Prior to the National Bureau of Statistics’ (NBS) publication of October 2023 inflation figures on Tuesday, October 20, 2023, KPMG, a multinational professional services network, projects that headline inflation in Nigeria will reach 30% by December 2023. As of September, the prevailing inflation rate in Nigeria stands at 26.72 percent.
KPMG predicted in its ‘Macroeconomic Review H1 2023 & Outlook for H2 2023,’ which was published over the weekend, that the current inflationary pressure in the economy would continue into H2 2023. The report emphasized that headline and food inflation are not expected to abate anytime soon, as the depreciation of the Naira further amplifies the inflationary consequences of fuel subsidy elimination through increased input prices and production costs resulting from imported inflation.
Recent reforms in the petroleum industry (such as the elimination of fuel subsidies) and the unification of the foreign exchange market, according to the report, will be accountable for the anticipated increase in the cost of products and services.
Additionally, the report projected that the Nigerian economy would expand by 2.6% in 2023, which is a decrease from both the revised World Bank estimate of 2.8% for Nigeria in 2023 and the 3.1% growth rate realized in 2022.
The professional accounting firm observed that the sluggish growth for 2023 will be fueled not only by the Naira redesign policy but also by low crude oil production, high inflation that reduces consumer demand, sluggish private sector growth due to the continued declaration of enormous foreign exchange losses by a number of corporations in the first half of 2023, and FX and subsidy reforms that are anticipated to further reduce consumer demand and increase the cost of doing business.
KPMG predicts that further interest rate increases are unlikely. It is stated that the administration of President Bola Tinubu aims to attain a 6% annual increase in GDP between 2023 and 2026 by lowering interest rates, promoting the private sector, and enhancing the overall ease of doing business environment.
However, the organization noted that this places the government in a precarious position, as encouraging the private sector through interest rate reductions would have the opposite effect on domestic price stability and raise concerns about monetary independence.
This occurs days after Afrinvest West Africa analysts projected an additional increase in Nigeria’s headline inflation rate to 27.9% for October 2023, as stated in the organization’s inflation forecast for that month.
Following a 16-year high CPI of 26.72% in September 2023, the organization forecasts that Nigeria will experience an additional 102 basis points increase in October 2023. The surge can be attributed to the foreign exchange rate depreciation observed in both the official and unofficial markets.
As in previous months, food has been the primary contributor to the CPI increase. Due to increased transportation costs for agricultural products, this trend is expected to continue in October. Nevertheless, the report indicates that October witnessed an increase in food availability as a result of the ongoing harvest season.
The report additionally emphasizes that the escalating costs of Petroleum Motor Spirit (PMS) and Diesel (AGO) during the month of October 2023 constitute a substantial element of the month’s fundamental inflation.
Further research indicates that as a result of the escalating inflation rate in Nigeria and its consequential impacts on the populace, a considerable proportion of the income of Lagos State residents is presently allocated to consumables and food. The report indicates that the cost of stew ingredients in Lagos increased from ₦6,902 in 2022 to ₦8,060 in 2023, denoting a growth of 16.77 percent. In 2023, a minimum wage earner in Lagos who receives ₦30,000 per month would require a minimum of 106 percent of their income to prepare stew on a weekly basis for a duration of one month.
In its inaugural Stew Index Report, PricePally, an e-grocery platform operational in three Nigerian cities, examined the expenditure associated with stew ingredients. The report additionally asserted that there has been a substantial increase in the cost of meat, with Lagos presently ranking as the most expensive state within the nation.
In addition, the Stew Index Report identified the foreign exchange crisis, fiscal policies such as the elimination of petroleum subsidies, and cash scarcity as the primary determinants of food prices in 2023. Luther Lawoyin, co-founder and chief executive officer (CEO) of PricePally, emphasized preservation and logistics as contributing factors that result in producers losing more than 50% of their harvest, in response to the report’s findings.
In the interim, KPMG predicts that the government’s revenue will increase throughout the remainder of 2023, particularly due to the proposed tax reforms, the elimination of subsidies, and exchange rate gains.
“In the short term, it is also anticipated that the increased inflow from FAAC will reduce fiscal deficits and slow the rate of debt accumulation.” Nevertheless, prioritizing government accountability, transparency, and efficacy in the management of fiscal gains is essential. However, oil theft continues to pose a significant threat to the government’s revenue performance, as an increasing number of incidents result in enormous financial losses for the government.
“In order to alleviate this potential hazard, the government must escalate its endeavors in combating oil theft via a comprehensive strategy comprising increased community involvement and empowerment, enhanced security measures, and the application of cutting-edge surveillance technology,” the statement continued.
Furthermore, KPMG highlighted several key developments for the second half of 2023: the start of operations at the Dangote Refinery, the Central Bank of Nigeria’s (CBN) implementation of crucial reforms to tackle foreign exchange illiquidity issues, the government’s fiscal and trade agenda, and reforms across Ministries, Departments, and Agencies (MDAs).
KPMG previously noted in its domestic macroeconomic review that the Nigerian economy has experienced significant changes in its development pattern over the past two decades. It was noted that the economy expanded by six to seven percent between 2000 and 2015, with private investment accounting for seventy percent of all economic investments, serving as its primary driver.
With the exception of a distinct development strategy that increased the public sector’s dominance, the economy grew by an average of 1.1% over the past eight years, according to the accounting firm. The expansion of the economy since 2015, according to KPMG, has been substantially propelled by government spending and investment.
It was stated that the economy expanded by 2.4% in the first half of 2023, a decrease from the 3.3% expansion rate it recorded in the first half of 2022. It was reported that the economy exhibited a marginal improvement on a quarter-on-quarter basis, rising from 2.3 percent in Q1 2023 to 2.5 percent by the conclusion of Q2 2023.
KPMG reaffirmed that the non-oil sector continues to be the lifeblood of the Nigerian economy, with the growth of economic activities being propelled by the sector’s expansion, which accounts for approximately 95% of the country’s gross domestic product.
It was reported that the non-oil sector expanded by 3.6% in the second quarter of 2023, whereas the oil sector, which had been contracting since the first quarter of 2020, was pushed deeper into recession by 13.43% below the zero line in the same quarter, 2023, following a modest recovery that moved the oil sector to a -4.2% growth contraction.
The majority of non-oil sector growth in the second quarter of 2023 was attributed to the following industries: finance and insurance (27 percent), information and communication (8.6 percent), construction (3.4 percent), and manufacturing (2.2 percent), according to KPMG.