March 2, 2022/United Capital Research
Last week, the National Bureau of Statistics (NBS) released its FY-2021 GDP report with the economy recording its strongest growth since 2014. The economy expanded 3.4% y/y, faster than population growth estimate of 2.7%, for the first time in five years. However, the average Nigerian consumer faces a different story. While there is a clear improvement in financial fortunes in the present, relative to the period bedeviled with the onslaught of the Covid-19 pandemic, most consumers are way-off where they were pre-Covid. Unabating inflationary pressures and weaker disposable income remains the bane of the Nigerian consumer.
Taking a trip down memory lane, the early 2010s symbolised the transformation in Nigeria’s fortunes over the preceding decade from an economy which relied on buoyant commodity prices to fuel sustained economic growth and poverty reduction. On the back of prudent macroeconomic management and enhanced political stability, attention turned towards the new growth story – the Nigerian consumer. Hopes were riding high on Nigeria’s ‘youth bulge’, coupled with a burgeoning middle class concentrated in urban centres. However, Nigeria has seen two recessions in seven years. Its GDP per capita has declined 32.3% from US$3,099.0 to US$2,097.0 in the same period. Crippling double-digit inflation, 106.2% electricity tariff hike to an average of N62.33/kwh, sustained Naira depreciation, 92.0% PMS price increase to N167, and increased consumption taxes (VAT up 2.5ppts to 7.5%) have combined to weaken consumers’ disposable incomes.
Underperformance in key areas of job creation, increasing inequality and reduced infrastructure development further temper optimism. Nonetheless, Nigeria contributes approximately 20.0% of Africa’s GDP. Its middle class, 23.0% of its population, has a combined buying power in excess of US$28.0bn. Even as we expect the economy to remain on the growth path, albeit at a slower pace compared to FY-2021, much needed fiscal and monetary reforms, including ongoing credit support facilities and tax policy reforms, must be implemented to restore Nigeria back on the path of accelerated economic growth and consumer prosperity.
