CEM REPORT, ECONOMY | Multinational Consulting Firm, KPMG, has stated that President Bola Tinubu’s statement to grow the nation’s Gross Domestic Product (GDP) by six per cent in his first tenor may not be achievable.
The consulting firm stated that to achieve the six per cent growth the nation would need to grow the value of real GDP from N74.6 trillion in 2022 to N92.5 trillion by 2026 representing an increase of N17 trillion in 4 years
The company, in its issue “Eight Flashnotes” released on Friday, observed within 12 years, between 2010 and 2022, real GDP grew by about N17 trillion which will have to be replicated in just 4 years and within a much more challenging macroenvironment that cuts across the fiscal, monetary, external, and real sectors.
It was noted that, while the World Bank’s projection for 2023 assumes three per cent GDP growth in the first year, the economy will then have to grow by an average of seven per cent for the next three years, shifting growth from three per cent in 2023 to at least seven per cent in 2024 and thereafter, which appears overly ambitious.
The report prescribes that the best possible GDP growth rate to be achieved within the next four years would be between 4 to 4.5 per cent.
The president, during his inauguration speech, had set a target to increase the GDP growth rate of the country by 6% on average in the next 4 years through budgetary reforms aimed at stimulating the real sector of the economy. However, we believe that this might be difficult to attain in four years. For example, the consensus among analysts is GDP growth in 2023 of between 2.7-3.2 %.
“We are of the opinion that there is very limited space to attain a 6 pet cent average real growth rate in four years or an increase in real GDP by N17trillion and an average GDP growth rate of between 4-4.5% at the best is more feasible in the next four years. Even this will require the country to get its policies right and keep consistent faith with macroeconomic reforms.”
According to KPMG, a challenging macroeconomic environment and various constraints such as inflation, subsidy removal, and infrastructure limitations are some of the challenges the government would face to maintain a fine and delicate balance across economic variables. It added that;
“For example, to grow government revenue to expand government consumption and investment, it might increase taxes and /or borrow from the private sector. However, increasing taxes can lower purchasing power and slow consumption expenditure growth. At the same time private investment may be curtailed as business earnings are squeezed from slowing demand, higher costs from higher taxes, and higher interest rates as government borrowing crowds out private-sector lending and then pushes rates up.”
Furthermore, the report noted that household consumption expenditure which is the largest share of GDP and the easiest to grow is however constrained by high double-digit inflation which is expected to get worse with the subsidy removal.
It added that the implementation of the finance bill 2022 and the unification of the FX rate, whenever it is implemented within the next four years, in addition to the perennial supply and transportation bottlenecks, security concerns and power and other infrastructural constraints to doing business in Nigeria will affect costs of production and price of goods and services.
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It further added that “the initiatives government and the private sector may also have to put in place to cushion the effects of the removal of petrol subsidy may also worsen the costs of businesses and leave less for expansion in the short-to-medium term which covers the duration of the president’s first term and the focus of his growth targets.
The report appreciated Tinubu’s understanding of the economic situation of Nigeria.
“The fact that Nigeria’s GDP will need to grow by at least 6% to generate enough jobs to absorb labour market growth (about 4% per annum) and reduce poverty is well understood by President Tinubu’s Administration.”
