Nigeria: Prolonged naira shortage may slow economic growth

LAGOS (Capital Markets in Africa)- The Nigerian economy ended 2022 on a strong footing, expanding by 3.5% YoY in Q4’22, aided by a resilient non-oil sector. The positive print in the non-oil sector reflected gains in the services sector, stemming from strong ICT, trade and financial services performances. From our assessment, the relatively impressive 4G and 5G network coverages, elevated CAPEX spending, and the growing expansion of Fintechs boded well for the telecommunication sector (+10.35%) in the review period. Elsewhere, we link the growth in the trade sector (+4.5%) to improving e-commerce channels, which continue to drive FMCG volume pushout. Similarly, financial services (+11.6%) profited from increasing credit creation (39.9% YoY).

The strong economic growth observed in the final quarter of 2022 was despite the sustained recession in the oil segment, which plummeted by 13.4% YoY. Despite the negative oil GDP outturn, the 11.7% QoQ improvement in crude production to 1.34mb/d raised hopes for oil sector recovery in 2023. In our view, the current positive oil production traction may have been supported by the continued efforts of the government to clamp down on oil theft and concerted drives to restore operations at Shell Plc’s Forcados terminal.

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