Last month’s revelation from the National Bureau of Statistics (NBS) that Nigeria had officially exited recession — as a result of razor-thin 0.11% real GDP growth in Q4 of 2020 — has been followed by an upgrading of the International Monetary Fund (IMF) and World Bank’s 2021 growth projections for the country, to 2.5% and 1.4%, respectively. Neither of these represents positive per capita growth or signifies any recovery from last year’s precipitous drop in per capita income and rise in official unemployment to 33%.

IMF projections further suggest Nigeria could be the slowest-growing economy in West Africa this year, being comfortably outpaced by Cote d’Ivoire (6%), Benin (5%), and Ghana (4.6%) among others. At the same time, the IMF expects the global recovery from COVID-19 to cause the overall African economy to expand by 3.4%, and global output by 6%.

Like Angola and other African crude oil producers, Nigeria is characterised by analysts as a crude oil ‘price taker,’ forced to comply with revenue-draining OPEC+ production cuts.

Inflation spark fear of rate hikes

The latest IMF projections also suggest that average Nigerian CPI inflation during 2021 will remain among the highest in Africa at 16%. That is several percentage points above the circa 10% projected for Africa overall, and is only exceeded by countries like Angola, Zambia, and Zimbabwe.

NBS inflation statistics from March 2021 confirm this trend. Official year-on-year CPI inflation was 18.17% compared to 17.33% in February and has been accompanied by a marginal rise in month-on-month inflation to 1.56%. Particularly concerning is the rise of food price inflation to 22.95%, with Kogi, Sokoto, and Ebonyi state registering over 25% on this critical measure.

Persistent domestic insecurity disrupting agriculture/food production and transport, rising international prices of key staples, and currency depreciation suggest that more food price inflation increases could be coming. Food price inflation and food security are becoming a pressing issue in the wider West Africa region.

Overall CPI inflation remains vulnerable not only to food prices and currency pressures but also to rising costs for power, fuel, and transport. For the time being, the Nigerian National Petroleum Corporation (NNPC) has made a commitment to hold down fuel prices, but budgetary pressures have forced the removal or reduction in de facto subsidies.

This inflationary environment, along with slivers of optimism among Nigeria policy makers over domestic growth recovery, raises the question of whether the Central Bank of Nigeria monetary policy committee (MPC) will raise the policy interest rate at its May meeting. Some analysts believe that could damage near-term growth prospects, but the balance of risks may favour such a move. Any increase is nonetheless likely to be modest.