Nigeria’s economy will continue to struggle in 2023

By Kinley Salmon: Africa correspondent, The Economist, Abuja

THE FATE of sub-Saharan Africa is entwined with that of Nigeria. One in six sub-Saharan Africans is Nigerian, and its economy is the continent’s largest. A prospering Nigeria helps pull up its neighbours; a stumbling one drags them down. It is a problem, then, that from 2015 to 2020 the economy grew so slowly that the average Nigerian got poorer in real terms.

A commodity-price plunge in 2015 was part of the problem. Yet plenty of damage was self-inflicted. In 2019 the government closed Nigeria’s land borders to all goods, purportedly to stop smugglers competing with local producers. The result was higher inflation. Efforts to prop up the exchange rate by restricting access to dollars made it hard for businesses to import basic inputs. The central bank was forced to repeatedly devalue the naira anyway. Then came the pandemic.

Amid the gloom there are shafts of light. In 2021 and 2022 growth edged up a little, boosted by a post-pandemic rebound and a stronger oil price. Lagos, the commercial capital, throngs with startups. In the first six months of 2022 Nigerian startups raised more than twice as much as in the same period of 2021. Nollywood, the local answer to Hollywood, produces about 2,500 films a year and is the second-largest film industry in the world by output. Nigerian musicians from Burna Boy to Wizkid pack out stadiums around the world.

Ditching fuel subsidies would free up spending for infrastructure and education

Yet economic stars are too few and too centred on Lagos to lift many of the country’s 220m people up with them. Unleashing a broader boom would require serious economic reform. Presidential elections in February promise the end of Muhammadu Buhari’s failed presidency. Yet barring a shock win for Peter Obi, a third-party candidate, the victor will come from the same clique of kleptocratic elites. Both major parties pursue similar “statist, protectionist, often self-defeating policies”, warns Matthew Page of Chatham House, a think-tank.

Widespread insecurity also hampers growth. In the first six months of 2022, 6,000 Nigerians were killed in conflict. In the north-east the Islamic State West Africa Province, a jihadist group, has expanded towards the capital, Abuja. Militias in the north-west regularly target civilians for extortion and kidnapping.

More mundane economic matters also augur poorly. Inflation reached almost 21% in September, a 17-year high. Reducing it will require higher interest rates. Servicing debt is a worry because the government gathers so little tax. Even a prolonged oil-price boom may not help. It should nudge up growth, but high oil prices hurt the public purse. Nigeria, usually Africa’s biggest oil producer, subsidises fuel. But the cost of doing so outweighs the extra revenue from higher oil prices—so the net effect is “nil or negative”, says Zainab Ahmed, the finance minister. Rampant theft makes things worse.

All this might one day prompt the government to ditch subsidies, freeing money to spend on things with a better chance of boosting growth, such as infrastructure and education. In the long term the declining importance of oil might shift Nigeria away from its current model, in which elites squabble over oil money while ignoring their citizens. Without easy oil cash they would need to expand the rest of the economy. Yet 2023 will witness halting steps, at best, towards all this. More probable, alas, is a year of sluggish growth punctuated by devastating violence.■

Kinley Salmon: Africa correspondent, The Economist, Abuja

This article appeared in the Africa section of the print edition of The World Ahead 2023 under the headline “A sluggish, suffering giant”