Nigeria 2022 Consumer Outlook: Growth Remains Slow In 2022 And 2023, And Behind Pre-Pandemic Levels

Fitch Solutions / Consumer & Retail / Nigeria / Wed 27 Jul, 2022

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Key View

  • We forecast real household spending in Nigeria to grow by 3.5% y-o-y in 2022, before moderating down to 2.5% y-o-y in 2023.
  • We note that Nigeria's rising inflation is a risk to our outlook for consumer spending in 2022 as it will negatively impact consumer purchasing power, largely due to the effects of rising food prices, which account for almost half of household spending.
  • We forecast inflation to remain elevated in 2023, while weakness of the naira against the US dollar and rising interest rates in 2022 provide further headwinds to our consumer outlook.

Outlook For 2022 And 2023

We forecast real household spending to grow by 3.5% in 2022. While this is an acceleration in spending compared to 2021 (where real household spending contracted by 6.0% y-o-y), we forecast the rate of real household spending to slow to 2.5% y-o-y in 2023. The easing of Covid-19 related restrictions will boost consumer mobility and retail activity however, we see rising inflation and an increase in violence in the south west of the country (where most of the country’s formal retail takes place) as headwinds to private consumption growth over the coming quarters. Furthermore, soaring levels of food prices on the back of the Russia-Ukraine conflict and food protectionist policies will severely impact consumers, who spend almost half of their incomes on food and non-alcoholic drinks, we forecast real household spending (at 2010 prices) to reach NGN30.0trn in 2022, before expanding to NGN30.8trn in 2023. Compared to the pre-pandemic environment, where spending reached NGN40.0trn in 2019, real household spending will not recover over 2022 and 2023, nor over the medium term.

Spending Growth Will Be Positive Over The Medium Term

Nigeria - Total Household Spending, real % y-o-y (2015-2026)

f = Fitch Solutions forecast. Source: National sources, Fitch Solutions

Insights Into Consumer Spending

Our outlook for consumer spending growth to be positive in 2022 is in line with our Country Risk team's forecast for real GDP growth of 2.4% over the year. Over 2023, we forecast real GDP growth to expand to 2.9% y-o-y. Private final consumption is forecast to grow by 3.5% y-o-y (in real terms) in 2022, before moderating to 2.5% in 2023. Real GDP growth has been revised up (from a prior forecast of 1.8% y-o-y), on the back of an upward oil price revision by our Oil & Gas team. That said, a decrease in oil production as a result of previous underinvestment and ongoing theft will continue to cap export growth. Our Oil & Gas team forecasts the price of Brent crude to average USD105.0 per barrel (/bbl) in 2022, increasing from USD70.95/bbl in 2021 and significantly higher than the average price of USD43.21/bbl in 2020. Furthermore, continued foreign exchange shortages and slow productivity growth in the agricultural sector, which employs almost 35% of the workforce, will prevent a sharper acceleration. Lastly, deprecation of the naira in H222 to NGN430.00/USD by end-2022 will continue to push outlook risks to consumer spending to the downside.

Nigeria's Economic Overview
  2022f 2023f
Real GDP (% chg y-o-y) 2.4 2.9
Unemployment (% of total labour force) 8.0 7.9
Consumer price inflation (% y-o-y, ave) 17.2 16.7
Total tourist arrivals, '000 % y-o-y 30.0 24.0
f = Fitch Solutions forecast. Source: National sources, Fitch Solutions

Inflation Outlook

Inflationary pressures continue to build. Over the latter half of 2022, inflation is beginning to shift into services such as tourism. Rising consumer price inflation has been the key risk to consumer spending over 2022, and it has been eroding purchasing power and shifting consumer spending away from discretionary spending. This is the economic reality that consumers enter into in 2023. Inflationary pressure started to rise globally in 2021, as localised shortages were created by base effects, higher commodity prices and supply chain challenges. The Ukraine-Russia conflict has also significantly impacted the global supply prices of key commodities, such as oil and gas, fertiliser, wheat, corn and barley. The commodity price increases are already feeding through into higher consumer prices and this will continue over 2022.

In Nigeria, consumer price inflation risen for five straight months starting in February 2022, and pushing inflation to 18.6% y-o-y in June 2022 (latest available data). This is largely attributable to rising commodity prices and the weakening naira which has increased the cost of imported consumer goods. For Nigerian consumers, the cost of food and non-alcoholic drinks is of significant importance, as spending accounts for almost 50% of total household spending. Nigeria's food inflation climbed to 20.6% y-o-y in June 2022 (as of latest available data) due to increases in the price of bread and cereals, potatoes, yam and other tubers, fish, meat and oils and fats. Our Country Risk team forecasts Nigeria's consumer price inflation to average 17.2% in 2022, with a year-end level of inflation forecast to reach 18.0% y-o-y. This highlights that inflation will remain elevated in 2022, creating headwinds for consumers. In 2023, our Country Risk team forecasts inflation to ease slightly, averaging 16.7% y-o-y and positively having an end-of-period level of 15.7% y-o-y.

Inflation Remains Persistently High With Slow Moderation Forecast

Nigeria - Inflation, % y-o-y (2018-2023)

Source: Nigeria National Bureau of Statistics, Fitch Solutions

Wider Economic Issues

Supply chain issues continue, having first appeared when economies globally started to reopen in 2021, with consumers demanding products that they had little access to over 2020. This continues to place pressure on manufacturers, with bottlenecks and consumer good shortages emerging, which has fed through into supply side inflation. For example, the global semiconductor shortage will continue through 2022 and into 2023, putting pressure on the supply of multiple consumer goods. In 2022, the risks surrounding Covid-19 have moderated, as population immunity (from vaccines and prior infection) combined with less severe variants of SARS-CoV-2 have meant that death rates have remained low through recent infection waves. This has seen many markets globally adopt a more 'live with Covid-19' approach to movement and operating restrictions, although some nations are retaining a ‘Zero-Covid’ policy.

More transmissible variants of SARS-CoV-2 and Mainland China’s zero-Covid are causing the disruption/closure of factory production and manufacturing across the world. Manufacturers are facing shortages of key components and higher raw materials costs. Inventory levels are increasing, as consumer demand shifts away from products and into services, such as tourism. This will elevate some price pressures, as companies offload stock at a discount. Finally, the Russia-Ukraine conflict continues to place significant supply pressures on key commodities, especially food supplies, pushing up final market prices across a spectrum of consumer categories. Some countries, such as India, Malaysia and Argentina have reacted by placing their own restrictions on the export of food items, putting further pressure on global prices. The graphic below highlights some of these risks to the outlook impacting Nigeria's consumer market in 2022 and into 2023.

Global Risk To Consumer Outlook
Risks To Outlook
Source: Fitch Solutions

This report from Fitch Solutions Country Risk & Industry Research is a product of Fitch Solutions Group Ltd, UK Company registration number 08789939 ('FSG'). FSG is an affiliate of Fitch Ratings Inc. ('Fitch Ratings'). FSG is solely responsible for the content of this report, without any input from Fitch Ratings. Copyright © 2021 Fitch Solutions Group Limited. © Fitch Solutions Group Limited All rights reserved. 30 North Colonnade, London E14 5GN, UK.

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