With GDP Decline, Economy Not Out of the Woods
The contraction of the economy for two consecutive quarters, especially in agriculture, calls for concern and out-of-the-box strategy by economic managers to restore it to the path of growth, writes James Emejo
For the umpteenth time, analysts have warned that unless something is done urgently to reposition the economy, it could be on the brink.
But their worry, like any other Nigerian is not totally unfounded. The recent economic data has not been encouraging to say the least.
For an economy which is aiming at economic diversification as well as hoping to reduce the unemployment rate is currently at 23.1 per cent, as well as seeking to grow at 3 per cent this year, two consecutive contraction of its growth rate ordinarily calls for concern.
The National Bureau of Statistics (NBS) last week stated that Gross Domestic Product (GDP) growth rate dropped to 1.94 per cent (year on year) in real terms in the second quarter of the year (Q2 2019) compared to 2.10 per cent (revised estimate) in the preceding quarter- from 2.38 per cent in Q4 2018.
According to the GDP Report for Q2 2019, the Q2 estimate represented a –0.16 percentage point contraction of the economy.
Average daily oil production of 1.98 million barrels per day (mbpd), was slightly less than the 1.99mbpd (1.96 mbpd revised) in Q1 and 7.6 per cent higher than the 1.84 mbpd recorded in the same quarter of 2018.
The economy was largely aided by the non-oil sector which contributed 91.18 per cent to GDP while the oil GDP accounted for 8.82 per cent of growth
Aggregate GDP in nominal terms was valued at N34.944 trillion, an increase of 9.8 per cent over the N31.79 trillion in preceding quarter and 13.83 per cent over the performance in Q2 2018. Real GDP was estimated at N16.90 trillion.
However, of particular concern was the decline in agriculture which is seen as critical to the economic diversification objectives of the present administration.
The sector grew by 1.79 per cent compared to 3.17 per in the preceding quarter, representing a decline of -4.81 per cent relative to Q1.
Only week, during his keynote address, Senior Agriculture Economist, World Bank, Dr. Adetunji Oredipe, pointed out that socio-political peace, economic stability, and food security remained essential for the development of any great nation.
He said while the greatest and most significant resource of any group of people, are human beings, “a hungry, poor, and war-threatened group of people are incapable of accelerating economic development and are incapable of competing on the global front for positive ideas, creativity, or innovation.”
He said in order to achieve the transformation of the agricultural sector and effectively claim a significant share of the $1 trillion market, government must effectively effect a structural change in the labour composition of the sector from the current status.
The World Bank economist said for the country to maintain its share of the continent’s agriculture GDP by 2030, Nigeria will need to grow its agriculture sector revenues by a compounded annual growth rate (CAGR) of 4.7 per cent, adding that to achieved this, national agriculture budget to GDP would have to be sustained by at least 7 per cent annually.
Oredipe, among other things, emphasised that the current farming population is ageing rapidly and is unable to meet the increasingly complex challenges of markets and technology.
He noted that to feed the rising population well into the future, the country will need young commercial farmers.
But more importantly, it could be argued that even if the youths decided to embrace farming in the long run, the insecurity across the country, particularly the threats posed by the activities of herdsmen remained a huge challenge as farmers have practically boycotted their farmlands for fears of being attacked.
And to a larger extent, it could be argued that this scenario may have accounted partly accounted for the poor performance of agriculture in relation to Q2 GDP.
Speaking recently at the Agriculture Summit Africa, organised by Sterling Bank Plc, Oredipe said: “These anticipated rewards and positive changes will only happen if Africa’s farmers and agribusinesses undoubtedly can receive expanded access to more capital outlays, uninterrupted electricity, modernised and well-irrigated land areas to cultivate high-value nutritious foods.
“For Nigeria, it is a great window of opportunity to harness the countless opportunities that exist in the agricultural value chain towards building a sustainable economy thereby creating hope for realizing our much-desired national development and sustained food security.”
The Economic Growth and Recovery Plan (ERGP), the current plan aimed at fashioning growth in the years 2017-2020, was developed to restore economic growth and lay the foundations for long-term structural change. The ERGP recognises that non-oil productive sectors like agriculture and agro-allied industries (the agri-food sector) play a significant role in economic development, economic growth, and job creation.
“More importantly, the pride of any government is the attainment of higher level of development in such a way that its citizens would derive natural attachment to governance.”
Nevertheless, analysts have continued to express their disappointment over the weak GDP growth, cautioning that urgent measures are needed to avert an economic crisis.
However, commenting on the performance of the economy, economist and former Director General, Abuja Chamber of Commerce and Industry (ACCI), Dr. Chijioke Ekechukwu, said the weak growth represented a warning signal for the country to evolve urgent measures to stimulate growth.
“It is a warning signal. We need to get our fundamentals right again. It is an indication that different sectors are dropping in their business activities,” he said, adding: “Some portfolio investors exited the country to where their returns will be higher and that has been happening since last year.”
He said insecurity in the country was also responsible for the drop in Direct Foreign Investments and in the drop of agricultural output and explained that there was need to stimulate the economy by making funds available to all sectors at little or no cost.
Similarly, Chief Executive, Global Analytics Company, Mr. Tope Fasua, said the performance indicated among other things that the economy is yet to be diversified.
According to him, even the presidency has acknowledged that we may be close to a fiscal crisis. Mr. Garba Shehu, the presidential spokesman said just that days ago. We know that crude oil has been trading at below the $60 benchmark for weeks now.”
He said what the second quarter result showed was that the economy was yet to be diversified and that productivity and capacity utilisation was very low.
“What is more? Nigeria is not ambitious with its growth or future,” he said, and added: “Indians are complaining that their GDP growth rate fell to 5 per cent from 8 per cent in the last quarter. That is a $2.5 trillion economy pushing to grow faster.”
China, he said, was awfully worried that growth slipped from 10% to 6.5 per cent, protesting that when critics in Nigeria we speak of a double-digit growth, indoctrinated dogmatists would say the country was not ripe for it.
“We wait for the IMF to tell us we couldn’t do better than 2 per cent. It is a great tragedy. But it seems it will get worse, much worse, before it gets better,” Fasua said.
The Chief Executive Officer, Financial Derivatives Company Limited, Mr. Bismarck Rewane, pointed out that typically, second quarters were usually known for slowdown in economic activities.
He, however, noted that the sectors that slowed, such as agriculture which employs 25 per cent of the workforce in Nigeria and construction as well as those that contracted, which included wholesale, trade, manufacturing and real estate, were those that employ a lot of people in the economy.
Rewane said: “This is a black eye and we need to do a lot more. It was quite clear that the sectors that had intervention funds have not responded.”
According to him, the way out is to allow for an increase in lending, increase in economic activities and a reduction in interest rate.
However, he noted that the second quarter was the period in which the country had no cabinet and as such there was more uncertainty, which he reasoned people responded to.
He explained: “So, it was a spillover of the first quarter; You can run, but you can’t hide. The reality is that without fear of contradiction, unemployment rate might go higher than 30 per cent when the data is released by the NBS.
“So, we are at the tipping point, especially when population is now at 2.7 per cent and our GDP growth is 1.94 per cent. The gap between potential GDP and real GDP is widening. Therefore, your recessionary gap is increasing. So, we have some difficult days ahead and there is no mistake about that.”
On his part, the Chief Executive Officer, Cowry Assets Management Limited, Mr. Johnson Chukwu, called for appropriate policy mix for the sectors that either slowed down or contracted in the GDP report.
He said: “This is a report card of the economy, which basically shows how effective government policies have been. So, we need to look at those activities that would spur growth in the manufacturing sector.
“I think one fundamental thing that we must understand is that consumption level is low, so we need to stimulate consumption. This is because without consumption, there won’t be manufacturing
“So, the demand level in the economy is very weak, which is why a lot of Nigerians are worried. One of the ways to stimulate consumption at a time like this is through public works. Unfortunately, government is not in a position to fund public works.
“So, the appropriate way to respond is to come up with public-private partnership initiative to attract private capital, so as to restore consumption.”
Chukwu, said there was need to review the power sector privatisation and see how to make it more effective.
In his contribution, the National President, Chartered Institute of Bankers of Nigeria (CIBN), Mr. Uche Olowu, attributed the development, especially the slowdown in agriculture GDP to the insecurity challenges.
He said: “The security issues in the agriculture sector was a major factor, so this was expected. So, government has to address the challenge of insecurity to allow for free movement of persons from one place to the other, to enable free flow of goods and services, so as to spur economic activities.
“Secondly, you know the Central Bank of Nigeria has just increased the loan-to-deposit ratio and the federal government is reducing domestic borrowing, to free up liquidity for the real sector.
“That is expected to spur economic activities and there should be basic alignment of the fiscal and monetary authorities, to create additional incentives to rejuvenate economic activities.”
But by and large, the onus now rests on the Minister of Agriculture and Rural Development, Sabo Nanono, who has promised to tweak some of the existing agricultural policies- to live up to expectations and turn around the fortunes of the sector as well increase its share of GDP going forward.