In 2022, Nigeria experienced a downturn in real GDP growth to 3.3% from 3.6% in 2021, primarily due to a drop in oil production. This resulted in a 5% contraction in overall industry, although this was partially offset by growth in the services sector (7%) and agriculture (2%). On the demand side, the decline in GDP growth was driven by a reduction in public consumption (2.5%) and a significant decrease in net exports (80%). Furthermore, growth in income per capita slowed to 0.8% from 1.2% in 2021.
Despite these challenges, there were some positive developments. The fiscal deficit narrowed to 4.9% of GDP in 2022 from 5.2% in 2021, although it was still significant. This deficit was financed by borrowing, resulting in an increase in public debt to $103.1 billion (approximately 22% of GDP) from $92.6 billion in 2021. Inflation surged to a two-decade high of 18.8%, driven by increases in energy and food prices, compounded by exchange rate depreciation. To combat rising inflation, the Central Bank of Nigeria progressively raised the policy rate throughout the year, reaching a peak of 16.5% in November 2022, up from 11.5% at the beginning of the year.
Despite economic challenges, there were some positive indicators. Buoyed by improvements in oil exports, the current account recorded a small surplus of 0.1% of GDP in 2022, reversing three consecutive years of deficit. However, gross international reserves decreased by 7.5% to $37.1 billion, providing 5.7 months of import cover. The nonperforming loans ratio stood at 4.2% in 2022, below the regulatory requirement of 5%, indicating relative stability in the banking sector. Additionally, the capital adequacy ratio exceeded the regulatory benchmark, standing at 13.8% in 2022.
However, challenges such as high multidimensional poverty rates (63%) and unemployment (33.3%) persisted, highlighting the need for comprehensive economic reforms to address structural issues and promote inclusive growth.
Future Prospects and Potential Challenges
Real GDP growth is anticipated to remain modest, averaging 3.3% over the span of 2023–24. Inflation is expected to remain high at 19.6% in 2023, gradually declining to 13.6% by 2024. These trends reflect efforts aimed at stabilizing the domestic food supply and the impacts of contractionary monetary measures. The proposed removal of the subsidy on Premium Motor Spirit (PMS) alongside increased revenue streams may contribute to narrowing the fiscal deficit to below 5% of GDP during 2023–24. To finance this deficit, borrowing is anticipated, with a focus on concessional debt and extended maturity periods. However, the potential for higher oil exports may not fully counterbalance subdued capital inflows, resulting in a projected current account deficit averaging 0.2% of GDP in 2023–24. The peaceful resolution of any legal challenges stemming from the 2023 presidential election could reinforce Nigeria’s evolving democratic landscape, potentially fostering increased investment. Nevertheless, challenges persist, including security concerns and the possibility of social resistance to subsidy removal for PMS. Should the subsidy be retained, it may further exacerbate fiscal risks, particularly given the associated high debt service costs.
Addressing Climate Change: Challenges and Policy Responses
Natural capital in Nigeria was valued at approximately $842.4 billion in 2018, with $582.4 billion categorized as nonrenewable and $260.1 billion as renewable resources. These vast resources serve as a foundation for driving sustainable and inclusive green growth initiatives. Leveraging Nigeria’s extensive gas reserves, estimated at 206.53 trillion cubic feet, while addressing issues such as gas flaring, can significantly contribute to the transition towards a net-zero economy.
Furthermore, Nigeria possesses abundant solid and critical minerals, offering promising avenues for green development. With the identification of over 3,000 lithium pegmatite bodies, Nigeria stands poised to emerge as a leader in lithium-ion battery manufacturing. The associated benefits include the creation of green jobs and mitigation of climate change impacts.
Realizing these opportunities necessitates the formulation of a comprehensive blueprint to attract green financing and investment. Despite the potential, climate finance in Nigeria remains modest, averaging only $1.9 billion from both public and private sources between 2019 and 2020. Energy projects received the largest share of climate finance at $798 million, followed by cross-sectoral initiatives at $626 million, agriculture at $300 million, transport at $128 million, and other sectors.
To meet its Nationally Determined Contribution targets, Nigeria requires an estimated $247 billion in climate finance through 2030. This underscores the urgency for investment in clean energy, including the development of 8 gigawatts of solar energy capacity. The private sector holds significant potential for mobilizing climate finance, with opportunities such as green bonds for energy efficiency and sukuk bonds for resilient transport infrastructure.
Additionally, restructuring the sovereign wealth fund presents a promising avenue for unlocking climate finance and advancing sustainability initiatives in Nigeria.
