KPMG sees modest recovery for Nigeria despite rising oil prices

KPMG, a leading tax and advisory services provider, has projected a modest growth of 1.9% for Nigeria in the current year despite the surge in oil prices. The company also foresees a gradual easing of inflation while hinting at a slight monetary tightening by the country's Central Bank. In a recent interview on CNBC Africa, Olu Shekun Zaccheaus, Associate Director for Strategy and Economics at KPMG Nigeria, shared insights on the economic outlook for the nation. He highlighted that the key drivers of growth would emerge from the real sector, particularly in manufacturing, trade, and services such as telecom and technology which are expected to show improvement in 2021. Additionally, agriculture is identified as a sector poised for sustained growth despite challenges like climate-related issues and security concerns. Although the growth prospects are deemed modest, Zaccheaus emphasized the positive impact of rising global demand and oil prices on Nigeria's economy, especially within the oil and gas sector. However, he acknowledged the significant impact of the COVID-19 pandemic on consumption patterns, citing data that revealed a notable shift in food consumption habits among adults in response to the crisis. While recognizing that Nigeria has not implemented as extensive fiscal stimulus measures as some advanced economies, Zaccheaus highlighted the role of the Central Bank in executing an expansionary monetary policy to buoy the economy. The effectiveness of this strategy, particularly in facilitating credit access for small and medium enterprises and the manufacturing sector, remains a challenge due to a disconnect between interest rates and lending practices. Zaccheaus stressed that the lack of robust fiscal stimulus in Nigeria contributes to the modest growth outlook compared to other economies experiencing higher growth rates. An essential aspect of Nigeria's recovery hinges on foreign and domestic direct investments. Domestic investments face hurdles like negative yields and a lack of policy trust, hindering investor confidence and capital allocation. On the other hand, foreign investment is influenced by concerns around exchange rate stability and policy consistency. While acknowledging efforts by the Central Bank to address these issues, Zaccheaus underscored the need for a comprehensive, long-term strategy to restructure the economy and align monetary policies with growth objectives. Despite the challenges, the upswing in oil prices presents an opportunity for Nigeria to reshape its economic landscape and bolster investor confidence. Zaccheaus emphasized the imperative for policymakers to prioritize stability and growth-oriented reforms to attract investment and spur economic recovery.