Average incomes expected to continue to stagnate in the country

Global rating agency, Fitch is predicting that Nigeria’s weak performance in the oil and gas sector may continue to slow down the country’s economy in the coming years.

In its latest report on the state of the Nigerian economy, the rating agency is forecasting an average annual decline of 0.5 per cent in the next four years. Given the rapid pace of population growth in Nigeria, Fitch is expecting that average incomes would continue to stagnate in the country.

According to Fitch, the Petroleum Industry Bill, which was finally signed in 2021 will create a more stable operating environment but doubt lingers whether it will have a significant effect on investment this year.

Fitch notes that, “it will take time for foreign firms to launch any new projects. Indeed, despite the new bill, our oil and gas team expects that oil production will gradually fall over the coming years”.

Fitch is predicting an average annual decline of 0.5 per cent between 2023 and 2026.

“All told, fixed investment spending will contribute just 0.6 per cent to headline growth in 2022,” the ratings agency said in its report on the Nigerian economy.

Poor performance of the oil sector

The report projects that the poor performance of the oil sector, which is Nigeria’s key foreign exchange earner, would keep headline growth weak over the coming years. The rating agency expects that real Gross Domestic Product (GDP) growth will average 2.9 per cent between 2023 and 2026.

Headline growth will be even weaker in per capita terms. Given the rapid pace of population growth in Nigeria, average incomes will continue to stagnate. However, despite the slowdowns, Fitch predicts that economic growth in Nigeria would pick up slightly from an estimated 3.1 per cent in 2021, to 3.5 per cent in 2022, primarily driven by increased oil production, which will boost export growth.

This would be the eighth consecutive year in which Nigeria has underperformed the aggregate growth figure for Emerging Markets, which is projected to grow by 4.8 per cent. Fitch says real GDP growth will average just 2.9 per cent between 2023 and 2026.

Fitch solutions reports that the volume of Nigeria’s oil production would rise by 4.1 per cent in 2022, which would be a significant improvement compared to 2021, when it estimated that output fell by 8.1 per cent as a result of low investment and OPEC+ cuts.