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By Chinwendu Obienyi
The year 2022 kicked off with the optimism of consolidation of the post-COVID recovery, albeit slowly, but eventually went southwards with the multifaceted impact of the Russia-Ukraine conflict and tighter monetary conditions.
Not only did the conflict disrupt the relatively smooth functioning of the global economy, but it also made global central banks hasten switches to monetary policy tightening as inflationary pressures rose to levels not seen in decades.
To put it in a proper context, global inflation rates were on the rise before Russia invaded Ukraine on February 24, 2022 reflecting the post-pandemic supply chain disruptions, shortages of chips and semi-conductors and increased demand that accompanied the reopening of world economies. Just before the world economies started feeling the impact of the war, global purchasing managers index (PMI) surveys reflected that the supply chain delays had started easing in the US, UK, and Euro Area, implying that inflationary pressures may moderate by the second half of 2022 amid the favourable base effects from the prior year.
However, the Russia-Ukraine conflict shattered the hopes of moderation as the conflict introduced new risks to the inflationary pressures, worsening the supply chain constraints.
Moreover, food and energy prices also spiked, given the contribution of both countries to global supplies. Therefore, consumer prices spiralled across the developed and developing economies to the extent that some countries introduced export bans to limit price shocks in their respective domestic economies.
For Nigeria, the domestic macroeconomic narrative did not change much in 2022, given the government’s lack of will to institute the necessary reforms to propel the economy forward. While domestic economic activities appear more resilient than envisaged, inflationary pressures remain entrenched, pressuring consumer wallets.
Similarly, FX pressures persisted and foreign investments remained frail. In the words of the World Bank, “amid heightened risks, the government has kept a ‘business-as-usual’ policy stance that hinders prospects for economic growth and job creation”.
Specifically, in the third quarter (Q3) of 2022, GDP growth slowed markedly to 2.3 per cent from 3.1 per cent and 3.5 per cent in the first quarter and second quarter of 2022, respectively.
Noteworthy, inflationary pressure (average: 18.6 per cent), public debt profile (up 18.7 per cent to N67.8 trillion), and exchange rate crises (parallel market rate weakened 31.0 per cent to N740/$1) all took a major leap in 2022 as Nigeria’s economic managers failed to optimise its human capital potential and favourable oil prices.
Also, the FG’s fiscal operations have been the same as in the last few years. On the one hand, the government continues to defer the decision on fuel subsidy removal and consistently increases its aggregate spending amidst a dwindling revenue profile. Amidst all these, the socio-economic conditions worsened, with 63 per cent (or 113.00 million) of the population living in multidimensional poverty, according to the National Bureau of Statistics (NBS).
Hence, given that these uncertainties played out in the global and domestic environment, striking a balance between avoiding a disorderly tightening of financial conditions and containing the potential threats will be critical. Also, with persistent and aggressive monetary policy tightening, the questions on the minds of investors will be centered around the probability of a soft landing.
According to economic analysts, it will be difficult for major central banks globally to engineer this, especially given that inflation rates have significantly risen above the monetary authorities’ target, even as the impact of monetary policies lags behind inflation and output.
They further opined that there are game changing events in 2023 that could either spur a new dawn or tip Nigeria down the cliff of macro and socio-economic crisis.
Afrinvest in its report titled; Nigerian Economic and Financial Review for 2022 and 2023 outlook: At a tipping point- Reform or Deform, pointed out implementation of the new cashless policy, elections, census, new administration, dangote refinery, policies, PIA implementation, amongst others.
Elections
Nigerians are heading to the polls in February. Their choices can either make or mar the country’s condition. The elections would stall economic and business decision-making amidst increased uncertainty.
Cashless policies
CBN’s cashless policy became fully operational this year. This would aid in curbing insecurity, reduce large-scale currency printing, drive financial inclusion and support the efficacy of monetary policy. In turn, we expect increased investment in payment technology and related e-solutions.
Census
The fifth national census since independence is expected to be held in April 2023. This would put accuracy to Nigeria’s population size needed in shaping developmental policies, planning and allocation of National resources.
New administration
The transition to a new administration is expected to occur in May/June. It is expected that the new government to commence aggressive market reform that would reposition the economy. There are 4 developmental agenda the incoming administration should pursue which include; accelerated and inclusive economic growth, enhanced foreign investment flows and exchange rate stability, non-oil-driven positive net-exports and rapid infrastructural development.
Dangote Refinery
The 650,00bpd integrated refinery is anticipated to commence operation by mid-2023. This in addition to the rehabilitated refineries are expected to put an end to refined oil importation and estimated to save Nigeria oil import logistics cost. This would also bolster performance of the oil sector.
PIA Implementation
The 18-month postponement of the Petroluem Industry Act (PIA) implementation, which deregulates the oil and gas industry, lapses in 2023. This would bring about unrestricted market pricing of PMS and an end to subsidy payment (estimated at N5.0 trillion in 2023) amongst other benefits to the industry. In addition, this plugs the leakage from government revenue that can be diverted for other developmental purposes.
