Naira scarcity slows Nigeria's Q1'23 GDP growth

Nigeria's economy is facing significant challenges in the first quarter of 2023, with the cash scarcity caused by the naira redesign policy of the Central Bank of Nigeria being pointed to as the major reason behind the slow growth. Tilewa Adebajo, the CEO of CFG Advisory, shed light on the impact of the cash crunch on the economy. Adebajo highlighted the dual nature of Nigeria's economy, with the informal sector contributing significantly to the GDP. This sector, which consists of over 20 million small and medium enterprises, heavily relies on cash transactions. Adebajo pointed out that the withdrawal of 2.3 trillion naira by the Central Bank from the cash circulation had a direct impact on the GDP growth, as it affected the informal sector, leading to a drop in economic performance. The CEO emphasized the importance of financial inclusion in reaching the informal sector effectively, indicating that there is still progress to be made in this area. Despite the challenges posed by the cash scarcity, Adebajo expressed some optimism, noting that the impact on GDP growth was not as severe as expected. However, he cautioned that the situation remains critical and further measures are needed to stimulate growth. The contraction in the oil sector by 4.2% and the agriculture sector by 0.9% also reflect the broader challenges facing the economy. Adebajo highlighted the cash-driven nature of the agricultural sector and how the cash withdrawal affected its performance. The overall economic landscape in Nigeria is compounded by stagflation, characterized by high inflation, weak growth, and high unemployment. Despite several increases in the NPR rates, inflation remains a concern, with food inflation on the rise. Adebajo pointed out that inflation could be closer to 30% rather than the reported 20%, underscoring the severity of the situation. Addressing the declining oil production, Adebajo attributed the drop to the lack of investment by international oil companies and unfavorable policies. The reduction in oil production has strained government revenue, with debt servicing and subsidy costs absorbing a significant portion of the budget. Adebajo emphasized the need for the new administration to focus on revenue generation through privatization and concessioning of government assets. He also highlighted the importance of improving the country's credit rating to attract foreign investment. Looking ahead, Adebajo stressed the need for a private sector-led economy and urged the government to adopt the right policies to enhance the country's credit profile. He called for a concerted effort to boost foreign remittances and instill confidence in domiciliary accounts to address the exchange rate challenges. As Nigeria prepares for a new administration, the path to economic recovery will require strategic planning, fiscal discipline, and a focus on stimulating private sector-led growth.