The cash scarcity caused by the naira redesign policy of the Central Bank of Nigeria has pushed Nigeria’s Gross Domestic Product growth below global projections of the World Bank, International Monetary Fund and the African Development Bank.
The World Bank said that the Nigerian economy would grow by 2.8 per cent in 2023, down from 3.3 per cent in 2022, in its Africa Pulse Report April 2023 edition titled ‘Leveraging resource wealth during the low carbon transition.’
In its World Economic Outlook for April 2023 titled ‘A Rocky Recovery’, the International Monetary Fund retained its growth forecast of 3.2 per cent for Nigeria’s economy in 2023.
The African Development Bank in January projected that Nigeria’s GDP, which indicates the economic growth rate, would inch up to 3.1 per cent in 2023, adding that uncertainty about policy continuity after the election and rising insecurity will weaken the nation’s growth prospect during the year.
However, Nigeria’s GDP growth fell to 2.31 per cent in the first quarter of 2023 from 3.52 per cent in the fourth quarter of 2022, according to the National Bureau of Statistics.
The NBS attributed the decline to the adverse effects of the cash crunch experienced during the quarter.
The report read in part, “Gross Domestic Product grew by 2.31 per cent (year-on-year) in real terms in the first quarter of 2023. This growth rate declined from 3.11 per cent recorded in the first quarter of 2022, and 3.52 per cent in the fourth quarter of 2022. The reduction in growth is attributed to the adverse effects of the cash crunch experienced during the quarter.”
The decline is also slightly below a recent projection by KPMG that Nigeria’s GDP will grow at a relatively slow pace of 3 per cent in 2023 due to challenges associated with the naira redesign and political transition.
In his personal statement after the March’s Monetary Policy Committee meeting this year, Mike Obadan, a professor of Economics and a member of the MPC, said the observed improvement from Q3 to Q4 in 2022 is not likely to be sustained in Q1 2023 due to the sustained rise in inflation, strong monetary tightening, high energy prices, subsisting insecurity and foreign exchange market pressures, challenges of the Naira redesign policy and the unintended consequences which have adversely affected domestic consumption, trade, investment and output.
“In light of these, the growth rate may fall below 3.0 per cent in Q1 2023,” he said.
The NBS also disclosed that the performance of the GDP in Q1 2023 was driven mainly by the services sector, which recorded a growth of 4.35 per cent and contributed 57.29 per cent to the aggregate GDP.
Speaking with The PUNCH, a senior lecturer at Lagos Business School, Prof Bongo Adi, said the electioneering season played a huge contributory role in the Q1 GDP decline.
According to him, the uncertainty that pervaded the period led to a partial hibernation of the productive sector.
He added, “The reason for the decline is not hard to tell. What we are looking at is the fallout of the 2023 elections. Let’s not forget all the strange policies that the CBN started to unleash which strangled businesses.”
Reacting, the Director, Centre for Promotion of Private Enterprise, Dr Muda Yusuf, said significant shocks to the economy in the first quarter caused a plunge in GDP growth, adding that it didn’t come as a surprise.
Also speaking with the PUNCH on the key factors that may have led to the decline in Gross Domestic product growth, a professor of Economics and Director of PhD Programme at the Pan-Atlantic University, Prof Perekunah Eregha, said the slow growth was expected, blaming factors, such as high production cost, among others.
He warned that there is likely danger ahead if the country fails to boost oil production.
Emefiele said, “If we do not do this, I think we are looking at a really big problem ahead of us, particularly at a time when there is a concerted determination to exit the subsidy regime. There is danger ahead, we must do something immediately.”
Reacting to this, a facilitator with the Nigeria Economic Summit Group, Dr Ikenna Nwaosu, however, insisted that the move would support a rise in inflation.
However, the Director General of Nigeria Employers’ Consultative Association, Mr Wale Oyerinde, said the increased Monetary Policy Rate implies higher borrowing rate.
“Furthermore, the increased MPR implies higher borrowing rates, which would negatively affect companies and manufacturers that borrow capital for their survival. If unchecked, it could also lead to another form of economic quagmire as higher rates slow down productive activities.”
Also speaking, an economist, Mr Tajudeen Ibrahim, said, “The implication is that it will increase the cost for businesses and it will further bring down growth opportunities of the country.”
A professor of Economics at Babcock University, Segun Ajibola, urged the CBN to consider other factors beyond raising interest rates in taming inflation.
Also, a senior economist and partner at SPM Professionals, Paul Alaje, advised the CBN to work with fiscal authority in addressing other drivers of inflation.
He said, “The implication is that inflation will hopefully be tamed even though we have been adopting this strategy over time and we have not been seeing positive results coming from the monetary authority.
A professor of capital market and Chairman, Chartered Institute of Bankers of Nigeria, Abuja Branch, Prof Uche Uwaleke, said, “The hike in MPR to 18.5 per cent is not in the interest of output growth. Access to credit for MSMEs is further stifled. Besides, it may do little to halt the upward trend in inflation as recent experience has shown.