Africa’s biggest economy is likely to face further disruptions this year no matter who wins February’s presidential election, Capital Economics has said.
The key presidential candidates in the election are Peter Obi of the Labout Party, Bola Tinubu of the ruling All Progressives Congress and Atiku Abubakar of main opposition Peoples Democratic Party.
London-based Capital Economics said recent data suggest that Nigeria’s economy was struggling even before demonetisation efforts hit activity late last year.
“And we don’t expect economic news to take a turn for the better any time soon as further disruptions are likely no matter who wins upcoming elections,” the Emerging Markets Economist, Virág Fórizs, said in a note Tuesday.
GDP data show that growth, at 2.2 percent year-on-year in the third quarter of 2022, was the weakest since Q1 2021, according to the economic research firm.
“We argued that the final quarter of last year started on a very weak footing with oil output barely up from a 50-year low of 1.02mn bpd reached in September. More recent figures only point to a marginal improvement,” she said.
She said despite a pick-up in production in the key oil sector in November, output remained subdued.
Fórizs said: “Oil production rose to 1.16 million barrels per day in the middle of Q4, with officials attributing the increase to the security services making headways against oil theft.
“That said, output was still well below the country’s OPEC+ quota of 1.74mn bpd. More recently, security issues forced operators to suspend some LNG exports.”
She said figures continue to point to underlying weakness in the non-oil economy. “While our proxy for imports – used to gauge domestic demand – improved slightly in November, the data suggest that imports were on course to fall by more in Q4 compared to Q3.”
She said even as the Purchasing Managers’ Index rose from 54.3 in November to 54.6 last month, survey respondents remained pessimistic about future business conditions with the relevant PMI sub-component still the second weakest on record.
Capital Economics said much of the data were collected and/or cover the period before demonetisation plans took effect in mid-December.
It said: “The dampening effect of demonetisation on activity is likely to be compounded by limits on cash withdrawals over the counter and from ATMs introduced in December. Anecdotal evidence is building that the supply of new naira notes is very limited even though the end of the period to exchange old notes for new ones is rapidly approaching. Some traders have reportedly refused to accept new notes.
“What’s more, the economy will probably face further disruptions after the late-February elections usher in a new administration. Policy proposals of key presidential candidates like removing a costly fuel subsidy scheme, and dismantling Nigeria’s multiple exchange rate system would push up near-term inflation for instance – just as the first signs that headline inflation peaked emerge.”