Whither the Nigerian Economy?

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Zainab Ahmed

The economy expanded by 1.87 per cent in real terms during first quarter of this fiscal year, but the growth was not without pains as the COVID-19 pandemic has taken its toll on growth with Gross Domestic Product (GDP) declining by –0.68 percent quarter on quarter and -0.23 percent compared to the figure recorded in first quarter of 2019. Going by the dwindling economic activities recorded in the first quarter, economic pundits are predicting a steeper drop in growth for 2020. Bamidele Famoofo reports

The GDP growth of 1.87 per cent, which Nigeria recorded in first quarter of 2020, apparently, is a not an indication that all is well with the economy. In the first instance, the growth was lower by -0.68 per cent compared to the figure in last quarter of 2019 and -0.23 per cent less than the figure in first quarter of 2019.

A report on the performance of the nation’s GDP in first quarter released by the National Bureau of Statistics (NBS) showed that the COVID-19 pandemic has started taking its toll on major economic sectors of the economy, which recorded negative growth compared with Q4, 2019 performances.

There have been projections that the economy will not grow in the on-going fiscal year by economic experts with some touting a recession. For instance, the International Monetary Fund (IMF), which earlier in the year predicted that Nigeria’s economy will expand by 2.5 per cent, recently recanted, saying growth could slide by 3.4 percent or N4.95trillion by the end of the year.

Besides, the Nigerian Economic Summit Group (NESG) submitted recently that GDP will decline by 4.1 percent in 2020. The projection of the economic think-tank group was based on an average oil price of $35 per barrel and 1.3 million barrel per day production. NESG also said investment will drop by 39.4 percent in 2020 as government dedicate more of its scarce resources to providing palliatives to cushion the impact of the pandemic on Nigerians. The group said contraction of the GDP will be largely dependent on expected slow growths in key economic sectors like Agriculture, Manufacturing, Oil & Gas and Trade.

Government revenue is expected to drop by 40 per cent while inflation journeys towards the 15 per cent mark.

Q1 Performance Review

According to NBS, GDP grew by 1.87 percent (year-on-year) in real terms in the first quarter of 2020. “This performance was recorded against the backdrop of significant global disruptions resulting from the COVID-19 public health crisis, a sharp fall in oil prices and restricted international trade. The performance recorded in Q1 2020 represents a drop of –0.23per cent points compared to Q1 2019 and –0.68per cent points compared to Q4 2019, reflecting the earliest effects of the disruption, particularly on the non-oil economy.”

Quarter on quarter, real GDP growth was –14.27 per cent compared to 5.59 per cent recorded in the preceding quarter.

In the quarter under review, aggregate GDP stood at N35,647,406.08 million in nominal terms. This performance was higher when compared to the first quarter of 2019 which recorded N31, 824,349.67 million, with a nominal growth rate of 12.01 per cent year on year. Relative to the first quarter of 2019, the nominal growth rate was higher by 0.11 per cent points but lower than the preceding quarter by –0.32 percent points. For better clarity, the Nigerian economy has been classified broadly into the oil and non-oil sectors.

Performance by Sectors

During the first quarter of 2020, an average daily oil production of 2.07 million barrels per day (mbpd) was recorded. The production level was higher than the 1.99mbpd recorded in the same quarter of 2019 by 0.08mbpd and the fourth quarter of 2019 by 0.06mbpd. The oil sector recorded a real growth rate of 5.06 per cent (year-on-year) in Q1 2020 indicating an increase of

6.51 per cent points relative to the rate recorded in the corresponding quarter of 2019. However, growth decreased by –1.30 percentage points when compared to Q4 2019 which was 6.36 per cent. Quarter-on-quarter, the oil sector recorded a growth rate of 11.30 per cent in Q1 2020. The oil sector contributed 9.50 per cent to aggregate real GDP in Q1 2020, up from figures recorded in the corresponding period of 2019 and the preceding quarter, as the share of the non-oil economy declined.

The non-oil sector grew by 1.55 per cent in real terms during the reference quarter (Q1 2020). This was slower by –0.93 per cent points compared to the rate recorded during the same quarter of 2019, and –0.72 per cent points slower than the fourth quarter of 2019. The non-oil sector was driven mainly by Information and Communication (Telecommunications), Financial and Insurance (Financial Institutions), Agriculture (Crop Production), Mining and Quarrying (Crude Petroleum & Natural Gas), and Construction. In real terms, the Non-Oil sector contributed 90.50 percent to the nation’s GDP in the first quarter of 2020, less than its share in the first quarter of 2019 which was 90.78 percent and the fourth quarter of 2019 recorded as 92.68 per cent. Activities that witnessed weaker performance relative to Q1 2019 include quarrying, road transport, accommodation and food services as well as real estate.

The mining & quarrying sector grew nominally by –10.57 percent (year on year) in Q1 2020. Metal ore exhibited the highest growth rate of all the sub-activities at 8.72 per cent followed by crude petroleum and natural gas activity at -10.20 percent. However, crude petroleum and natural gas was the main contributor to the sector with a weight of 99.51 per cent in Q1 2020. Compared to Q1 2019, the performance in Q1 2020 represents an increase of 8.75 per cent points, but a decline of –23.31 per cent points when compared to Q4 2019. The sector contributed 7.97 per cent to overall GDP in the first quarter of 2020, lower than the contributions recorded in 2019 first quarter at 9.98 per cent but higher than the previous quarter recorded at 6.86 per cent.

The Agriculture sector grew by 22.47 per cent year-on-year in nominal terms in Q1 2020, showing a decline of –0.11 percent points from the same quarter in 2019. Comparing with the preceding quarter’s growth rate of 13.80 percent indicates an increase of 8.66 per cent points. Crop Production remained the major driver of the sector, as it accounts for 90.54 per cent of overall nominal growth of the sector in the first quarter of 2020. Quarter on quarter growth stood at –19.58 per cent in Q1 2020. Agriculture contributed 20.88 percent to nominal GDP in the first quarter of 2020, higher than the rates recorded for the first quarter of 2019 but lower than Q4 2019 which recorded 19.10 percent and 23.38 percent respectively.

Nominal GDP growth of the manufacturing sector in the first quarter of 2020 was recorded at 28.47 per cent (year-on-year), or -7.97 per cent points lower than figures recorded in the corresponding period of 2019 (36.45per cent) but 2.18 per cent points higher than the preceding quarter’s rate of 26.29 per cent. Quarter on quarter, growth of the sector was recorded at 2.84 percent.

The contribution of the manufacturing sector to nominal GDP in the first quarter of 2020 was 12.98 per cent, higher than the share recorded in the corresponding period of 2019 at 11.31 per cent as well as the fourth quarter of 2019 at 11.37 per cent.

Real GDP growth in the manufacturing sector in the first quarter of 2020 was 0.43 per cent (year on year), lower than the same quarter of 2019 as well as the preceding quarter by –0.38per cent points and –0.81 per cent points respectively. Growth rate of the sector, on a quarter-on-quarter basis, stood at –5.38 per cent, lower than the quarter on quarter growth rate recorded in the preceding quarter of 2019. Real contribution to GDP in 2020 first quarter was 9.65 per cent, lower than the 9.79 per cent recorded in first quarter of 2019 but higher than the 8.74 per cent recorded in Q4 2019.