With Improved GDP Growth, Experts Seek Increased Investment, Inclusive Growth

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Beyond the euphoria of gross domestic product (GDP) growth recorded for last year, government must thrive to boost output in critical non-oil sector and ensure growth translates to poverty reduction, writes James Emejo

Against the backdrop of poor economic indices particularly regarding latest unemployment rate, which shot up to 23.1 per cent from 18.8 per cent as well as its weak recovery in previous quarters, Nigerian economy, no doubt beat analysts’ expectations going by the strong growth of 2.38 per cent it posted in the fourth quarter of 2018 (Q4, 2018), indicating a 0.55 percentage rise compared to the 1.81 per cent growth recorded in the preceding quarter. On an annual basis, the economy grew at 1.93 per cent in 2018, largely buoyed by the non-oil sector.

In fact, the National Bureau of Statistics (NBS), in the Nigerian Gross Domestic Product Report for the fourth quarter and full year 2018, stated that in monetary terms aggregate nominal GDP stood at N35.23 trillion, higher than N31.27 trillion recorded in Q4, 2017, representing a nominal growth rate of 12.65 per cent while real GDP growth stood at N19.04 trillion.

However, nominal GDP for the whole of 2018 stood at N127. 76 trillion, representing a nominal growth rate of 12.36 per cent when compared to N113.71 trillion in 2017.

Also, average daily oil production stood at 1.91 million barrels per day (mbpd), lower than the 1.94 mbpd in Q3 2018 as well as 1.95 mbpd recorded in Q4,2017.

The oil sector contributed 7.06 per cent to real GDP in Q4, down from 9.38 per cent in Q3 and 7.35 per cent in Q4,2017.

For 2018, the contribution of the oil sector to aggregate real GDP was 8.60 per cent, compared to 8.67 per cent in 2017, the NBS further noted.

Oil sector recorded a negative real GDP growth rate of 1.62 per cent (year-on-year) in Q4 2018, indicating a decline of –12.81 per cent relative to the growth rate recorded in the corresponding quarter of 2017.

On the other hand, the non-oil sector contributed 92.94 per cent to real GDP in Q4, 2018, slightly higher than the 92.65 per cent recorded in Q4 2017.

The non-oil sector grew by 2.70 per cent in real terms within the review period. This is 1.25 per cent higher than the growth rate recorded in Q4 2017, and 0.38 per cent higher than the growth rate recorded in Q3 2018.

On an annual basis, the non-oil sector recorded a growth rate of 2 per cent in 2018, performing considerably better than 0.47 per cent in 2017.

For 2018, annual contribution of the non-oil sector was 91.40 per cent compared to 91.33 per cent in 2017.

Even though the latest performance have been commended and celebrated particularly by government officials and economic handlers, who had somewhat politicised the outcome especially amid the general election, concerns have been expressed over the fact that growth had never translated into better employment generation and poverty reduction as people have only gotten poorer.

Reacting to the country’s GDP growth, however, the presidency said the performance reflected clear indication of the effectiveness of the economic policies of President Muhammadu Buhari.

Special Adviser to the President on Economic Matters, Dr. Adeyemi Dipeolu, said with the maintenance of the growth trajectory, the economic diversification objectives of ERGP were set to be realised.

The Minister of Budget and National Planning, Senator Udoma Udo Udoma, expressed delight over the performance of the economy in the fourth quarter of 2018, particularly given that growth was largely driven by the non-oil sector which grew by 2.70 per cent in the quarter, posting a growth of 2 per cent for full year 2018, representing the strongest growth in non-oil GDP since the fourth quarter of 2015.

According to him, the performance reflected the Buhari-led administration’s continued implementation of targeted policies, programmes and projects across various MDAs and other sectors of the economy as set out in the ERGP.

Analysts have nonetheless stressed need for increased investments in the country in order to achieve better and sustainable growth.

However, an economist confided in THISDAY that though the performance of the economy is encouraging, “government need to sustain the tempo and consolidate on our economic diversification effort as encapsulated in economic recovery and growth plan, while also ensuring the growth is not epileptic with little or no translation to job creation and improved welfare of Nigerians.”

Also, Professor of Finance and Capital Market at the Nasarawa State University, Keffi, Prof. Uche Uwaleke, said though a welcoming performance, the growth still felt short of the growth projection in the 2018 budget.

According to him, “It is not yet Uhuru though. A GDP growth rate of 1.9 per cent in 2018 is a far cry from the about 3 per cent target projected in the 2018 budget.

“This is good news. It is remarkable for an economy that exited five quarters of negative output growth in a row only a few months ago.

“This performance has a lot to do with the recovery in crude oil price and output, accretion to foreign reserves and the associated stability in the foreign exchange market.

“It is also reflective of some of the policies and measures put in place by the government to stimulate the economy including the Anchor Borrower programme, which has boosted the agric sector as well as other interventions by the CBN to ensure that credit is channeled to the real sector.

“It would appear also that the government’s investment in infrastructure especially power, rail and roads is beginning to yield fruits. It is evident from the recent GDP figure that the economy has returned to a path of positive growth.

He , however, expressed concern that growth had not been a “job-led growth considering that unemployment rate actually increased just about the same period, between Q3 2017 and Q3 2018, from 18.8 per cent to 23.1 per cent, according to the National Bureau of Statistics.”

“So, we need to begin to focus on inclusive growth. This is because GDP growth alone, although necessary, is not a sufficient condition for economic development.

“The challenge therefore is for the government to ensure that the GDP growth rate is not only above the annual population growth rate of about 3 per cent on a sustainable basis, but that such growth is driven especially by the employment-elastic sectors of the economy such as manufacturing, ICT, construction etc as opposed to the oil sector which contributes less than 10 per cent of GDP and employs less than 5 per cent of the population.

“In other words, going forward, the government should intensify ongoing efforts at powering the economy through the Micro, Small and Medium Enterprises for inclusive growth.”

Also, analysts at Cordros Capital Limited advised government to focus more on structural reforms rather than popular reform to be able to sustain growth in 2019.

In its assessment of developments in the economy particularly as elections are conducted, it noted among other things that, “Amidst elevated headwinds, economic growth to remain robust

Incorporating insights from our review of growth drivers over Q4-18, we frame our outlook for 2019 by taking into consideration, the impact of politics ahead of the general elections. In addition, we also answer the burning question of a possible resurgence of security challenges in the Niger-Delta region, and its risk on crude oil pipeline attacks, which could dampen oil production and thus, oil earnings.

“For one, we believe the incumbent government’s focus on popular reforms instead of structural reforms for much of Q1-19 will act to impede growth particularly in the first half. That said, credit to President Buhari’s regime, the Niger Delta Avengers agreed to a ceasefire at the twilight of 2016 on account of the

administration’s conciliatory efforts and higher amnesty allocation in the 2017 and 2018 budgets (NGN65 billion per annum). Nigeria’s exit from recession in 2017 owed much to the foregoing, with oil production averaging 1.95mb/d since Q3-17 (Q3-16: 1.61 mb/d).

“We are largely optimistic of a peaceful election process and expect that the amnesty programme will be sustained, irrespective of the outcome of the election. Against the foregoing, we estimate oil production to average 2.05mb/d (2018 average: 1.93mb/d), translating to 2019FY oil GDP growth of +5.8% y/y.”

Furthermore, analysts told THISDAY that the performance of the economy last year necessitated the need for increased investments in the country in order to achieve better and sustainable growth.

Renaissance Capital’s Global Chief Economist, Mr. Charles Robertson, in a note to THISDAY, pointed out that for Nigeria to achieve better long-term growth, ideally oil price would have to rise, saying with high oil prices, Nigeria tends to grow at over five per cent.

In addition, he called for a doubling of investment to GDP in Nigeria, in order to industrialise and effectively diversify the economy.

“A tripling of electricity consumption (not just generation, it has to be distributed too) – is essential for industrialisation and diversification. A more competitive currency – the market rate today is overvalued by about 20 per cent,” Robertson argued.

Comparing Nigeria’s GDP performance to other oil exporters, Robertson stated that the country only did better than Equatorial Guinea, Republic of Congo and Venezuela, but worse than other of its peers.

“Nigeria is probably no longer the biggest economy in Africa – if we use the market exchange rate, which averaged 362/$. Note however, we can’t be sure as we don’t have South Africa’s 2018 GDP figures so it’s possible the IMF forecasts for South Africa in 2018 is too high,” he stated.

Chief Executive Officer of Cowry Assets Management Limited, Mr. Johnson Chukwu, who spoke on telephone with THISDAY, attributed the impressive performance recorded in the Q4 of 2018 to heightened economic activities due to the yuletide.

“If you look at 2017 also, the last quarter was 2.17 per cent, which was also the highest in that year. So, if you compare the full year GDP of 1.93 per cent with that of other countries at our level of development, most of them are doing more than six per cent. So, I don’t think we have any reason to celebrate a GDP growth rate of 1.93 per cent, especially with our population growth rate of about three per cent,” Chukwu said.

But FXTM’s Global Head of Currency Strategy and Market Research, Mr. Jameel Ahmad, argued that with the stronger Q4 growth, Nigeria could be gaining economic momentum.

“However, with the nation’s fortunes still closely linked to oil markets, growth could be threatened this year if oil prices continue to depreciate. It will be a monumental week for the Nigerian markets as presidential election loom,” he added.

Also, Lagos-based CSL Stockbrokers Limited noted that “output from the real sector, which constitutes over 50 per cent to GDP, remains weak due to a myriad of domestic challenges.”

“Insecurity, high interest rate, unstable power are some of the major constraints to full recovery in the real sector. The absence of strong reforms to address these issues suggests they may remain in 2019, making us maintain our forecast for real GDP of 1.5 – 2.0 per cent in 2019,” the firm added.