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Nigeria’s Q1 GDP growth slows to 2.31% as Naira redesign takes its toll

The National Bureau of Statistics (NBS) released Nigeria’s Q1 GDP report yesterday (May 24). In line with our forecast and analysts’ expectations, Nigeria’s real GDP growth slowed to 2.31% in Q1’23 from 3.52% in Q4’22. This was largely due to the disruptive effects of the Naira redesign and cash crunch, which compounded the typical lull in economic activities at the beginning of the year.

The data showed that almost all the employment elastic sectors were severely affected by the Naira cash crunch. The agriculture sector for instance, contracted for the first time in over a decade (-0.9%) while manufacturing and trade sectors slowed to 1.61% and 1.31% respectively. This is not surprising as most business transactions especially in the informal sector are settled with cash.

Can the Dangote Refinery Turn the Tide?

There is no doubt that the Dangote refinery and petrochemicals will be a major game-changer especially in Nigeria and other West African countries. However, it is a necessary but not sufficient condition for macroeconomic stability and growth. The reduction in downtime (fuel queues) due to increased availability of fuel products is expected to boost productivity and bolster output growth due to inter-sector linkages. To turn the tide, critical institutional and policy reforms are required. Policy reforms aimed at addressing the ballooning public debt, unrelenting inflationary pressure, dwindling revenue, and worsening currency crisis must be prioritized.

Meanwhile, real GDP growth could slow in Q2 as political activities cloud economic events. This would be compounded by the CBN’s hawkish stance, which would increase borrowing costs. The MPC raised the benchmark interest rate by 50bps to 18.5%p.a. at its recently concluded meeting.

In the download, the FDC Think-Tank breaks down the GDP numbers for Q1’2023, analyzing its implications on your business, wallets, and the overall economy.

Enjoy your read…