Muda Yusuf, the immediate past director general of the Lagos Chamber of Commerce and Industry (LCCI) and a senior grade Nigerian economist, says he anticipates a largely positive growth outlook for the Nigerian economy despite recent numbers from the country’s official statistics bureau which shows Nigeria may not fully come out of the woods soon.
Yusuf said the outlook for Nigeria’s economy seems fragile, but that the positive rally in crude oil prices will be a key driver as this will give the CBN more fiscal and monetary headroom for its continued intervention in the forex market.
Now the chief executive officer of Centre for the Promotion of Private Enterprise in Nigeria, Yusuf’s position is contained in his outlook for the Nigerian economy in 2022, wherein he states that gross domestic product (GDP) growth would remain fragile, but he projects it at the three percent threshold, while listing the key expected drivers of growth to include sustained recovery of global oil price.
“We expect that the average oil price in 2022 will exceed the budgeted benchmark of $62 per barrel, offering some fiscal headroom. This would be powered by higher energy demand driven by the recovery of economic activities globally. This trajectory is expected to impact on our foreign reserves and strengthen the capacity of the Central Bank of Nigeria (CBN) to support the foreign exchange market,” he said.
According to the economist, the impact of the pandemic on the global and domestic economies is beginning to dissipate on account of increased vaccination and other measures to contain the pandemic. The capacity of many countries to manage the pandemic has progressively improved with each pandemic experience. Therefore, the shocks of the subsequent variants of the pandemic on the global and domestic economies are likely to be less severe than previous ones. Instances of lockdowns of economies are less likely to be prevalent in 2022.
“We expect to see less damaging response adopted by countries around the world. Therefore, both globally and domestically we are less likely to witness prolonged lockdowns. The service sector of the Nigerian economy will continue to outpace the real sector in 2022. In the third quarter of 2021, the service sector contribution to GDP was 50 percent and the growth of the sector was 8.41 percent. The reason for this was that the service sector is less vulnerable to the structural constraints bedevilling the economy, particularly the real sector of the economy. The infrastructure demand in the services sector is much less than that of the real sector of the economy,” he opined.
For Yusuf, the activation of the Petroleum Industry Act (PIA) in 2022 is expected to impact positively on the economic outlook as Nigeria expects to see positive outcomes as investor sentiments in the oil and gas sector improve on account of the reforms anchored on the PIA. This will however depend on the political will deployed to drive the implementation of the provisions of the Act. It is also expected that the coming on stream of the Dangote refinery in 2022 will also impact positively on the downstream sector of the economy. He said the economic players will grapple with a number of headwinds in the economy in 2022; but these have macroeconomic, policy, regulatory, structural and security dimensions.
He noted the seemingly intractable problem of insecurity, which remains a significant risk to the economy, and said its impact on some sectors, especially the agricultural sector, will be profound.
Yusuf highlighted the concerns about the perception of Nigeria as an investment destination and the implications for Nigeria’s country risk rating. He also said the monetary and foreign exchange policy rigidities may also pose a risk to the growth outlook as there are no indications of any significant shift in monetary and foreign exchange policy stance in the near term.
“Consequently, the distortions inherent in the foreign exchange market will persist in 2022. The constraining effect of the high Cash Reserve Requirement [CRR] on financial intermediation would also persist in 2022 with a dampening effect on the growth outlook. Investors will have to grapple with the barriers to international trade experienced in 2021. These are problems relating to the Lagos ports, the traffic gridlock, port congestion, bureaucratic documentation processes, extortions and the prohibitive charges by terminal operators and shipping companies are unlikely to abate in 2022,” Yusuf stated.
Continuing, he said: “The aggressive drive for revenue by agencies of government will put enormous pressures on investors in 2022. Beyond the regular tax authorities, other agencies of government may become more aggressive in their revenue drive. This will constitute an additional burden to investors in 2022. The burden of petroleum subsidies on government finances may persist in 2022 despite the PIA. It is doubtful whether the government will be able to exercise the political will to effect the removal of petroleum subsidy given the closeness of the timing to the 2023 elections.
“Therefore, on account of political exigencies and push back by the ruling party and labour, the economy may have to bear the heavy fiscal burden of subsidy in 2022. This also signals delays in the full implementation of the PIA and reform of the downstream oil sector. However, if the Dangote refinery comes on stream in 2022, the fiscal pressure may abate, but not completely [be] eliminated. The pressure of debt service on government finances will persist in 2022 and beyond,” he stated.
On the 2022 budget and Nigeria’s fiscal deficits, the CEO of the Centre for the Promotion of Private Enterprise in Nigeria (CPPEN), revealed that the ambitious budget size of N17.1 trillion and the unpredictable revenue outlook elevates the risk of a higher fiscal deficit than projected, adding that it has implications for macroeconomic outcomes of high fiscal deficits, a new round of monetisation of the deficit, pressures on the exchange rate and the general price level.
Yusuf, who has been a longstanding senior grade economist and observer of the Nigerian economy, concluded by stating that: “Despite the downside risks, the economy will continue to present huge opportunities for investors across all sectors. This is on account of the resourcefulness of the Nigerian people, especially the entrepreneurs. Other inherent strengths of the Nigerian economy include the market size, population, and demographic characteristics. The economy will continue to draw its resilience from the activities and creativity of the SMEs and the informal sector of the economy. The reality is that the policy, structural and regulatory weaknesses will persist in 2022. But investors have a responsibility to construct their business and corporate strategies to manage the inherent risks.”
