2023 was a year of extremes for the Nigerian economy. The economy achieved its highest stock market capitalization and a seemingly “decreased” unemployment rate. Yet, it also faced some of its lowest oil production, a record-high inflation rate of 28%, and a sharp devaluation of the naira by 40%. Early on, the World Bank had projected that the economy would grow at an average of 3.4% benefitting from the reforms undertaken by the government.
By Q2, the National Bureau of Statistics, stated that the economy grew by 2.51%, lower than the 3.54% recorded in Q2 2022. The World Bank later revised its economic growth outlook for Nigeria to 2.9%. More alarming was that the pace and quality of growth remained below the potential and expectations of Nigerians, as well as the targets set by the government and international organizations. This has Africa’s behemoth country treading on the edge of economic paralysis. To paint a clearer picture, let’s take a look at how Nigeria performed in some key areas.
A strong currency is often referred to as the powerhouse of an economy. It fuels growth and stability in several ways. First, it grants purchasing power, making imports cheaper and increasing consumers’ income and demand. It also attracts foreign investment, as it offers a haven for capital and promises higher returns. This influx of investment fuels economic expansion, creating jobs and boosting infrastructure. Last but not least, it strengthens a nation’s negotiating power on the global stage, leading to better trade deals and increased exports.
This year, Nigeria struggled to control its powerhouse. At the beginning of the year, the naira traded at N461.00/$1 at the official market. Before the end of the first quarter, the naira was closing at N750 per dollar, lower than N745/$. Then the CBN tried to reform the forex market via a naira float. Nigeria’s official exchange rate dropped to N600 against the dollar, a 23 percent drop from a day earlier and the steepest single-session decline since 2016. In August, the CBN announced a $3 billion loan to boost liquidity. But that plan fell through as most investors became reluctant. The dollar also became expensive in the parallel market as local demand surged. By October, the naira fell to a record low of N950/$ at the unofficial market.
The naira’s devaluation hurt businesses and individuals, led to financial strain, increased inflation and interest rates, and decreased purchasing power. Recently, JP Morgan, predicted that the value of the naira would be valued at N850/$ at the Investors’ and Exporters’ Forex window by the end of the year. Still, according to the World Bank, the naira is currently among the worst-performing currencies in Africa.
As of November 2023, Nigeria’s headline inflation rate stood at 28.2%, making it the eleventh consecutive month of increase so far in the year and the highest level since July 2005, over 18 years. Year-to-date, the inflation rate increased by 7.21% points, the fastest pace recorded since the economic recession in 2016. This was largely driven by food prices, which were negatively affected by insecurity in the food-producing regions, rising transport costs, and flooding, amongst other underlying factors. The naira redesign by the Central Bank of Nigeria in January 2023 also caused some confusion and disruption in the market.
The cannon that broke the horseback was the removal of the petrol subsidy in May 2023 by the new administration of President Tinubu. What followed was a rate surge at unprecedented levels not seen in decades. This year, Nigeria trailed its worst inflation level in over 18 years. A simple time series forecast indicates that by the end of the year, Nigeria’s inflation rate will likely reach at least 28.28%. This would mean that Nigeria would suffer its worst inflation since 1996 (over 27 years ago).
The stock market
The Nigerian stock exchange had a remarkable performance in 2023 as it reached a 15-year-high. This year, investors have enjoyed phenomenal returns from several stocks. By the end of the first half of the year, the ASI rose by 0.51% to close trade at 66,490.34 basis points, a significant rise above the high of 66,371.20 bps recorded on March 5, 2008. This was driven by strong earnings growth, improved macroeconomic conditions, and increased foreign and domestic investments. In June, the stock market capitalization increased by 9.3% to ₦33.2tn. And by November, it rose to a record high again. The All index share rose 1.9% with 70,581.76 points outperforming the emerging markets index in Europe, the Middle East, and Africa which was 0.6%.
Local investors take most of the credit for this feat as many were looking to protect their savings against soaring inflation that hit the country. Some of the best-performing sectors were banking, manufacturing, oil and gas, and telecommunications. The biggest winners were some of the most unexpected companies, like Chams Plc and Computer Warehouse Group Plc. The stock exchange also witnessed some notable listings with VFD Group Plc emerging as the listed company of the year. Despite the economic headwinds and the Financial Times Stock Exchange reclassifying Nigeria from frontier market status to unclassified market status, the Nigerian Exchange was Africa’s second-best-performing exchange in 2023, behind Ghana.
Revenue generation is simply how a country makes money. But to achieve a reliable stream of revenue that can support their economic resilience and development, countries need to build tax capacity, disseminate good data, and design a comprehensive tax policy that is efficient and equitable. For the 2023 fiscal year, the government projected a revenue target of N20.51 trillion, the highest so far in the nation’s history.
The budget was heavily reliant on the removal of petrol subsidies and ramping up oil earnings. Although oil and gas revenue saw significant increases due to global price hikes, the county’s oil and gas sector did not meet the desired target for revenue in 2023. As of October, the country’s oil production was at 1.35 million barrels per day with 5.58 trillion realized as against the prorated estimate of 7.04 trillion.
A Dataphyte report also revealed that 23 states performed below their projected internal revenue generation in the first quarter of 2023, with a total IGR of N2.64 trillion for the 36 states. Nigeria has the fourth lowest revenue-GDP ratio globally. High inflation, low tax collection, and weak currency were some of the deteriorating factors. Thankfully, the non-oil sectors became the new engine of revenue growth. Non-oil revenue outperformed by 30.4%. And Nigeria recorded a trade surplus of N1.89 trillion as its total exports amounted to N10.35 trillion.
Last year we talked about how Nigeria’s debt was every shade of confusing. We regret to inform you that the situation has not changed. According to Nigeria’s Debt Management Office (DMO), the country’s total public debt surged to N87.38 trillion at the end of the second quarter. Initially, the DMO had projected that the nation’s public debt might reach N77 trillion, especially after the National Assembly approved former President Muhammadu Buhari’s request to restructure the Central Bank of Nigeria’s Ways and Means Advances.
However, as of November, the debt surpassed the DMO’s estimate by N10.38 trillion. The DMO forecasts that Nigeria’s total public debt may reach 73.5 percent of its gross domestic product this year, nearing the government’s self-imposed limit of 50 percent, primarily due to insufficient revenue generation. The World Bank has stated that Nigeria, alongside other developing countries spent $443.5 billion to service public debt amid a surge in interest rates. Nigeria spent about 277.64% on external debt servicing in Q3. A large percent of Nigeria’s external debt service expenditure is attributed to the World Bank, the Exim Bank of China, and the IMF. We know we implied this last year, but Nigeria is floating at a critical juncture where servicing its debt is a major economic challenge. Is there an end in sight to Nigeria’s rising debt?
Foreign exchange reserves serve many purposes. They usually serve as backup funds for a country whose national currency is experiencing rapid devaluation. Nigeria’s foreign reserve is closely watched data due to its significance on the country’s ability to match pent-up demand for forex, especially from institutional investors. However, by the end of the 3rd quarter, Nigeria’s foreign reserves declined by about $3.8 billion. By the end of the year, the external reserves depleted by 11.55 percent ($4.28 billion), as the naira fell steadily against the dollar in 2023. The main reasons for this drop were the weak crude oil output, increased demand for foreign exchange, and the lack of foreign investor participation in the capital market. The low level of reserves was a risk for the Nigerian economy, especially in the face of external shocks and uncertainties. As of September, the CBN had forex backlogs estimated at $10 billion.
For comparison, here is the Annual Economic Index for 2022.