2023 in review: Unpacking Nigeria’s inflation & GDP trajectory

The Nigerian economy in 2023 has been a challenging terrain with inflationary pressures and economic uncertainties looming large. Household consumption has played a significant role in shaping the country's real Gross Domestic Product (GDP) trajectory in the first and second quarters, according to the National Bureau of Statistics data. Femi Oladehin, Partner at Àrgentil Capital Partners, shed light on the key drivers of inflation in Nigeria during a recent CNBC Africa interview. Oladehin emphasized that food prices and transport costs have been major contributors to the inflationary trends in the country. The post-COVID economic recovery, coupled with the impact of crude oil price hikes and food supply disruptions due to natural disasters, have fueled the rise in consumer prices. Additionally, the cash crunch at the beginning of the year and increased liquidity during the election period have added to the inflationary pressures, creating a challenging economic environment for Nigerian consumers. Looking ahead to the future, Oladehin touched upon the comparison between Nigeria and Ghana in terms of inflation management. While Ghana successfully sustained consecutive slowdowns in inflation, Nigeria faces uncertainties due to market volatility and the postponement of monetary policy meetings. However, he expressed optimism that Nigeria could achieve a slowdown in inflation, attributing the possibility to the high base comparison from the challenging outlier year of 2023. Addressing the role of the Central Bank in managing inflation, Oladehin pointed out that Nigeria's stagnant interest rates and currency crisis pose challenges. Unlike Ghana, where the Central Bank hiked interest rates to curb inflation, Nigeria's import-dependent economy continues to face currency fluctuations leading to cost-push inflation. The lack of clear monetary policy direction due to postponed meetings further adds to the economic uncertainty. Furthermore, the interview highlighted plans to reduce the impact of imported inflation by ending fuel imports by the next year, a move that could positively affect cash flows in Nigeria. However, the transparency in petrol pricing linked to global prices remains a critical factor in determining consumer costs. Additionally, the discussion on household consumption forming a significant part of real GDP growth underscored the inflation-driven nature of the consumption spike, rather than genuine economic expansion. In conclusion, navigating Nigeria's 2023 economy entails overcoming inflationary challenges, managing consumption patterns, and addressing currency fluctuations. The forthcoming monetary policy decisions by the Central Bank will play a crucial role in shaping the economic landscape and providing clarity on inflation management strategies for the future.