an expected recovery in the oil sector, on account of measures being taken to tackle security issues, to drive their forecast of 3% growth in 2023.
What you should know: KPMG predicts that Nigeria’s incoming government administration will face a deeply rooted challenging environment, characterized by fragile and slow economic growth and challenges in the foreign exchange market. Additionally, government revenue will remain inadequate to support much-needed expenditures, leading to a high debt stock and high debt service payments.
