Outlooks are like weather forecasts; they can be instructive but not conclusive. A weatherman or woman could advise that citizens carry brollies when going out but the sun rises and blazes in all its glory, the wind blows gently and by 4.00 pm not a drop of water cools the face of parched pavements. Should the weatherwoman be given a pink slip and shown the door? No. Outlooks are guides based on the available information (which are not exhaustive) and assumptions that can shift for a wide variety of reasons.
For Proshare’s 2023 Economic Outlook the analysts came to conclusions based on the quality and quantity of best-in-class data available as of the time of report writing. 2023 is a tricky year to make firm statements on plausible economic outcomes. Key considerations include but are not limited to the following:
- Security fragility. Nigeria has a delicate security situation with bandits harassing citizens across state borders in the south, while religious brigands terrorize communities across the north. Kidnappings, political killings, and ethnoreligious conflicts are sore social touchpoints.
- Supply-side Inflation. Nigeria’s inflation rate has spiralled over the last half-decade with headline inflation rising from 12.15% in 2018 to 11.39% in 2019, 13.21% in 2020, 16.98% in 2021, and 18.76% in 2022. 2020 represented the heart of the COVID-19 pandemic so expectedly inflation rate was moderated as demand fell and supply chains buckled. Between 2021 and 2022, the supply chain difficulties of the COVID-19 period translated to higher costs of inputs and rising domestic wholesale and retail prices. Supply chains remain brittle, and manufacturers are coping with demand dropoffs as sales figures stumble. The trend will continue into 2023.
- Politics and the uncertainty of candidate reliability. The old brigade of recurring political personalities has made the electoral choice difficult. One of three front-running candidates may win the elections. Two of these candidates have dodgy social and political antecedents with the layering of accusations of rampant corruption. The third candidate may not have the sociopolitical baggage of the other two but still represents a nondescript character, with suspicions of ties to secessionist organizations in the south.
On economic policy, the three candidates are twelve of this and a dozen of the other. They all profess free market biases and a tendency towards increased private sector economic participation. A trust deficit, however, creates a credibility gap for the three candidates, with the youngest of the three less impaired and more believable. Even at that, he seems vulnerable to the banana peel of naivety.
4. Global economic shifts will have unintended consequences for emerging economies.
The World in Technicolour
The new face of reality is changing. With global financial markets becoming friskier, gone is the serene predictability of economies, off is the shining promotion of multilateralism, and buried is the concept of a fraternal new world order. In place of the old global economic playbook is a new set of rules that disdains globalization, restrains selfless collaboration, and drives a stake in the heart of global coordination. The new battle cry is every nation for itself, and the devil takes who ends last!
In 2022 the world was dark, dreary, and depressed. The breakout of the Russian-Ukrainian war sent global oil and gas prices spiralling while grain prices equally stretched to the heavens. Inflation soared across continents, with the UK ending the year in double-digits (10.5% in Dec), the USA recovered somewhat (from 10.1% mid-year to 8.0% year-end), and the Eurozone tangled with an inflation rate of 8.4%. Higher inflation rates have meant tighter monetary policy and slower global economies. In the new year, some economies will fall into a recession with higher corporate finance costs, weaker consumer demand, and sliding profit margins. Workers will get kicked through doorways as companies double and fold. Tech companies have already led the way. Amazon says it would lay-off 18,000 staffers as it attempts to right-size its workforce.
Sub-Saharan Africa will mirror other prominent European and American economies. Continental inflation rates will be high, triggered by higher raw material costs, steeper replacement costs, escalating energy costs, higher grain import prices, and rising domestic labour wages and salaries.
Africa’s Slow Renaissance
Africa’s economic recovery will take some time coming. Most commodity-based economies in 2023 will have stunted growth. True enough, analysts expect that in Q1 and perhaps Q2 2023 commodities such as oil and cocoa may see prices rise, but this would be temporary. A pullback to growth would be a slowing down of Europe’s economy as a recession or near recession (growth is expected to be 0.5% or lower for the year) sets in. The U.S. economy would equally break bad as growth slows to roughly 1%, as global energy and commodity demand fizzle down, thereby lowering commodity prices.
Lower commodity prices will hurt many African economies in 2023. Slower growth in large global economies will force African economies to stutter and put downward pressure on international commodity prices. However, there are countervailing tendencies. The opening up of the Chinese economy following the abandoning of the zero-COVID-19 policy would see the Chinese economy expand and demand for commodity inputs could rise in Q2 2023. A warmer-than-expected winter in Europe could see demand for manufacturing inputs rise higher than previously predicted and commodity prices could rise on the back of improved global demand.
The concentration on commodities could be Africa’s undoing as strategic western economies concentrate on the upper end of what analysts call the smile curve (see illustration 1 below).
The curve reflects the fact that most modern production value is in the areas of intangibles such as patents, copyrights, trademarks, research & development and franchising. Returns in manufacturing are thinning out as fixed and operating costs rise.
Nigeria may need to adopt a two-track growth approach with an increase in manufacturing production accompanied by a deliberate approach to internalizing the benefits of creative and scientific efforts. For example, bitter leaf, a common food plant in Nigeria has been put into capsules and used as a wellness supplement. In the creative sector, Afrobeat has become a fast-growing global music genre but most of the economic value of this is domiciled outside Africa, with several artists setting up management firms in the United States of America (USA), particularly Delaware.
Operating at the upper corners of the industrial ‘smile’ curve enables emerging markets optimise and financialise talent. Furthermore, in a population census year with an estimated seventy per cent of Nigerians below the age of 45 years, the strategic architecture of statecraft and economic management become critical in shaping the future.
The report covers the wide interlacing network of political, economic and social concerns that will transform socioeconomic pains into measurable societal gains. The report notes that winners are those that understand the country’s socioeconomic drift and solutions to generate value amid uncertainty.
Section One looks at the miscellany of developments in the globe that characterized the economy last year. The impact of megatrends such as the Russian invasion of Ukraine, the rafts of sanctions that followed, as well as the cycle of monetary policy tightening undertaken by central banks to dial back global inflation were assessed. The section also considers the impact of higher interest rates on the debt profile of emerging market economies.
Section Two is an excursion into the plans and programs of the frontline candidates in the forthcoming 2023 presidential elections. This section reports and analyses the outcome of a survey conducted by Proshare wherein a cross-section of the electorates assessed each of the candidates in the areas of the economy, security, education, health, and infrastructure. This section looks at the various possible outlooks for the economy based on the potential outcomes of the February polls.
Section Three breaks into an audacious attempt at re-imagining National development planning in Nigeria. It highlights the outcomes of past development plans while analyzing the trend of domestic economic growth, inflation, unemployment, and public debt. This section identifies the need for coherence between long-term plans, medium-term plans, and the annual budgets of the government.
Section Four looks at the fiscal position of the government. It particularly focuses on the debt service cost, the rising debt profile of the federal government, and the implications of the possible securitization of the Ways and Means Loans advanced by the Central Bank of Nigeria (CBN) to the Federal Government. The section presents an outlook on the fiscal position of the government while proffering alternative courses of action necessary to improve the fiscal space of the Federal Government.
Section Five considers the impact of rising inflation, higher interest rates, and a depleting pool of trained workers on Nigerian Businesses. This section takes a look at the likely impact of specific provisions of the 2022 Finance Bill on the projected earnings of Nigerian businesses in 2023. The section rounds off with a recommendation for organizations.
Section Six looks at the laborious journey of the Nigerian household in 2022. It analyses the impact of higher food prices, electricity costs, and Premium Motor Spirit (PMS) on the purchasing power of the average Nigerian household. The section also gives an outlook on what anticipated developments and government policies bode for the household in 2023.