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Nigeria 2023 Outlook: A walk in the dark

Rising inflation, caused by warring tensions in Eastern Europe, dominated the global scene in 2022, as the Russia-Ukraine crisis dealt a big blow to food and fuel supply chains, taking inflation to multi-year highs across the globe. Nigeria was not left out, as the country’s consumer inflation raced upward for 10 consecutive months, reaching a 17-year high in November. Although surging fuel
prices were a major driver of Nigeria’s inflation in 2022, we note that continual currency depreciations and insecurity-induced food shortages also played a role.

In 2023, we see the possibility of consumer prices rising further, due to persisting pressures on the exchange rate as well as expected high levels of fuel prices. This should translate to weaker margins across the real sector, especially in the FMCG sector where players face stiffer pricing competition. While the first half of 2023 may see industrial goods players report weaker turnover growth, as capex implementation by the government may suffer political distractions, we expect
to see better performance in the second half after the new administration is fully installed.

For the oil and gas upsteam sector, we expect to see modest revenue growth in the new year, as government’s current efforts to curtail the incidence of oil theft and boost output may be offset by weaker oil prices due to slowing global economy. Meanwhile, we do not expect to see a full deregulation of the downstream segment in 2023, but we note the strong likelihood of a further increase in the pump price of PMS by the newly elected administration in a bid to tame runaway fuel subsidy in the second half. This expected development should cushion profitability for downstream players amidst lean margins.

Furthermore, increasing smartphone penetration alongside rising internet needs should continue to bode well for data income among telcos, while continual interventions by the CBN in the agricultural sector may continue to yield positive results, although insecurity and unfavorable climate are possible hurdles to output growth. For the banks, recent rate hikes by the apex bank are expected to lift net interest income considerably in the new year.