Nigeria risks falling back into recession, Rewane warns

Africa’s biggest economy is at risk of falling back into recession after a slowdown in the first quarter of the year, the Chief Executive Officer of Financial Derivatives Company Limited, Bismarck Rewane, has warned.

“Currency redesign sucked naira liquidity and threatened output growth. PMS subsidy removal squeezing consumer spending power and reducing aggregate demand,” he said in his presentation at this month’s edition of the Lagos Business School Breakfast Meeting.

The currency redesign policy introduced last October by the Central Bank of Nigeria triggered cash shortages in the first quarter of this year, with business activity plunging to a record low.

“The Nigerian economy outperformed global and regional growth at 3.1 percent in 2022/23. Gross fixed investment is now approximately $145 billion or 29 percent of GDP. The oil sector had underperformed because of vandalism and underinvestment. Growth rate of oil is now -4.21 percent,” Rewane said. “Service sector is growing at 4.35 percent. Policy change has started and is irreversible.”

He said consumption expenditure has been on a free fall since the second quarter of 2022, adding that it contracted by 12 percent in Q4 2022 due to spiraling inflation and interest rate hikes.

“Government spending is also declining due to falling revenue, limited fiscal headroom and high debt service burden,” he said. “Gross fixed capital formation is stagnating. [It] contracted by 0.73 percent in Q4’22 due to high cost of capital financing and persistent decline in foreign investment inflows.”

Rewane said inventory stocking rose by 38 percent due to positive investor expectation.