April 15, 2024

KPMG revises Nigeria 2023 economic growth forecast downward to 2.65%, due to oil production contraction: What’s next?



Oredola Adeola


KPMG Nigeria, a multinational consulting firm, has revised Nigeria’s economic growth forecast for 2023 further downward to 2.65% from the earlier promised 2.85%, based on several factors, including the likelihood of a contraction in the country’s oil production in August and September, as revealed in July 2023, raising concerns about the country’s economic future


KPMG made this known in its flashnote issue 11 by EnergyDay on Sunday which was released on the sideline of the underwhelming Q2, 2023, GDP growth recorded.


According to KPMG the first Half (H1) 2023 Gross Domestic Product, (GDP) currently stands at 2.42 percent and will require an average growth in H2 2023 of 3.30 percent to record 2.85 percent.


KPMG said, ” the Q3 2023 is the quarter where the impact of subsidy removal, Foreign exchange unification and other reforms of the new administration had it major impact on squeezing household consumption demand and firms’ costs of operations.


The firm also disclosed that the impact of subsidy removal and FX volatility has also reduced private investment in the country during the period in view.


It further added that its downward adjustment in the country’s growth was also premised on the muted government investment in the economy in Q2 and Q3 2023, even as the new administrations at the Federal and State level are still settling down for governance in Q3, 2023.


The Nigerian National Bureau of Statistics (NBS) in its recent report revealed that the oil sector contracted since Q1,2020 further declining by -13.43 percent in Q2,2023 and -11.77 percent in Q2,2023.


KPMG further emphasized that Nigeria’s Q2, 2023 GDP result was in line with its earlier downgrade revision of 2023 GDP to 2.85 percent.



It said that the impact of subsidy removal was evident in the biggest contraction in road transportation GDP since the news GDP series.


It said, “Though subsidy was only removed in June 2023, representing a one month impact of the three months of the quarter, road transport GDP contracted by -55.14 percent in Q2, 23, which is the biggest contraction in road transport GDP in history.



“This contradicts the muted results recorded with respect to inflation for that same month which according to NBS was not expected to fully reflect on the Consumers Price Index through methodologically,” the professional firm noted.



KPMG disclosed that Nigeria’s oil production has started in Q3,2023 with a further contraction in July 2023, revealing that if this trend continues for the remaining months of Q3, 23, the country will witness a situation where non-oil sector growth and oil sector growth will both underperform.


KPMG said that with rising inflation in the first month of Q3, 2023, and expectation of further increases in inflation for the rest of the year, the pressure on nominal to real GDP will be higher, thereby curtailing higher real GDP growth in Q3,2023.




By implication, EnergyDay Intelligence gathered that the downward revision of Nigeria’s economic growth forecast, the country is likely to witness a reduced economic activity in Nigeria, which could lead to job losses and reduced income for households and businesses.



Since Nigeria is heavily dependent on oil revenue, EnergyDay gathered that further contraction in the oil sector could lead to reduced government revenue, which could limit the government’s ability to fund critical infrastructure projects and social programs.


The downward revision of Nigeria’s economic growth forecast by KPMG  therefore reflected the level of reduced investor confidence in the country, which could further lead to reduced foreign investment and capital inflows.


President Tinubu’s administration needs to urgently implement energy industry policies that attract more investment and kick-start existing ones, with the overall objective of driving economic growth.


The new government may need to address structural issues in the economy, such as corruption, poor infrastructure, and a weak business environment, to improve the country’s long-term growth prospects.