GDP: Nurturing the Low Hanging Fruits in 2022

As the public and private sector operators begin to dissect the latest GDP figures recently released by the National Bureau of Statistics, analysts from the Centre for the Promotion of Private Enterprise (CPPE) believe that giving special attention to some resilient sectors that defied all odds to post impressive figures for 2021, will move the Nigerian economy to a positive trajectory in 2022, reports Festus Akanbi

It was cheering news for Nigeria’s business and economic community that the nation’s Gross Domestic Product (GDP) grew year-to-year by 3.4 per cent in 2021 with an estimated value of N72.39 trillion in real terms, representing an uptick from the 1.92% contraction recorded in the previous year.

The figure is the first annual growth above three per cent since President Muhammadu Buhari won the 2015 election. In 2014, the economy grew 6.3 per cent.

According to the report, the GDP also posted a strong recovery of 3.98 per cent in the fourth quarter of 2021 — but lower than the 4.03 per cent in the third quarter economic analysts believed that given the daunting challenges before the current administration and the reality of the next year’s election, it will be in the nation’s interest for the government to build on the marginal improvement in the figures churned out by the statistical agency. This was the position of the Chief Executive Officer of the Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf.

He noted that the figure surpassed projections of both the International Monetary Fund (IMF) and the World Bank of 2.6 per cent and 2.7 per cent respectively.

The CPPE boss attributed the positive growth to a strong base effect and the easing of shocks of the pandemic on the economy.

Given the modest appreciation of their performances, analysts believed special attention should be placed on some sectors of the economy, with the belief that with additional push, these sectors could make a significant impact on Nigeria’s economic performance going further.

The affected sectors, according to CPPE include, the agricultural sector, food and beverage manufacturing sub-sector, cement sub-sector, chemicals and pharmaceuticals sub-sector, vehicle assembly plants, trade sector, rail transport and pipelines, air transport, road transport, maritime sector, ICT sector, financial institutions and insurance sector.

Low Hanging Fruits

Agricultural Sector

In the figures released for the 2021 economic performance, the agricultural sector expanded by 2.13%. The CPE report said although it was a positive performance, growth in the sector remained subdued by the intractable insecurity in many parts of the country, especially in farming communities. This phenomenon, it noted, continues to inhibit agricultural productivity.

The report also observed that technology application in agriculture remains weak and impacts productivity.

“Traditional farming methods are still largely dominant. Transportation and logistics continue to aggravate output costs in the sector. The various intervention funds have had a measured impact on productivity because of security and structural factors,” the report stated. Therefore, there is an urgent need to ensure the immediate resolution of all security issues in the country to enable farmers and investors in the agricultural sector to return to the farm.

Food and Beverage Manufacturing Sub-sector

The report explains that this segment of the manufacturing sector is one of the most resilient as it records a 5.73% performance figure in 2021.

The beauty of this sector is the fact that it is driven by a strong backward integration business model. CPPE’s report noted that a significant part of the raw materials is sourced domestically and that the sector leverages the large domestic market and population. It is therefore believed that giving the food and beverage manufacturing sub-sector some considerations will improve general performance.

Cement Sub-sector

The cement sub-sector, which recorded 6.64% growth in 2021 is characterised by a strong backward integration strategy with its main raw materials being sourced locally which is limestone. The sector also leverages a large domestic market and favourable tariff protection.

Today, the industry structure is oligopolistic and it’s impacted by the recovery of the real estate and construction sectors.

Chemicals and Pharmaceuticals Sub-sector

With an 8.13% rise in performance in the period under review, the sector benefited from a robust stimulus at the onset of the pandemic.

It also leveraged the country’s large population and domestic market.

There is favourable tariff protection for most of the products in the sector.

However, the sector growth was subdued by the challenges of forex liquidity issues and currency depreciation.

Vehicle Assembly Plants

This sector grew by 2.3% on the back of fiscal policy measures of government. There are generous tariff concessions of SKD and CKD.

There is a strong lobby to promote the patronage of locally assembled vehicles.

The sector also grapples with challenges of access to forex and the exchange rate depreciation because of its high import dependence. Analysts believe that with a little more push this year, it could emerge a money-spinner with the attendant gains to the national economy.

Trade Sector

With eighth growth, the trade sector is one of the biggest sectors in the economy contributing 16 per cent to the GDP. It boasts of a large employer of labour next only to agriculture and according to Yusuff, the sector’s growth was driven by the restoration of the global supply chain which was earlier disrupted by the pandemic.

According to the CPPE document, the resilience of the informal sector also played a role in the growth as the sector is largely driven by the informal sector. The sector is also supported by the large market and growing population.

Rail Transport and Pipelines

This sector recorded one of the highest growths which were 36.95 per cent.

It recorded high patronage of the functioning component of the rail system, especially between Abuja-Kaduna and Lagos-Ibadan. Owing to concerns about insecurity and kidnapping on the road.

The impact is limited because only a small part of the country is currently covered. However, the pipeline component of this sub-sector has not made any significant contribution because of the issues of the vandalisation of pipelines.

Air Transport

Air transport, which post 19.7% performance in 2021, is one of the sectors that experienced the worst shocks inflicted by the pandemic, but now recording one of the fastest recoveries.

The sector benefitted from the easing of lockdown and the easing of travel restrictions domestically and globally. The sector remains pressured by the high cost of aviation fuel and stifling regulatory compliance costs. The sector contributes 0.09% to GDP.

ICT Sector

With a 7.28% growth in 2021, the sector is one of the fastest-growing as digital technology gains increasing traction.

The growth is driven partly by the young demographics, a youth population of about 60% in Nigeria and the fact that many sectors are leveraging ICT for growth.

Financial Institutions

Justifying the 10.53% growth of financial institutions in 2021, the CPPE explained that recovery of economic activities naturally reflect in the performance of financial institutions as financial institutions are central to many transactions in the economy. According to the report, increasing fiscal deficit and associated government borrowing increase investment opportunities in government securities especially treasury bills and government bonds by financial institutions and their customers.

Insurance Sector

With 6.24% growth, the report noted that economic growth recovery naturally reflects in increased insurance transactions, explaining however that the impact on the growth of insurance is still subdued because of the weak insurance penetration.

It is hoped that as the electoral campaign period looms, all relevant agencies of government will begin to build on the modest success recorded by these sectors of the economy. And according to Yusuf “While we welcome the positive growth numbers, we reckon that there is still a great deal of work to be done to translate the growth to improved welfare and prosperity of small businesses.

“This will require a mix of fiscal, monetary and social policy interventions.”