Nigeria’s growth prospects dim as KPMG revises economic forecast down to 2.65%

KPMG Nigeria has adjusted Nigeria’s economic forecast to 2.65%, this is according to its August 25, Economic Flashnotes.

In the insight report on the country’s economy, the company stated that it was adjusting its 2023 forecast further downwards to 2.65% from 2.85%.  

This decision was taken based on some factors, which include; 

• H1 (first half) 2023 gross domestic product (GDP) currently stands at 2.41% and will require an average growth in H2 (second half) 2023 of 3.30% to record 2.85%.

• The third quarter of 2023 (Q3 2023) is the quarter where the impact of subsidy removal, foreign exchange (FX) unification and other reforms of the new administration had a major impact on squeezing household consumption demand and firms’ costs of operations as well as reduced private investment.
• Muted government investment in the economy in Q2 and Q3 2023 with new administrations at the Federal and State level settling in Q3 2023.
• Further contraction in oil production in July 2023 is likely to continue for the following two months.
• Expectation of continued rising inflation in Q3 2023 and its impact on real GDP growth.

Note that real GDP in Nigeria rose by 2.51%, year-on-year in the second quarter of 2023, slightly higher than 2.31% recorded in Q1 2023 and 3.54% in Q2 2022 with industry returning to contraction. 

The KPMG insight report stated further that; 

• “According to the Nigerian National Bureau of Statistics (NBS), Real Gross Domestic Product (GDP) in Nigeria rose by 2.51%, year on year in the second quarter of 2023, slightly faster than 2.31% recorded in Q1 2023 and 3.54% in Q2 2022.
• “Growth was driven by the services sector, which grew by 4.42%. The agricultural sector reversed its first Quarter 2023 contraction growing by 1.50% compared to -0.90% in Q1 2023 and 1.20% in Q2 2022.
• “Industry, which had reversed its seven-quarter long contraction growing by 0.31% in Q1 2023, returned to contraction in Q2 2023 recording -1.94%. Accordingly, the non-oil grew by 3.58% in Q2 2023, compared to 2.77% in Q1 2023.
• “Meanwhile the oil sector, which has contracted since Q1 2020, further declined by -13.43% in Q2 2023 compared to – 4.21% in Q1 2023 and -11.77% in Q2 2022.”

The oil industry context

July 2023 data from the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) revealed that Nigeria produced 1,081,396 barrels of crude oil per day, meanwhile, it produced 38,258 barrels per day of blended condensate and 174,509 barrels per day of unblended condensates.

All these made up a total of 1,294,162 barrels per day for the month. 

Since the start of 2023, this is the second time that Nigeria’s crude production rate dipped below 1.4 m/bpd, the first time was in April 2023, when the country produced 1,245,028 barrels.

It is also important to note that Nigeria saw a 100,000 bpd drop to 1.32 million bpd due to an outage at the Forcados terminal after a sheen was discovered at the facility in early July 2023.

The country’s oil production is contracting as aptly noted in the latest GDP report by the National Bureau of Statistics (NBS).  

Nigeria’s oil industry lacks enough investments, noted Dan Kunle, energy industry analyst. If the country has enough investment and crude oil theft can be tackled simultaneously, production will increase, and we can increase our earnings from the sector, he told Nairametrics.  

Increasing oil and gas investments will help countries achieve energy transition more effectively, remarked Bernard Looney, Chief Executive Officer at BP at the just concluded B20 conference held in New Delhi, India.

According to him, the world must invest in the production of oil and gas to avoid sharp price spikes, while accelerating the energy transition to combat greenhouse gas emissions