Political context
Nigeria is a multi-ethnic and culturally diverse federation of 36 autonomous states and the Federal Capital Territory. The political landscape is partly dominated by the ruling All Progressives Congress party (APC) which controls the executive arm of government and holds majority seats at both the Senate and House of Representatives in parliament, and majority of the States.
General Elections to elect a new President, Federal and State Legislators and Governors were held in February and March 2023 and President Muhammadu Buhari will have completed his second term in office on May 29, 2023. Since 2011, the security landscape has been shaped by the war against Boko Haram and other terrorist groups in the northeast in addition to incessant cases of banditry and kidnappings in the north-west and parts of the southwest. The southeast continues to witness unrest resulting from separatist agitations.
Economic overview
High oil prices since 2021 did not boost the performance of the Nigerian economy as has been the case in the past. Rather, macroeconomic stability weakened, amidst declining oil production, a costly petrol subsidy which is consuming a large share of gross oil revenues, exchange rate distortions, monetization of the fiscal deficit, and high inflation. The deteriorating economic environment is leaving millions of Nigerians in poverty. On current trends, with Nigeria’s population growth continuing to outpace poverty reduction, the number of Nigerians living below the national poverty line will rise by 13 million between 2019 and 2025.
The economy is projected to grow by an average of 2.9% per year between 2023 and 2025, only slightly above the estimated population growth rate of 2.4%. Growth will likely be driven by services, trade, and manufacturing. Downside risks to this growth outlook have intensified, with most of the risks coming from domestic policies, continued low (albeit recently rising) oil production, and scarcity of both foreign exchange and local currency.
Development Challenges
While Nigeria has made some progress in socio-economic terms in recent years, its human capital development ranked only 150 of 157 countries in the World Bank’s 2020 Human Capital Index. The country continues to face massive development challenges, including the need to reduce the dependence on oil for exports and revenues, diversify its foreign exchange sources, close the infrastructure gap, build strong and effective institutions, as well as address governance issues and strengthen public financial management systems.
Inequality, in terms of income and opportunities, remains high and has adversely affected poverty reduction. The lack of job opportunities is at the core of the high poverty levels, regional inequality, and social and political unrest. High inflation has also taken a toll on household’s welfare and price increases in 2020-2022 have pushed more Nigerians into poverty.
Extreme weather events such as floods and heat stress have become more severe and frequent, especially in the northern parts of the country. These climate risks have already contributed to declining per-capita food production, such that the proportion of the population facing undernutrition increased from 6.5% in 2004 to 12.7% in 2020.
Implementation of critical macroeconomic and structural policy reforms by the newly elected government to be sworn in on May 29, 2023, can place the economy on a stronger and more sustainable path. Some key macroeconomic policy measures include eliminating the petrol subsidy by June 2023, as envisaged in the 2023 fiscal framework, which should be accompanied by strengthened social protection measures.
Other priorities include adopting a single, market-responsive exchange rate, refocusing the central bank on its mandate to reduce inflation, and increasing non-oil revenues. Economic activity was negatively affected in the first quarter of 2023 by the naira demonetization process, and the extension of the timeframe for its implementation, in line with the March 3, 2023, Supreme Court ruling, will be important to follow through on. Key structural reforms include trade policy, addressing major constraints to productivity such as the large infrastructure gap (notably power), tackling insecurity, as well as addressing climate risks.
Last Updated: Mar 31, 2023
