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Nigeria’s economic outlook might be brighter in 2022

IN the last three years, Nigeria’s economy passed through rough roads, surviving by sheer grit because it was held together by hope and perseverance. As the country was battling insecurity which had slowed down recovery in the agriculture and manufacturing subsectors in 2019, the COVID19 pandemic seriously affected both the oil and non-oil sectors in 2020 thereby slowing down growth and development.

The pandemic which was a global affliction slowed down the world economy and shook the Nigerian economy which was already on a recovery path. The economy suffered a set-back and relapsed into a recession in 2020, the second in four years; but it rallied quick recovery and battled the odds, and again started showing signs of recovery in some of the critical sectors, although on a slow pace in 2021. 

The level of insecurity increased in the last quarter of 2020 and first quarter of 2021 and seriously affected the productive sector as raw materials became scarce as a result of a massive slow down in the agriculture sector. As obtained in most economies of the world, Nigeria’s economy suffered supply chain disruptions, build up in commodity prices and higher inflationary pressures.  

However, by the second quarter of 2021, the country’s Gross Domestic Product (GDP) grew by 5.01% (year-on-year) in real terms, marking three consecutive quarters of growth following the negative growth rates recorded in the second and third quarters of 2020. The non-oil sector grew by 6.74% in real terms while the oil sector declined by 12.65% year-on-year. Contribution of the non-oil sector grew from 90.75% recorded in the previous quarter to 92.58% in the second quarter of 2021 while the oil sector contribution declined from 9.25% to 7.42%.

Given all the challenges the country was facing during the period, the economy was not expected to perform remarkably. For instance, the International Monetary Fund (IMF) in its revised projections for the sub Sahara region indicated that the economies of Nigeria and South Africa will expand marginally by 2.5% and 3.1% respectively; but while Nigeria quickly recovered from the COVID scare and posted positive growth in the first quarter of 2021, South Africa recorded its fourth consecutive quarterly contraction following the spread of COVID-19.

Against IMF projection, the Nigerian economy recorded a 5.01 per cent annual growth in real terms in the second quarter, a progress the Nigeria Bureau of Statistics (NBS) said was an indication of the return of business and economic activity near the levels seen prior to the nationwide implementation of COVID-19 related restrictions. Nonetheless, IMF had predicted that Nigeria could record its most significant GDP growth in over 32 quarters in the second quarter of 2021, “with construction, trade, manufacturing, real estate, and crude petroleum and natural gas moving from pull to push sectors on the impact of their low bases.”

In spite of the growth fundamentals recorded during the year, the man on the street did not feel any significant impact. Prices of goods and services continued to rise and inflation patterns did not show any significant improvement in real terms. The people trudged on under a very heavy economic burden, a situation President Muhammadu Buhari acknowledged in his new year day speech, which he applauded the courage and resilience of all Nigerians during the year 2021.

The not too robust state of the Nigerian economy has been severally blamed on lack of foresight and poor policy prescriptions by the handlers of the economy, but relevant officials of government battle to explain that though sound policies can hasten economic growth, policies alone cannot drive the economy in the short term if the fundamentals on ground do not support pacy growth. It was evident that growth would be marginal and not significant; which is why government is more focused on providing the necessary infrastructure that would support growth in all sectors, including manufacturing and services.

The President in his New Year message pointed out that the persistent insecurity in certain parts of the country may have threatened to unravel the incremental gains achieved in the real sectors of the economy and in the administration’s overall objective to position the nation on the path to sustainable growth and progress, but assured that government will remain resolute in its commitments and shall continue to press ahead with its programmes and plans, particularly in tackling the limiting factors.

The thinking may have formed the basis for the theme and priorities of the 2022 federal budget which has a total outlay of N17.13 trillion. According to the President, the allocations to MDAs were guided by the strategic objectives of the National Development Plan of 2021 to 2025, which are diversifying the economy, with robust MSME growth; investing in critical infrastructure; strengthening security and ensuring good governance; enabling a vibrant, educated and healthy populace; reducing poverty and minimising regional, economic and social disparities.

Probably because of the emerging signs from the previous year’s outlook and the focus of the 2022 budget, there seem to be some level of agreement among industry watchers and economic experts that this year will post better results and the country’s economy might be on the path to full recovery and sustainable growth. They see some hope in the economy rebounding with the COVID-19 scare fast receding, improvements in basic infrastructure and a more aggressive tackling of agents of insecurity, to create room for increased economic activity and better productivity environment.

The Manufacturers Association of Nigeria (MAN) agrees that 2021 recorded relative economic stability and believes that steady economic performance in the first quarter of this year will enable government to sustain the  stability. It noted however that performance would largely depend on government’s efforts to support the productive sector and ensure security of lives and property. Improvement in growth would equally depend on sustained increases in the price of crude oil and proper allocation of foreign exchange to the productive sector.

MAN wants more focus on local raw-materials development through backward integration and resource-based industrialisation initiatives. Also noting that as the year precedes an election year with greater attention to political than economic issues, government’s drive for revenue would intensify, the cost of doing business would further increase and the informal sector would experience growth. Those who do business with government are however advised to be wary and ensure payment for jobs done and supplies are made were obtained.

Proshare, a provider of financial data and market intelligence reports,  also sees economic activities normalizing in 2022. It expects growth to range between 1.3% and 3.7%. Key economic activities to watch out for in 2022, according to Proshare, include electioneering, removal of subsidies, and floatation of the Naira. While it sees inflation moderating in 2022, it expects the Central Bank of Nigeria to remain accommodative.

It observed that external pressures could result in rate hikes and fiscal metrics could improve in 2022 on the back of recovery in oil revenue. However, it held a differing view on subsidies, considering the electoral season. “On the external scene, we see room for deprecation in both the official and parallel market. However, recoveries in the oil sector and maximization of the e-Naira could help keep the parallel market in check.”

In its recent report titled “The year ahead 2022 – Wriggling out of the rubble,” socioeconomic research firm, SBM Intelligence, indicated that given the recent growth levels the country’s economy has experienced, it is expected that growth would fully outperform the World Bank’s GDP growth forecast of 1.8% in 2021 to 2.5% in full-year 2022; but noted that due to Nigeria’s high borrowing rate, inflation is expected to rise from the third quarter of this year.

The IMF also believes growth will inch up slightly to 2.7 percent in 2022 and remain at that level over the medium term, allowing GDP per capita to stabilise at current levels, notwithstanding long-standing structural problems and elevated uncertainties. It predicts a constrained recovery for Africa, stating that a comparison with the experience of advanced economies may help shed further light on the challenges facing sub-Saharan African policymakers.

The four groups were unanimous in advising on tactical handling of the COVID-19 affliction, even if it is receding; because it is fundamental to setting the stage for private demand to kick-start rapid economic recovery. IMF believes that the speed with which excess private savings are drawn down to fund consumption and investment will determine the pace of the recovery, with a slower handoff implying a slower recovery.

Although there are still doubts given the state of insecurity in the country, the setting-in of partisan political activities, coupled with the typical attitude of government agencies on policy implementation, significant and beneficial growth might still be a far cry. Nigeria has never been lacking in ideas and good policies, the challenge has always been in the implementation. Good policies are often challenged by systemic factors, chief of which remain corruption, impunity and indolence.

Lack of an effective monitoring and evaluation mechanism constitute one of the greatest challenges to effective implementation of policies and achievement of goals. Corruption has invaded the psyche of governance and has reduced policy implementation to just a routine exercise.

No economy can grow exponentially in such an environment. Even with some rays beaming in the direction of economic growth this year, government must put up an effective implementation strategy to help realise the goals in the budget and drive the process towards sustainable growth and development. Monitoring and evaluation are very important.

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