Analysts Prescribe Recipes for Sustaining Growth Trajectory

Kunle Aderinokun

With the new Gross Domestic Product (GDP) report of the National Bureau of Statistics, it has become more apparent that the economy is gradually steering its way out of the murky waters of recession. The NBS, in its GDP Report released last Tuesday, disclosed that the economy recorded a negative growth of -0.52 per cent (year on year) in the first quarter, reflecting an improvement of 1.21 percentage points over the -1.73 per cent contraction in the preceding quarter. Economic analysts and market observers believe the Q1 2017 figures may be lending credence to the IMF projection that Nigeria’s economy would finish the year with a growth rate of 0.8 per cent and also CBN’s forecast that the economy would exit recession in the third quarter of this year. Although the GDP for Q1 2017 represented a contraction for the fifth consecutive quarter since Q1 2016, NBS noted that, during this year’s Q1, aggregate GDP stood at N26,028,356.03 million in nominal terms, compared to N22,235,315.29 million in the corresponding quarter in 2016, resulting in a nominal GDP growth of 17.06 per cent.

While federal government was excited about the improved outing of the economy, because the report showed that during the quarter under review, the manufacturing sector grew by 1.36 per cent and agriculture by 3.9 per cent, analysts and observers have identified factors that could adversely affect sustenance of the upward streak. Besides, a school of thought blamed the nation’s stunted economic growth on fiscal irresponsibility, another one lamented that the little improvement in GDP growth rate recently achieved was yet to positively affect the lives of Nigerians.

Analysts at Eczellon Capital Ltd acknowledged that, going by NBS report, the economy was recovering from the economic crunch as output in the first quarter of the year showed signs of improvement compared to the previous quarter’s readings.
This, they added, also revealed that the total value of goods and services produced in the first quarter of the year had marginally increased compared to figures reported in the prior quarter.

According to the analysts, “The NBS’ figures were reflective of government’s policies in the first quarter of the year. For instance, as part of efforts to bolster non-oil exports, the government restarted the Export Expansion Grant (EEG) which had encouraged local manufacturers to produce more in the reviewed quarter.

“Also, the issuance of the $500 million 15-year Eurobond in the first quarter was aimed at funding the implementation of the 2016 budget. We believed this had undoubtedly contributed to the rise in output in the period under review. Furthermore, quoted firms reported impressive results in the first quarter of the year. A look on these corporate reports showed increase in turnovers, profit-after-tax, and net asset value. We believe corporate results can be used to measure the economic health of the companies. Moreover, the CBN’s interventions at the foreign exchange market have had some positive results. The value of the local currency has improved and manufacturers now have more access to the dollar to import raw materials.”

The Eczellon analysts, however, cautioned that, in order for the economy not to miss the growth targets, recover and be on the path of growth and stability, the federal government needed to move swiftly and sign the budget, implement it and the growth plan to the letter, while CBN sustains its intervention at the FX market.

“The 2017 annual budget is yet to be signed; hence we suggest a swift signing and implementation of the budget to facilitate capital expenditure. We believe the timely release of funds for the execution of capital projects will contribute to the recovery of the economy in forth coming quarters. We expect the economy to rebound at a marginal rate in the quarters ahead. This will be buoyed by CBN’s persistent intervention at the FX market, implementation of expansionary policies and swift execution of the 2017 annual budget,” they pointed out.

Similarly, in his view, Chief Executive Officer, The CFG Advisory Ltd, Adetilewa Adebajo, enthused that, the economy was moving away from the negative territory, but was quick to add that, “We still have a long way to go as GDP growth needs to reflect in the lives of the Nigerian people.”

According to him, “The -0.52 per cent GDP growth rate indicates that we are still in a recession. With a population growth rates of 2.6 per cent (according to worldmeters) the nation remains in a woeful state; ideally, the GDP growth rate has to be positive first, and then grow by double of population growth rate; at least 6 per cent.”

Noting that three major sectors came out of recession in Q1 2017: Manufacturing (1.36per cent), Construction (0.15per cent) and Transport (10.55per cent), Adebajo believed, “With the implementations of growth stimulating policies, we are hopeful that the IMF article IV GDP growth projections of 0.8per cent in 2017 would be attainable.”

Also, Director, Union Capital Ltd, Egie Akpata, noted that, with the oil production output still below prior year’s levels and the challenges the federal government faced passing or funding the 2016 budget, it is not surprising that economic activity was not back to a growth trajectory.

He acknowledged that, “When compounded with FX issues which the CBN was not able to resolve in a timely fashion, it is possible that the recession might not end till Q3 2017.”

While also acknowledging that, it was positive that the rate of contraction had been steadily declining, Akpata noted that, “With recent improvements in the FX market and passing of the 2017 budget, momentum and positive sentiments seem to have returned to the economy.”

He therefore added that, “ To achieve more than anaemic growth for the remainder of the 2017, the CBN would need to find a way to get credit flowing back into the private sector rather than being totally crowded out by the government who is paying up to 23per cent per year risk free on treasury bills.”

“Unfortunately, the economic cycle in Nigeria is still driven by the oil market and its impact on FX accretion to reserves. Based on current policies, this oil dependency is clearly not over. On this basis, all projections are at the mercy of significant changes to the price of oil on the international market,” he, however, concluded.

For the Chief Executive Officer, Global Analytic Consulting Ltd, Tope Fasua, who said he was “usually suspicious of our figures because of our large informal economy and culture of opacity”, expected the economy to move out of recession this year “since some of our core indices are not doing badly, namely crude oil prices and volumes.” But the issue is that Nigeria still relies on that singular product, he added.
Fasua pointed out that, “The major drags on the economy remain fiscal irresponsibility and corruption, which continues to drain the lifeblood of Nigeria.”

“2017 budget has all sorts of expenditure items that should never occur in a country going through a recession. Our economic management continues to prioritise the egotistic demands of politicians; otherwise, we should not even be in a recession in the first place. Failure to correct our course is why we are in a prolonged recession,” he noted