Non-oil Sector as Game Changer



By Obinna Chima

The drive by the federal government to promote activities in the non-oil sector appears to be gaining traction.

This clearly manifested in the latest Gross Domestic Product (GDP) figures that were released by the National Bureau of Statistics (NBS) recently.

 According to the NBS, the Nigerian economy grew in real terms by 1.92 per cent in the fourth quarter (Q4) of 2017 (year-on-year), maintaining its positive growth trajectory since the emergence of the economy from recession in the second quarter (Q2) of 2017.

The latest data also indicated that the economy recorded a real annual GDP growth rate of 0.83 per cent in 2017, an improvement over the -1.58 per cent recorded in 2016.

According to the Q4 figures, Nigeria’s non-oil sector continued to reverse the contraction recorded in previous quarters, with a 1.45 per cent growth in the fourth quarter of 2017, the first since the economy slipped into recession in the second quarter of 2016.

The NBS also stated that the 2017 real annual growth rate of 0.83 per cent was higher by 2.42 per cent than –1.58 per cent recorded in 2016.

In the quarter (Q4) under review, aggregate GDP stood at N31.209 trillion in nominal terms higher when compared to N29.169 trillion in Q4 2016, resulting in a nominal GDP growth of 6.99 per cent.
This growth was lower relative to the growth recorded in Q4 2016 at 12.49 per cent. Nominally, 2017 recorded an annual growth rate of 12.05 per cent, higher by 4.25 per cent compared to 2016 annual growth of 7.80 per cent.

Specifically, the non-oil sector recorded an annual growth of 0.47 per cent compared to -0.22 in 2016, adding that the fourth quarter growth was 1.78 points higher than the rate recorded in the same quarter of 2016 but 2.21 per cent point higher than in the third quarter of 2017.
“This sector was driven this quarter mainly by agriculture (crop), trade, and transportation and storage. In real terms, the non-oil sector contributed 92.83 per cent to the nation’s GDP, lower from the share recorded in the fourth quarter of 2016 (93.25 per cent), but higher than in the third quarter of 2017 (89.96 per cent). Annual contribution was 91.32 per cent in 2017 and 91.65 per cent in 2016,” the NBS said.

Focusing on other core economic metrics, while inflation in the country has slowdown to 15.13 per cent in Nigeria, the 13th consecutive month;foreign exchange reserves has gained about five in the past month to reach $42.8 billion presently; the naira has remained stable with the Investors’ and Exporters’ window recording improved turnover.

In addition, the federal government and the Central Bank of Nigeria (CBN) have continued to support farmers in the country through various agriculture intervention scheme. For instance, the CBN Governor, Mr.Godwin Emefiele recently put the total amount of money disbursed by the Bank under the ABP in partnership with the state government and private sector group since the commencement of the programme at N55.526 billion to over 250,000 farmers.

These set of farmers that had benefited from the programme, according to the CBN Governor, have cultivated almost 300,000 hectares of farmland for rice, wheat, maize, cotton, soybeans, cassava, etc.

The ABP was designed to support small holder farmers by providing them with the requisite training, tools and funds at single digit interest rates, which will enable improved cultivation of key agricultural items such as maize, soybeans, rice, cotton and wheat.

Indeed, the latest report about the country’s GDP is expected to propel the federal government to channel more of its investments in the real sector of the economic, to achieve its quest for economic diversification. A diversified economy creates a sustainable cycle of economic activity where businesses continually feed off of one another and grow larger as the economy grows.

They must be reminded that resource-dependent countries, with narrow base of economic activity, are particularly vulnerable whenever there is a shock. That is why theymust be more vigilant in managing risks to their economies.

Not only must a country’s GDP be balanced among sectors, but key elements of its economy must be varied, flexible, and readily applicable to a variety of economic opportunities, and areas of overconcentration must continually be identified and mitigated.

According to a report by Strategy&, which is part of the PwC network of firms, policymakers must work to achieve greater economic diversification, to reduce the impact of external events and foster more robust, resilient growth over the long term.

Also for a resource-rich nation such as Nigeria, the immediate imperative is to diversify export-oriented sectors, but for the benefit of long-term sustainability, policy makers must also look at the larger picture. A strong institutional and regulatory framework and workforce development initiatives are indispensable to the diversification effort; and proper management of human capital is the key, especially in those countries experiencing a “demographic dividend.”

To Research Analyst at FXTM, Lukman Otunuga, the latest GDP figures would help strengthen confidence in the economy. According to him, if the current momentum holds and economic data continues to follow a positive trajectory.

According to Otunuga, while the I & E window has played a role in the naira’s steady price action, another factor could be the overall positive sentiment.

“The allure of higher interest rates and appreciating Dollar could spark capital outflows from Nigeria consequently pressuring the naira. With regards to oil, the outlook remains somewhat cloudy as investors grapple with a selection of fundamental themes impacting the commodity. While the bull’s argument for oil to stabilise is likely based on OPEC’s production cuts, risk’s associated with risk production from U.S Shale continues to empower the bears.

“While we have repeatedly said that Nigeria could continue benefiting from oil prices short term, lessons from the past have proven that this is not a long term solution. With Oil prices vulnerable to heavy losses amid soaring U.S Shale production, it remains highly encouraging that Nigeria is making efforts to diversify from oil reliance.

“As we head into the final trading month of the first quarter of 2017, markets will be heavily focusing on the developments surrounded the 2018 budget. For Nigeria to maintain the strong momentum, it is critical that the 2018 budget is approved. This will reduce uncertainty and boost investor confidence ultimately supporting the nation further,” he added.

On their part, analysts at Lagos-based Afrinvest Securities Limited, stated that their outlook for the economy remains positive as they anticipate the oil sector low-base-push to last till the fourth quarter of 2018.

Also, the Special Adviser to the President on Economic Matters, Dr. Adeyemi Dipeolu said the expectations of the administration that the Nigerian economy will grow this year by 3.5 per cent, was on course.
He explained: “There are two encouraging aspects of the figures. The first is that all major sectors of the economy, namely, agriculture, industry and services are now experiencing positive growth.

“The other notable element of the data was that the non-oil sector experienced a strong growth of 1.45 per cent in Q4 2017 compared to a contraction in the previous quarter and the whole of 2016. This showing, the strongest since 2015, points to steady improvements across the economy.”

But the chief executive of the Financial Derivatives Company Limited, Mr. Bismarck Rewane, noted that although the 0.83 per cent growth recorded in 2017 wasn’t impressive, it was a movement in the right direction.
He stressed the need for the Central Bank of Nigeria (CBN) to reduce the cash reserve requirement (CRR) for banks as well as refund some of the CRR to the lenders. This, he anticipated, would spur lending.

“So, we need to now begin to invest, bring down the interest rate and credit to the private sector needs to grow.
“We have to reduce CRR and we have to accept that inflation will increase marginally. So, in all, 0.83 per cent is actually not good enough, but it is positive.

“We need to do some things differently from what we have been doing them in the past,” he added.
Rewane explained that the CBN doesn’t have to hold a monetary policy committee (MPC) meeting before it can implement some of his suggestions, saying: “You can bring down the nominal rate without bringing down the policy rate. You can bring the treasury rates down and you can refund some CRR to the banks and then encourage the banks to lend more to the private sector.”

On his part, the Fixed Income Research Specialist at Ecobank Nigeria, Mr. Adewale Okunrinboye, pointed out that the non-oil GDP recorded stronger growth in the fourth quarter of 2017 because of the improvement in foreign exchange liquidity in the market. This, he also said, was very important for trade and manufacturing.

“The overall takeaway from the GDP report is that the forecast for GDP is expected to start moving more towards three per cent in 2018. We now see a much stronger growth in 2018 if the non-oil sector continues to grow at the rate it is growing and importantly if forex liquidity continues to improve.
“Generally, looking at treasury bills, interest rates are now much lower than what they were last year, that suggests that there would be more lending to the private sector,” he added.

Also, analysts at Lagos-based CSL Stockbrokers Limited anticipated that the Nigerian economy would continue to gather momentum over the course of 2018 owing to improving outlook for both the oil and non-oil sector.
With respect to oil production, they noted that a reduction in militant attacks had seen output rise over the course of 2017.

“We are also expecting the CBN to begin to gradually ease monetary policy in 2018, having pencilled in 200 basis points cuts to the Monetary Policy Rate (MPR) during the year.
“Lower interest rates will stimulate lending as demand for credit increases in tandem with improving sentiment across the economy. We forecast that 2018 headline real GDP growth will come in at three per cent, albeit, well below the 6-7 per cent potential growth rate,” they added.