The economic outlook for Sub-Saharan Africa remains grim as a sustained recovery in growth remains elusive. The present growth patterns produce only 3 million formal jobs each year, leaving many young individuals underemployed and engaged in unstable work.
The World Bank released its Africa Pulse report and it shows that despite a decrease in inflation, factors such as increasing instability, weak growth in the largest economies within the region, climate-related disruptions, and ongoing global economic uncertainty are contributing to a slowdown in growth, with the growth rate expected to drop in 2023.
The persistent economic downturn in the major economies of the region is weighing Sub-Saharan Africa’s economic performance down. In 2023, the economic growth is forecast to decelerate to 2.5% in 2023, from 3.6% in 2022. Nigeria is projected to grow at 2.9, due to lower international prices and currency pressures affecting oil and non-oil activity.
Below are highlights of how the indicators detailed in the report relate to Nigeria:
Fiscal balance
Fiscal balance improvements have been slow, even though certain countries are actively engaged in fiscal consolidation. Fiscal deficits are still above pre-pandemic levels for nearly two-thirds of countries in the region. To tackle fiscal and debt sustainability risks, and reduce inflation, it is imperative to focus on enhancing domestic resource mobilization and increasing the efficiency of spending. In Nigeria, fiscal consolidation efforts in the region are reflected in subsidy reforms.
Economic performance across Sub-Saharan Africa
The recovery of economic activity in Sub-Saharan Africa is characterized by subregions that are overperforming (compared to the regional average) and others that are underperforming. For instance, regions such as the East African Community and the West African Economic and Monetary Union (WAEMU) are performing better than the regional average. However, Nigeria is one of the large countries that have underperformed in 2023.
Economic performance in Nigeria
Nigeria recorded growth in real economic activity of 2.5 per cent YoY in the second quarter of 2023—slightly higher than the 2.3 per cent in the previous quarter but down from 3.5 per cent in the same quarter of 2022. By April-June 2023, the cash crunch started easing as the central bank extended the deadline to exchange old into new naira notes to the end of this year. Economic activity was supported by 3.6 per cent YoY growth in the non-oil economy (up from 2.8 per cent in the first quarter)—which was particularly driven by services (4.4 per cent YoY). However, the poor performance of the oil sector held back growth: it contracted by 13.4 per cent YoY (compared to a contraction of 4.2 per cent in the previous quarter). Average production of crude petroleum dropped to 1.22 mbpd in the second quarter of this year, from 4.3 mbpd in the same quarter of the previous year.
Inflationary pressure
Inflationary pressures in the region are still dominated by high food and fuel price inflation and the weakening of domestic currencies. In Nigeria, inflation continued to rise in July to an 18-year high of 24.08 per cent YoY, with the central bank opting for a modest increase in interest rates. So far this year, the Nigerian naira is among the worst-performing currencies in the region. The naira has weakened by nearly 40 per cent against the US dollar since the mid-June devaluation. Although these measures are intended to improve the fiscal and external accounts of the nation, their inflationary effects in the near term can erode the purchasing power of households and weigh on economic activity.
Agricultural production
Countries with high poverty rates have a larger share of the labor force in agriculture. Similar correlations are found within countries. In Nigeria, for example, around 70 per cent of the working-age population in the lowest consumption decile works in agriculture while in the highest decile, under 20 per cent is engaged in agriculture as their primary source of employment. The richest decile is most likely to be engaged in services, and a significant fraction is working in industry.
Vulnerability and conflict
Fragility and conflict can impede job creation through multiple channels. Conflict has been shown to have harmful effects on human capital accumulation, with detrimental effects on schooling and health. Conflict can also disrupt markets and productive activities in many ways: for example, in Nigeria, the Boko Haram conflict reduced agricultural output and hired labour on farms.
The performance of Nigeria’s economy in 2023 has been underwhelming. Its economic challenges are largely driven by its heavy reliance on oil, inflationary pressures, and currency depreciation. To overcome these challenges and improve economic prospects, the country must implement a comprehensive set of policies aimed at diversifying the economy, enhancing infrastructure, and ensuring fiscal and monetary stability. Additionally, addressing security and political concerns will be crucial for attracting investment and fostering sustainable economic growth.
