2023: Resetting the Economy for Optimum Performance

2023: Resetting the Economy for Optimum Performance

As the economy wobbled into the new year amid myriads of unresolved economic challenges and the seeming lack of capacity of the outgoing administration to halt the slide, 2023 offers a ray of hope to Nigerians who will in March have the opportunity to go to the poll to change their destiny by electing an administration competent enough to reset the economy, write Festus Akanbi, Chinedu Eze, Emma Okonji, James Emejo and Kayode Tokede

Nothing explains the current level of pain, frustration, hopelessness and delusion in the land better than the current dispensation of prolonged fuel scarcity which forced many people to spend their yuletide holiday at fuel stations and not at worship centres, which is supposed to be the norm.

Observers said the failure of the government to do better than issuing impotent statements on plans to end the crisis is a vindication of the fear in certain quarters that with barely two months to the general election, the current administration may have technically shut down as Nigerians are left at the mercy of fuel marketers who sell a litre of petrol according to their whims and caprices. 

These days, the narrative centres on the need to pick the economy from the abyss it has descended, especially in the twilight of this administration, and fashion out some quick wins capable of redeeming the population from the current state of paranoia. 

Debt Burden

With borrowing piling up at a frightening dimension at a period when the nation experiences acute revenue shortage, and with the lack of balls needed to remove the controversial fuel subsidy by the incumbent administration,  Nigeria’s revenue crisis is exacerbated by the fact that the little revenue generated is deployed to service the nation’s debts which have taken an embarrassing proportion. 

Brushing aside all calls for caution, President Buhari is seeking the approval of the National Assembly for yet another N819.54 billion domestic loan. country. 

The new borrowing will increase the Federal Government’s domestic borrowing in 2022 to N3.33 trillion. Addicted to debt, the size and frequency of Buhari’s borrowing are unprecedented in the country’s history. On his watch, total external debt rose from $10.32 billion in June 2015 to $40.06 billion by June 2022, an increase of $29.74 billion or 288.17 per cent. 

Data from the Debt Management Office showed that the government’s domestic debt stock was N19.24 trillion by December 2021. By September 2022, it had risen to N21.55 trillion, an increase of 2.31 trillion in just nine months.

This is why an economist and a non-resident fellow at the Center for Global Development, Washington DC, US, Olumuyiwa Adedeji believed that there’s a paradox in an oil-producing country struggling with a macroeconomic performance at a time when oil prices are generally high. In Nigeria, this paradox largely reflects lower oil production, higher fuel subsidies, and underlying macro-structural challenges.

 Real GDP growth fell to 2 per cent during the third quarter of 2022, and year-on-year inflation reached 21 per cent in October, with food inflation at nearly 24 per cent. About 63 per cent of Nigeria’s population is multidimensionally poor, and Nigeria’s debt service-to-revenue ratio at the federal government level reached 83 per cent during the first eight months of 2022. In short, the country is facing significant fiscal-macroeconomic challenges, with implications for both current and future administrations.

 A Fresh Beginning…

So while 2022 ended on a disappointing note, analysts believe 2023 offers a profound opportunity, especially by the incoming administration, to redirect the Nigerian economy from the labyrinth of hopelessness by enunciating policies that will meet the current challenges facing the nation’s economy.

In the estimation of analysts, the Nigerian economy at its present state is like a dilapidated house which needs to be completely broken down for a new formidable edifice that will continue to stand the test of time.

So as President Muhammadu Buhari and his cabinet bow out in April, there are expectations that a new Nigerian economy will be unveiled when all the contending issues will be treated. These include the need to urgently ensure the total deregulation of the petroleum downstream sector; consolidation of the power sector reform; prioritisation of infrastructure financing, resetting of the monetary policy, resolution of the foreign exchange market crisis, and fight against corruption and policies that will aid employment generation.

The legacy issues to be tackled include the twin challenges of low crude oil production and oil theft. Others are the failure to achieve total deregulation of the petroleum downstream sector, and the pending reforms in sectors like telecoms, aviation, capital market, insurance and Micro, Small and Medium Enterprises.   

All Eyes on Dangote Refinery

Amid the confusion in the petroleum industry and the perennial fuel scarcity, expectations are rife that with the coming onstream of the Dangote Refinery, especially in the first quarter of the year, Nigeria will heave a sigh of relief given the reality that a private refinery will be run profitably and efficiently. 

Reports said that the Dangote Refinery is nearing completion as pre-commissioning tests reach concluding stages making a launch date in the first quarter of 2023 feasible.

Sources close to the company’s plans said the refinery, billed as the largest single-train refinery in the world with a capacity to process 650,000 barrels per day could see the first refining runs begin as early as March.

The integrated refinery and petrochemical complex in the Lekki Free Zone near Lagos, Nigeria, will produce Euro-V quality gasoline and diesel, as well as jet fuel and polypropylene and will likely generate 4,000 direct and 145,000 indirect jobs.

It is expected to double Nigeria’s refining capacity and help in meeting the increasing demand for refined petroleum products while providing cost and foreign exchange savings. It is estimated to have an annual refining capacity of 10.4 million tonnes of petrol.

However, observers said Nigeria’s oil production has fallen by half in a decade while petrol subsidies erode earnings and disrupt the fuels market in Africa, developments that could test the world’s largest single-train refinery ready to the commissioned.

The Nigerian National Petroleum Company Limited, on behalf of the federal government, controls four refineries which include: the Kaduna Refining and Petrochemical Company, Warri Refining and Petrochemical Company, and Port Harcourt Refining Company. 

In the face of poor performance and huge overheads, experts say fixing Nigeria’s unprofitable refineries to functional capacity has remained the promise of every administration since 1999.

The federal government has however piled up debt rather than embrace global examples of how to run a successful refinery, failing to curb an appetite for waste that has eaten the country’s national budget for decades.

Rejigging Fiscal, Monetary Policies

It is a fact that the link between the current and incoming administration is the 2023 federal budget. Against this background, the budget focuses on maintaining fiscal viability and ensuring a smooth transition to the incoming administration. The proposed 2023 federal government budget implies a general government fiscal deficit of about 6 per cent in 2023 compared to an estimated 6 per cent in 2022. 

However, Adedeji explained that a general government deficit of this magnitude would entail additional central bank financing given the difficult external environment and the need to limit crowding out of the private sector. According to him, “Macroeconomic trade-offs imply that when inflationary pressures are high as is the case in Nigeria, fiscal policy should protect the most vulnerable while pursuing a tightening stance to avoid overburdening monetary policy in the fight against inflation. 

“Tightening fiscal policy requires prioritising spending among competing needs and mobilising revenues in a growth-friendly way. A more ambitious fiscal consolidation could send a powerful signal that policymakers are aligned in their fight against inflation, which, in turn, could reduce the size of required policy rate increases to keep inflation expectations anchored and keep debt-servicing costs lower than otherwise,” he suggested. 

Therefore, the current government needs to take additional fiscal measures to set the stage for the new administration. The current administration should lead the required fiscal adjustment process by transparently and significantly reducing the cost of governance and administrative capital expenditures. 

For the incoming administration, there is a need for political commitment at the highest level and broad buy-in from stakeholders is crucial to improving revenue collection.

Next is the need to redesign the existing tax policy to favour growth-enhancing activities. The government also need to assess the effectiveness of existing fiscal incentives. Efforts to design more progressive tax systems and boost tax collection — particularly, property and/or land taxes — will surely help. This will have to be combined with increasing the VAT rate, streamlining existing VAT exemptions, and increasing existing excise rates on alcoholic and tobacco products.

As the two major monetary policies introduced last year take effect this January, analysts believe the current administration has begun to position the economy for the needed reforms. These are the Naira redesign and the withdrawal limit, which seek to checkmate the activities of currency dealers, criminally minded individuals who indulge in kidnapping and robberies as well as politicians who engage in vote buying.

Much is also expected in the foreign exchange sector as more dollars are expected to be generated by enhanced non-oil sector activities and the anticipated commencement of the Dangote Refinery. One hopes that the apex bank would yield to the call for the unification of the two existing foreign exchange rates.

Drivers of Telecom Sector in 2023 

 Counting on the gains of the telecom sector and how it positively impacted the Nigerian economy in 2022 in the areas of GDP growth, broadband penetration, and Fintech growth, the Chairman of the Association of Licensed Telecom Operators of Nigeria (ALTON), Mr. Gbenga Adebayo, has said Fintech and Data Application will be the major drivers of the economy in 2023. 

According to him, there will be increased data analytics that will inform major decision-making in 2023, driven by increased data application. He said Fintech would get more support from telecom operators in 2023 which would enable them to develop more solutions that would further support financial transactions across the board. 

He added that Fintech would ride on 5G technology, when it is fully rolled out in 2023 by licensed 5G operators, to provide bespoke solutions that would drive smart cities and the digital transformation agenda.

He further said all these would be driven by 5G technology deployment by the operators that have been licensed to provide 5G services in Nigeria.

Nigeria recorded broadband subscription growth of 84.9 million with a penetration rate of 44.49 per cent in July 2022. It increased to 85.2 million and 86.06 million in August and September respectively.  The figure rose to 86.94 million in October.

Listing the gains of 5G deployment in 2023, the Chief Executive Officer of MTN Nigeria, Mr. Karl Toriola, said MTN had already rolled out its 5G network in Lagos and Abuja, with plans to launch in additional five cities in 2023, such as Port Harcourt, Ibadan, Kano, Owerri, and Maiduguri, adding that customers with certain enabled devices will be allowed to connect with and try out the new service where coverage is available. 

The Executive Vice Chairman of, the Nigerian Communications Commission (NCC), Prof. Umar Garba Danbatta, said government policies and the ICT Parks initiative of the NCC would drive development in the telecom sector in 2023.  

According to Danbatta, the National Digital Economy Policy and Strategy (NDEPS 2020-2030), which seeks to fast-track digital development and empower Nigerians with the right technology skills, will drive development in 2023, adding that the ICT Parks initiative of the NCC, will further ride on the NDEPS policy to enhance digital transformation in 2023. 

The ICT Parks, which are planned to be established in each of the six geopolitical zones, is expected to boost youth digital skills acquisition, promote innovations, provide jobs for the teaming Nigerian youth and ultimately support the overall digital economy agenda of the federal government when completed in 2023.

As Investors Await Body Language of new Govt

Despite foreign investors’ exit due to the scarcity of foreign exchange and the global hike in the inflation rate, the stock market of the Nigerian Exchange Limited (NGX) in 2022 has maintained a positive trend.

The stock market stood at 16.36 per cent in its Year-till-Date (YtD) performance, driven by retail/high network investors’ renewed interest in undervalued stocks. 

Meanwhile, capital market analysts have predicted mixed market performance come 2023, being an election year as investors, most especially foreign investors, await the incoming president’s economic reforms after the elections.

Analysts at Cordros securities in a report titled “ Nigeria in 2023: Macroeconomic Review & Outlook Domestic Economy Charting Through a   Pervasive Slowdown” explained stated that although the Russia-Ukraine conflict compounded the domestic inflation woes, “we highlight that price pressures were also self-inflicted in the form of policy distortions such as trade restrictions,  lack of flexible FX framework, and insincere monetary policy actions. 

“On, the CBN continues to increase the key policy rate but maintains its monetary financing of the FGN’s fiscal deficits and credit intervention programs.”

Most listed banks, Fast Moving Consumer Goods (FMCG), and cement manufacturing companies have overcome  covid-19 pandemic, among other challenges, and have announced impressive performances that have attracted increased trading on the bourse.

As the inflation rate currently at 21.47 per cent as of November has eroded investment, the pension fund administrators, and retail investors have increased their investment in fundamentals stocks and at the same time divest to fixed-income securities in a move to gain attractive yield on their investment above the inflation rate.

 The trend, according to analysts will continue in 2023 as investors’ shift might thrust the stock market into negative territory in the first quarter of the year when Independent National Electoral Commission (INEC) will conduct the general elections. 

The Chief Managing Director, of Highcap Securities Limited, Mr. David Adnori said, “With the expectation of relatively high yields in the fixed income market, especially in the first half of 2023, most investors are expected to patronise the bonds market more. 

“Consequently, we may see less participation of investors in the stock market in the first half of 2023 due to the upcoming election, weak local currency, the expectation of relatively high yields in the bonds market, and insecurity in the country.

“Although, we may see a bullish run in the first month of 2023 as we expect investors to position for dividend payment.”

He added that the ability of the next president to tackle the insecurity in the country and boost foreign exchange earnings would determine the direction of the stock market in the second half of 2023.

On his part, the Chief operating officer of InvestData Consulting Limited, Mr. Ambrose Omordion, projected financial market and economic reset, higher inflation, reforms, slow economic growth,  post-election rally for weeks if the election is successful, and improved external reserve if crude oil production output is sustained in the new year.

Analysts at Cordros securities forecasted interest rates domestically to remain high over 2023. 

According to them, “At the same time, we expect currency pressures to persist in the absence of any positive signal that denotes an improvement in FX supply relative to the pre-pandemic levels.”

Operators Await Implementation of Aviation Act

In the aviation industry while Nigeria was off the COVID-19 radar in 2020, when there was the resumption of flights after the lockdown and a significant reduction of fatalities; but

Although Nigeria was off the hook of the COVID-19 lockdown since 2020, it still maintained the protocol till December 12, 2022, when the Nigerian Civil Aviation (NCAA) announced the relaxation of COVID-19 protocols at the airport.

One of the highlights of the 2022 performance was the acute scarcity of aviation fuel as oil marketers raised the cost of the product from N180 per litre to N400 in February 2022.

In their spontaneous reaction, airlines increased airfares and N50, and 000 became the base fare for any destination in the country. The fare continued to increase as demand soared, enhanced by insecurity in the country, which made road transport a huge risk.

The Nigeria Bureau of Statistics (NBS) in its latest report stated that the average cost of aeroplane tickets in Nigeria rose from N37, 022.97 in November 2021 to N73,267.57 in November 2022. This represents an increase of 97.09 per cent, according to the NBS’ Transport Fare Watch report for November 2022. The report also showed that the average price of a single flight ticket increased by 0.09 per cent from N73, 198.65 in October to N73, 267.57 in November 2022.  NBS explained that in air travels fare; the average fare paid by air passengers for specified routes single journey, increased by 0.09 per cent on a month-on-month from N73, 198.65 in October 2022 to N73, 267.57 in November 2022.

Aviation industry watchers said these experiences above will define the industry in the New Year. Air fares may slump in the low season that follows the Christmas holidays, but if airlines return their leased aircraft, low capacity will spontaneously increase airfares from April, but with the election coming in February, any significant changes that would take place in the sector in 2023 would be dictated by the policies of the new government.  

 They argued that the future of the aviation industry in Nigeria will also be hugely influenced by the NCAA’s review of the Nigerian Civil Aviation Act to ensure that it meets with the International Civil Aviation Organisation (ICAO) regulation. NCAA said the new Civil Aviation Act 2022 would ensure the efficiency of the aviation sector as it has inculcated all new standards, annexes and international best practices laid down by (ICAO).

Making the Right Choice

It is instructive that the quality of the transition programme will determine the quality of the leaders to be elected. This according to the Director of the Centre for the Promotion of Private Enterprise, Dr. Muda Yusuf is why the current administration must ensure that people’s votes count on election day.

He maintained that “the political environment has a major impact on economic and business performance. Therefore, the quality of the political transition process, especially the credibility of the 2023 elections would be of contextual significance for the economy in 2023.  The elections must be free, fair, transparent and credible. “And it must be seen to be so.  This underlines the need for the independence, neutrality and credibility of the key institutions involved in the election management process – INEC, the Judiciary and the security agencies.  The quality of the democratic transition and choices would significantly impact economic outcomes in 2023.”

It is the crop of go-getters that Nigeria needs now. The rot in the economy is getting messier. Only a set of public officers legitimately elected will have the wherewithal and moral courage to organise the clean-up in a way that will free the population from the pain, hopelessness and anger standing between them and a season of a fresh beginning.

Related Articles