Devise strategies to remain competitive in a difficult operating environment
MNCs should expect broad policy continuity under President Bola Ahmed Tinubu. In practice, this means planning your marketing strategy around staying competitive in a muted growth environment and continuing to support local partners facing FX challenges. Also, tight public finances mean MNCs should stay alert to sudden tax hikes, while firms selling to the public sector should prepare for tough pricing negotiations. MNCs should target demand opportunities in key urban centers, driven by ICT, finance, entertainment, infrastructure development, and a modest oil recovery.
Lastly, executives should read our Accelerate Growth in Nigeria report, which details what multinationals across different industries can do to overcome Nigeria’s macroeconomic and operational challenges and sustainably drive commercial success.
Overview
- Following a win for Bola Tinubu—of the ruling APC—in the 2023 presidential election, the president-elect is due to replace President Muhammadu Buhari on May 29, 2023. However, key opposition candidates have not yet conceded defeat and have announced plans to contest the results.
- While Nigerian eurobond prices rallied following the election result, the country still faces several key macroeconomic and operational challenges. These include constrained GDP growth, elevated insecurity, severe FX and fuel shortages, current naira shortages, high inflation, import restrictions, high fuel-subsidy costs, and unsustainable debt-servicing costs.
- Tinubu’s campaign manifesto announced plans to delink government spending from government revenues, instead budgeting expenditure according to growth and employment targets and using inflation as a constraint.
Our View
- Political implications: The eurobond rally likely signaled foreign investors’ improved sentiment due to the expected end of election anxiety. However, if a formal challenge to the election result is made, this could protract some degree of election-related anxiety for several months. Still, Tinubu is expected to be ultimately confirmed as the victor. As a result, broad policy continuity is expected. Consequently, FX policy will likely stay unchanged, sustaining FX shortages, with only incremental improvements through 2023.
- Impact on GDP growth: Headline GDP growth is forecast to moderate to 3.0% YOY in 2023, after 3.3% YOY in 2022, due to the impact of the election and ongoing cash shortages on Q1 activity, before rebounding to 3.5% YOY in 2024. The severity of cash shortages may warrant a downward revision to the 2023 forecast. Still, Tinubu’s administration will likely invest in infrastructure (particularly road and rail transport), alongside manufacturing and agriculture, supporting growth in these areas. Continued growth in ICT, finance, and entertainment, alongside a modest recovery in oil output, will provide some tailwinds.
- Impact on consumer spending: Consumer spending is projected at 2.1% YOY in 2023, before picking up to 2.7% YOY in 2024. Sustained (albeit moderating) inflationary pressures, amid a partial removal of the fuel subsidy, will constrain faster growth. The key commercial hubs—Lagos, Abuja, Port Harcourt, Ibadan, and Kano—will remain the centers of employment and consumer demand growth. This will be helped by infrastructure-related investment in these areas, under Tinubu. The new administration’s continued support for agriculture will also aid modest consumer demand growth in rural areas.
- Impact on government spending: Tinubu’s planned approach to public finances appears to be a formalization of the current fiscal management under Buhari, which has added to cost pressures and worsening public finances. These would further worsen if implemented by Tinubu. However, this is unlikely to be fully enacted due to current government plans to restrict public sector borrowing from the central bank. Real government spending is forecast to grow 3.0% YOY in 2023.
- Impact on business demand: The business environment will remain constrained by continued FX and route-to-market challenges; potential sudden tax hikes amid tight public finances; and continued import restrictions. However, continued growth in ICT, finance, and entertainment, as well as a gradual oil recovery, will provide a modest demand growth.
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