GDP: Nigeria’s Economy Shrinks to $474bn

Nigeria, Africa’s largest economy, slumped significantly as its Gross Domestic Product (GDP) declined to $477 billion at the end of 2022, Fitch Rating latest report has revealed.

GDP is the standard measure of the value added created through the production of goods and services in a country during a certain period. As such, it also measures the income earned from that production, or the total amount spent on final goods and services”

Although, data from the World Bank showed that Nigeria’s GDP was $574 billion in 2014, which is $3 billion above the Fitch Ratings figure.

Analysts, however, maintained that economic growth prospect depends on oil.

For an economy that depends largely on imports to feed its growing population, the size of FX receipts from crude oil export has always had a direct impact on the growth rate, according to research analysts at LSintelligence Associates.

World Bank data showed that the economy was under pressure over the last 8 years under the Nigerian former president, yet remains among the top investment destinations due to the country’s strong economic fundamentals that provide the growth-starved economy with some unfair advantage.

However, policy misnomers triggered macroeconomic pressures that kept foreign investors on the side.

Fitch said investors started to expand their investment universe beyond traditional emerging markets more aggressively over a decade ago, as they sought opportunities to boost returns and diversify portfolios.

Back then, frontier markets (particularly in Africa) were in vogue, as debt-relief programs freed resources for increased investment to support growth of local economies; though much of this investment came from cash-rich emerging markets, such as China.

According to a Fitch Report, substantial natural resources were discovered in several African countries, highlighting Africa’s mineral potential.

Nigeria’s ‘B’ rating with a stable outlook is supported by a favourable public debt/GDP ratio, a large economy, a developed and liquid domestic debt market, and large oil and gas reserves, according to the rating agency.

The firm however noted that the country’s rating is constrained by weak governance, security challenges, high inflation, structurally very low non-oil revenue, high hydrocarbon dependence, and weakness in the exchange-rate framework.

It said the new government’s quicker-than-expected removal of the fuel subsidy and unification of the exchange rate are positive developments for Nigeria’s credit profile.

Oil production has also picked up from last year’s lows and we think the domestic debt market has sufficient capacity to compensate for severely constrained access to Eurobond financing. However, higher debt servicing costs, and inflationary constraints to continuing deficit monetization present risks to public finances.