The Head of Research and Strategy at FSDH Merchant Bank Limited, Mr. Ayodele Akinwunmi has advised the federal government to take urgent steps to stimulate economic growth in the country.
He said this while speaking on the bank’s latest monthly economic report.
Nigeria’s real Gross Domestic Product (GDP) growth rate of 1.50 per cent recorded in the second quarter (Q2) of 2018 was below the expectations of most analysts.
Although the fragile growth was driven by the non-oil sector, Akinwunmi pointed out that the fact that dominant sectors of the economy either recorded low growth or contracted in Q2 2018, indicated that urgent actions were required. Agriculture, which is the largest sector of the Nigerian economy at 22.86 per cent, recorded a marginal growth of only 1.19 per cent.
“FSDH Research notes that the slow growth in the agriculture sector, if not checked, may lead to food shortage in the country and consequently escalating food prices and rising inflation rate.
“Trade, which is the second largest sector of the Nigerian economy, contracted by 2.14 per cent and entered a recession in Q2 2018.
“The weak purchasing power in the country (occasioned by non-payment of salaries, high unemployment rate and high consumer prices) is responsible for the contraction in the trade sector. Improvement in the business environment that can lead to job creation and payment of salary of workers, particularly among the state civil servants, will stimulate purchasing power,” he added.
The FSDH report, however, observed strong growth in the Information & Communication and the Construction sectors of the economy.
“We believe the two sectors can achieve higher growth rates given the enormous potentials inherent in these sectors. The contraction in the Real Estate sector can be reversed if government at all levels partners with private sector operators to provide affordable housing units for Nigerians.
“Government can provide land, lower the cost of registration and perfection of titles, and provide long-term loans for their employees. The current low GDP growth rate is not strong enough to stimulate credit creation. It has also increased the risk of doing business in Nigeria. Therefore, urgent measures are required so that low GDP growth rate does not become a new norm in Nigeria,” he added.
The total value of foreign capital importation into Nigeria stood at US$5.51 billion in Q2 2018, a drop of 12.53 per cent, compared with Q1 2018.
This drop, according to the report, was an indication of the risk aversion of foreign investors.
Both Foreign Portfolio Investments (FPI) and other investments declined in Q2 2018 over Q1 2018. However, Foreign Direct Investments (FDI) increased marginally in Q2 over Q1 2018.
“The risk aversion towards Nigeria is due to rising uncertainties in the Nigerian economy and the expectation of a rate hike in the US. FPI remained the most significant component of total capital inflow into Nigeria in Q2 2018 but contracted by 9.76% over the previous quarter.
“The Central Bank of Nigeria (CBN) may raise the yield on short-term securities to attract FPI in order to ensure stability in the foreign exchange market. Consequently, the yields on the Nigeria Treasury Bills (NTBs) may increase,” the report added.