As Nigeria Creeps out of Recession…

• Did Emefiele peep into the crystal ball?

Obinna Chima writes on the cheery news that the economy has limped out of recession, highlighting the need for sustained intervention by policymakers in the country

Nigeria’s economy unexpectedly came out of recession in the fourth quarter of 2020, lifted by growth in the non-oil sector.

The development, which further proved the resilience of the Nigerian economy is expected to positively influence investor confidence.

However, the development didn’t come as a surprise to some policymakers, including the Governor of the Central Bank of Nigeria (CBN), Mr. Godwin Emefiele, who had estimated that the economy would limp out of recession in the fourth quarter, due to the apex bank’s aggressive development finance activities as well as efforts to stimulate household spending.

“Based on data available to the CBN, we are somewhat cautiously optimistic that indeed, if we continue doing what we are doing and do more, there is a likelihood that we would see some little positive output numbers during the fourth quarter of 2020. Why? This is as a result of all the actions taken by the monetary and fiscal authorities,” Emefiele had said while briefing journalists at the Monetary Policy Committee (MPC) meeting, last November.

Indeed, with the rising crude oil price, increasing activities in the non-oil sector as well as the expected vaccination of the citizens following the approval of AstraZeneca COVID-19 vaccine, are all expected to support GDP growth going forward.

The Nigerian economy had slumped into recession last year, the second in five years, after two consecutive quarters of contraction.

Specifically, the economy entered into a recession last year when growth contracted by 3.62 per cent in Q3 2020 and grew by -6.10 per cent in Q2.

But the latest figures for the fourth quarter and full year 2020 released by the National Bureau of Statistics (NBS), had shown that Nigeria’s GDP grew by 0.11 per cent (year-on-year) in real terms in the fourth quarter of 2020 (Q4 2020), representing the first positive quarterly growth in the last three quarters.

However, the full year 2020 GDP report showed that the economy contracted by 1.92 per cent compared to positive growth of 2.27 per cent in 2019.

The positive growth recorded in Q4 was a reflection of the gradual return of economic activities following the easing of restriction of movements and limited local and international commercial activities in the preceding quarters, the NBS stated.

According to the agency, on a quarter-on-quarter basis, real GDP growth is 9.68 per cent, indicating a second positive consecutive quarter-on-quarter real growth rate in 2020 after two negative quarters.

In Q4, however, aggregate GDP stood at N43.56 trillion in nominal terms, compared to N39.09 trillion in the preceding quarter.

Real GDP stood at N19.55 trillion compared to N17.82 trillion in the preceding quarter.

The performance was also higher when compared to the N39.57 trillion recorded in Q4 2019, representing a year-on-year nominal growth rate of 10.07 per cent.

The NBS added that the current growth rate was lower relative to the growth recorded in Q4 2019 by –2.26 percentage points but higher than the preceding quarter by 6.68 percentage points with growth rates recorded at 12.34 per cent and 3.39 per cent respectively.

In the quarter under review, average daily oil production dropped to 1.56 million barrels per day (mbpd) from 1.67mbpd in Q3.

This was also lower than the daily average production of 2.00mbpd recorded in Q4, 2019 by -0.44mbpd and Q3 2020 by –0.11mbpd.

Growth was largely aided by the non-oil sector that accounted for 94.13 per cent of GDP while the oil sector contributed 5.87 per cent to growth in Q4.

Also, at the full year, the non-oil sector recorded 91.84 per cent contribution to GDP while the oil sector accounted for 8.16 per cent.

The agricultural sector grew by 3.42 per cent in Q4 compared to 1.39 per cent in Q3.

But the sector’s contribution to growth in real terms dropped to 26.95 per cent in Q4 from 30.77 per cent in the preceding quarter. Its contribution in 2020 stood at 26.21 per cent.

Manufacturing, which grew by –2.75 per cent in the period under review contributed 8.60 per cent to GDP compared to 8.93 per cent in Q3 and 8.74 per cent in Q4 2019.

CBN’s Interventions

In March last year, when the pandemic broke out, the CBN came out quickly and put on the table a couple of initiatives to support the economy as well as alleviate the pain of COVID-19 on households and firms.

For instance, the commercial banks were directed to restructure their loan, reduction of interest rate on CBN’s intervention fund as well as an extended repayment period. On the other hand, the CBN had introduced targeted credit facilities for households and MSMEs that were adversely affected by the COVID-19. The facility, which was initially N50 billion, was increased to N300 billion in November last year.

Furthermore, the CBN made available N100 billion for the healthcare sector – for pharmaceuticals and hospitals – for their upgrade and the building of new facilities. The CBN also made available a facility of N1 trillion for companies who are willing to expand, either in the agriculture or manufacturing sectors.

Owing to the aforementioned interventions, Emefiele explained that the banking sector regulator had seen tremendous response on the initiatives.

“And I must also say that these initiatives, together with those that have come from the fiscal authorities have been responsible for the somewhat moderated impact of the COVID-19 on the lives of our people.

“We have seen that these have been very impactful, particularly the targeted credit facility, which is meant for households and firms, because it has helped to boost consumption spending for SMEs. This is because consumption constitutes almost 70 per cent of output and you will see that the interventions have been very impactful in moderating the impact of COVID-19 on productivity, growth and GDP.

“The most important thing is that we want to use these interventions to boost consumption spending in the economy,” he explained.

The CBN Governor pointed out that due to the pandemic, recession has also been seen throughout the entire world, not only due to the drop in commodity prices, but because of the adverse consequences of the health crisis created by virus.

Some developed countries even recorded double-digit contraction in growth, which was not the case of Nigeria.

The NBS GDP numbers showed that the agriculture sector came out strong. This was largely attributed to the increased Anchor Borrowers’ Programme (ABP), since the economy slipped into a recession.

According to the CBN, the programme has revolutionised agricultural credit financing and remained the fulcrum of transformation initiatives in the sector.

Emefiele had pointed out that beyond being a tool for economic empowerment, job creation, and wealth redistribution, the ABP had also galvanised financial inclusion in rural communities.

The CBN Deputy Governor, Corporate Services, Mr. Edward Adamu, stressed that since the launch of the ABP by President Muhammadu Buhari in 2015, rice has remained the focal crop under the programme given its crucial role in the diet of average Nigerians.

He said with the current population of about 200 million, importation of any major food item will continually drain the country’s external reserves, export jobs to countries where these food items are produced and distort the commodity value chains as Nigeria will not be able to guarantee the supply of raw materials for its agro-allied companies.

He described loan recovery as the hallmark of any credit process adding that the combination of input distribution and loan recovery drive further demonstrated that the ABP remained a sustainable credit programme towards repositioning the sector.

According to him, the CBN has continued to enhance its risk mitigation strategies to guarantee the intended outcomes of the ABP.

Also, as part of its development finance activities, the central bank recently disclosed plan to release about 300,000 metric tonnes of maize into the Nigerian market from its strategic anchors under its Anchor Borrowers’ Programme this month. Owing to this, the current price of maize N155,000 per metric tonne was expected to reduce significantly.

According to the central bank, the planned release followed moves made by the critical stakeholders, working with relevant government and security agencies, to put a halt to reprehensible and speculative activities of middlemen and bandits respectively.

With the release of 300,000 metric tonnes in February 2021, it is expected that the prices of maize in the Nigerian market will drop significantly, thereby increasing demand for the crop, raising output and ultimately enhancing the gains of maize farmers.

Beyond the GDP Numbers

But despite the positive performance, analysts warned that the economy is not completely out of the woods, urging the federal government to further stimulate output growth, among others.

To Cowry Assets Limited, a Lagos-based investment and financial advisory company, the federal government must take necessary measures to strengthen the fragile economic recovery.

On their part, analysts at Cordros Capital Limited, expect the growth momentum in the non-oil sector of the economy to be maintained.

The firm predicted that growth will be partly driven by the relatively low base from Q1-20.

“Although insecurity in food-producing regions has continued unabated since the start of the year, we think the sustained interventions to small farm holders will continue to support the resiliency in the agricultural sector,” the firm added.

Also, United Capital stated that it remained optimistic about the sustained pace of recovery in the aggregate level of economic activities.

“While growth in Q1-2021 may be muted due to a high base effect of Q1-2020, our optimism feeds largely on potential stronger recovery in Q2 and Q3-2021 relative to the negative growth observed in the corresponding quarters of 2020.

“Specific to the non-oil sector, we expect the improved performance in Services to be sustained as people become more confident to go about their daily activities. Also, we think the agricultural sector would build on the gains of 2020 as demand remains strong, security challenges abate, and weather conditions improve,” it added.

In the oil sector, it anticipated improved performance in FY-2021 considering the low base for oil production in 2020.

It noted that while the country’s production continues to be capped under the OPEC+ quota, it expects a recovery in production as OPEC+ gradually returns production level back to pre-pandemic levels following recent price gains and positive sentiments from increased rate of vaccinations which could spur demand for travel and consequently oil.

According to CSL Stockbrokers, a subsidiary of FCMB Holdings, having exited recession in Q4 2020, it expects a gradual build up in momentum in 2021, supported by the gradual normalisation of economic activities, as the impact of the lockdown in 2020 continues to fade.

It also expects growth to be driven by the non-oil sector, supported by gains from agriculture and the telecommunication sectors, the combination of which it stated accounts for about 38 per cent of the GDP basket.

“On the oil sector, we see limited upside, as the output will remain undermined by OPEC cuts. Downside risks to our forecast is the inability to curb the pandemic as fast as anticipated due to the delayed distribution of effective vaccines,” CSL Stockbrokers added.

In his comment on the GDP numbers, the Lagos Chamber of Commerce and Industry (LCCI) commended the effective mobilisation of fiscal and monetary policies tools that enabled the economy to exit recession.

The LCCI noted that going by the performance noticed in the Q4, the current economic downturn in the country was expected to be short-lived going forward.

It said there were indications that recovery from the current recession might be faster than expected even though its pace would be expected to be subdued within the region of one and two per cent that had been projected by the World Bank and the International Monetary Fund, which had put Nigeria’s annual average growth for the year 2021 at 1.1 percent and 1.5 percent, respectively.

The chamber hinged the prospects of the country’s recovery in the year 2021 on five key factors including effective management of the pandemic locally and globally, widespread vaccine rollout, the direction of the global oil market, fiscal and monetary policy direction and ease of doing business reforms.

It said: “Accelerating the pace of economic recovery requires fiscal and monetary authorities to be well coordinated to promote growth-enhancing and confidence-building policies that would encourage more private capital inflows into the economy. Investment-led growth strategy is critical for inclusive and sustainable economic growth. Strong commitment to key reforms will not only boost output recovery but will also put the nation on a path of macroeconomic stability.”

The LCCI, in its “Comment on the 2020 GDP Report,” which was issued by the Director General of the LCCI, Dr. Muda Yusuf, said: “The quarterly performance was a pleasant surprise even though the economy ended the year 2020 in a negative growth region, with annual GDP growth declining by 1.92 percent, its lowest level since 1994.

“We note the Central Bank of Nigeria’s accommodative policy disposition in the year 2020, evidenced by its sustained developmental finance efforts and deliberate interest rate reduction. On the other hand, we also acknowledge the efforts by fiscal authorities in quickening recovery via the Economic Sustainability Plan.”

He, however, added that the stimulus provided by fiscal and monetary authorities (about 3 per cent of GDP) was largely insufficient to achieve desired outcomes even as policy responses failed to address the structural challenges stifling productivity across sectors.

Senior Economist/Head, Investment Research & Strategy, Greenwich Merchant Bank, Mr. Ayodeji Ebo, welcomed the development, saying exiting recession will boost investor’s confidence.

He said: “The next step is for the government to see how they can achieve a growth rate that is above population growth rate so that it can be an inclusive growth and more people in terms of welfare are positively impacted.”

On his part, Managing Director, Kairos Capital, Mr. Sam Chidoka, said key sectors responsible for the exit from recession should be supported to achieve a higher growth rate.

“If you look at the numbers published by NBS, two sectors helped pull us out of recession. One would be agriculture with about 3.4 per cent growth and the second would be ICT with about 14 per cent growth.

“So, it is clear and we can see what contributed to our GDP growth and it is for us to pay more attention to this sector of the economy if we want to see growth continue.

“In the last quarter, ICT actually grew by 16 per cent and this quarter grew by 14 per cent, meaning that there is a capacity for the ICT sector to grow maybe by 20 per cent. So, we need to try and do all we can to make that sector grow,” he added.

He, however, noted that insecurity was affecting the agricultural sector.

He said: “Now that NAFDAC has approved one of the vaccines for Nigeria, we need to do our best and try to begin to vaccinate people so that we can open the economy fully.

“We also need policy consistency that makes it possible for people to look at sectors of the economy and seek to make long term investments and not just portfolio investments.

“So, if we are able to deal with the COVID-19 issues better, security and reduce policy somersault in certain sectors, we would begin to see the kind of growth we should have as a country.”

In his contribution, Managing Director/Chief Executive, Credent Investment Managers Limited, Mr. Ibrahim Shelleng, said with food prices soaring, there was a need for the government to boost the increase in local supply.

But he added that this cannot be achieved until insecurity issues are adequately addressed.

He said: “With positive GDP figures it could be said that the economy is technically climbing out of recession but in reality, we would need to see figures for Q1, 2021 to determine if truly we are on the growth path.

“The slight uptick in GDP figures in Q4, 2020 could be largely attributed to the ending of lockdown and increased growth in sectors that have benefited due to lockdown such as information technology and communications.”

Also, speaking with THISDAY, Managing Director/Chief Executive, SD&D Capital Management Limited, Mr. Idakolo Gbolade, warned that policy missteps such as wrong handling of the impending petrol price increase, unrest in various states and wrong information management could erode the gains already recorded.

He stated: “What this growth implies is that we are gradually coming out of recession and we are witnessing increased activity in the economy, majorly from increased importation activities, increased inflow through the I & E FX window and activities have started picking up after lockdown necessitated by the COVID-19 pandemic.”

He said the Nigerian economy had demonstrated its ruggedness by the positive outcome in Q4, coming out stronger, particularly against economic predictions.

Gbolade attributed the performance to consistency in policy implementation to drive growth.

Therefore, the development calls for increased interaction between the fiscal and monetary policy authorities, especially with focus on growth-enhancing sectors of the economy so as to enhance the recovery.

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