The Centre for the Promotion of Private Enterprise (CPPE) presents its economic and business environment review for 2022 and sets agenda for policy makers for 2023.
Macroeconomic Environment
The macroeconomic environment is a key driver of costs, profits, competitiveness, productivity and investment growth. This review focusses on four key macroeconomic variables: inflation, foreign exchange, and GDP growth.
Inflation
As at January this year, headline inflation was 15.60% and rose to a peak of 21.47% in November 2022. Meanwhile, food inflation consistently outpaced headline inflation and core inflation during the year. For the basket of goods and services consumed by the average Nigerian, costs have accelerated by between 50% to 100% in 2022. The inflationary situation was the worst in recent history and the impact on citizens and the SMEs was very devastating. The world bank reported that 5 million Nigerians have been pushed into poverty in 2022 amid a slump of purchasing power by 35% driven largely by surging inflation.
In order to tackle inflation, we need to address the key drivers of inflation as follows:
- Boost productivity in the economy to drive output growth.
- Stem the depreciation of the naira exchange rate.
- Address the illiquidity in the foreign exchange market.
- Minimise the monetisation of fiscal deficit. CBN financing of deficit should be strictly limited to statutory threshold spelt out in the CBN Act.
- Government should seek creative ways of addressing insecurity in order to pave way for farmers to return to their farms.
- Tackle cost of logistics.
- Address the ease of cargo clearing as well as clearance of vessels at the port.
- Fix climate change concerns.
- Review trade policy to bring down the cost of intermediate products for manufacturers.
GDP GROWTH
Nigeria’ GDP is valued at over N200 trillion [in nominal terms] as at third quarter of 2022. It grew by 3.11% in the first quarter; 3.54% in the second quarter; and decelerated to 2.25% in the third quarter. The world bank projected a growth rate of 3.11% for 2022 and 2.9% in 2023.
Given the enormity of the macroeconomic headwinds and the numerous fiscal and monetary policy shocks, the Nigerian economy could be adjudged to have demonstrated remarkable resilience in 2022.
The fragile growth performance was a reflection of the diverse headwinds bedevilling the Nigerian economy. These include: the macroeconomic instability, shrinking fiscal space, soaring public debt, heightening inflationary pressures, currency depreciation, foreign exchange illiquidity, surging energy cost, weakening purchasing power, legacy structural constraints, lingering insecurity, and crippling trade facilitation issues. There were global headwinds triggered by the Russian -Ukraine war and lingering supply chain disruptions created by the covid pandemic.
The following sectors contracted in the third quarter of 2022:
- Crude oil and gas which contracted by 22.67%
- Oil refining contracted by 44.7%
- Coal Mining contracted by 43.5%
- Manufacturing Sector contracted by 1.91%
- Food and beverage sector which is one of the most shocking contracted by 4.05%
- Textiles contracted by 3.98%
- Electricity and Gas – 3.56%
- Plastics and Rubber Products – 3.92%
A striking element of the GDP Q3 report was the contraction of the manufacturing sector which shrunk by 1.91%. This is the first quarterly contraction of the manufacturing sector since 2020 when the economy slipped into recession. Even more disturbing was the slump in the food and beverage sector which contracted by 4.05%. This is the first contraction of the sub-sector since the recession of the second quarter of 2020. This was a reflection of the several headwinds slowing the manufacturing sector over the past few years.