The year ahead... 2023

2022 in review and prospects for 2023

2022 was a rollercoaster globally.

We started the year with news of a million COVID cases in the United States and later saw Russia invade Ukraine starting a global food crisis and the European energy crisis. We also saw a sharp decline in equity prices and the start of a Crypto winter with FTX being the most high-profile company out in the cold. And most recently, sharp increases in the US Fed interest rate to combat decades-high inflation rates.

In Nigeria, we saw some spectacular policies from the Federal Government and Central Bank including the signing of the Start-Up Act and the redesign of the currency. In short, it was a very interesting one for us.

Looking forward, we have been looking at what 2023 will bring and these are the three events we see having a major impact on Nigeria and globally.

Presidential election results

Starting with the most obvious, we have the general elections which are less than two months away. This election has a lot of peculiarities most notably the emergence of a viable third party and a high number of new youth voters. One feature that is less talked about is the absence of Buhari from the ballot for the first time since 1999.
We at Analyst Digest do not see into the future but we are sure of one thing, whoever wins has a lot of work to do and not a lot of wiggle room for miscalculations. They will have to fight inflation in the face of high commodity prices and global inflation, spur investment in a high-interest-rate climate and grow the economy without sacrificing sustainability.

Interest rate hikes and inflation

As we have alluded to previously, we have seen global inflation reach new levels and a chain reaction of supply-chain constraints, China’s COVID lockdown and the war in Ukraine. All these has caused what is called supply-driven inflation (when not enough goods are produced, we pay more for what is available). This kind of inflation is tricky as simply raising interest rates will not address the issue especially when the root cause is not within your borders.

From our point of view, we believe that the war in Ukraine, as saddening as it is, will continue well into 2023, so we expect to see prices of crude oil and other commodities where Russia and Ukraine play significant roles like sunflower oil and wheat remain elevated. The opening up of China will provide some succour but we do not see global inflation cooling down overnight.

VC funding slowdown and impact on the Nigerian Tech economy

The tech sector globally has had a fun ride over the past ten years with cheap capital driving investment in the sector. Nigeria has not being left out, over 2 billion US dollars has been raised in the past 7 years. However, considering the increasing cost of capital as interest rate rises, the fall in the US equities markets which makes traditional investments attractive again and the Crypto bust that has made investors weary of the tech space, we expect to see a slowdown in tech funding going into the year.

This is not the first time the tech ecosystem is facing a bust, the 2001 dotcom bust crippled most internet businesses and the 2008 financial crisis shook everyone, but this is a first for Nigeria’s budding tech economy. We do not think this spells doom for anyone but we expect to see a strategic shift from revenue and valuation-driven economics to an increased focus on unit economics and profitability, we also expect that companies without product-market fit will find it hard to raise funds and keep operating.

Other things to look out for:

The South African and Ghanaian elections are happening in 2024 so we expect to see election build-ups in both countries from Q2 2023. Both are currently facing challenging economic situations, so we expect the economy to take a center stage in the campaign and political discussions.

Based on consensus, we expect a slow year in terms of economic growth, with consumer prices rising and inflation falling slowly. Several analysts’ predictions speculate a mild recession for advanced economies and a global growth rate range of 1.2% to 1.7%, a considerable decline from the 3.2% and 6% growth of 2022 and 2021 respectively.

Lastly, with the recent restrictions on the export of processing chip technology to China by the USA, and the increased investment in US domestic manufacturing capacity coupled with the explosion of interest in Artificial Intelligence, we expect to see a lot of activity in that space. If 2022 was the year of NFTs then 2023 is set to be the year of AI.

Final thoughts
No matter how you look at it, 2023 is bound to be an interesting year for Nigerians and the world at large and we at Analyst’s Digest are here to take you on that ride.