The third quarter 2022 GDP figures, which put the oil and manufacturing sectors of the economy in the negative territory at a period when sectors like agriculture and information and communications technology are among those in the positive category have underscored the urgent need for economic reforms as a panacea for the current economic challenges in Nigeria, writes Festus Akanbi
With barely a month to the end of the year, there are concerns that the underperformance of some key sectors of the economy as reflected in the recently released Gross Domestic Product (GDP) data may be a setback to the effort of the current administration to bequeath a stable economy to the new government come 2023.
GDP is the standard measure of the value added created through the production of goods and services in a country during a certain period. As such, it also measures the income earned from that production or the total amount spent on final goods and services (minus imports).
According to data recently released by the National Bureau of Statistics for the third quarter of 2022, the real GDP growth dipped to 2.25 per cent, as against the figure of 3.54 per cent performance in the second quarter of the year.
However, the NBS data showed that in nominal terms, aggregate GDP stood at N52.26 trillion in the quarter under review, representing a 15.83% growth compared to N45.11 trillion recorded in the corresponding period of 2021. Q3 2022 growth is higher compared to 15.03% and 15.41% recorded in Q2 2022 and Q3 2021 respectively.
The real growth (not nominal) is the true reflection of the economy as it makes room for inflation adjustment.
Analysts see the growth decline as a reflection of the diverse headwinds that have been bedevilling the Nigerian economy. Such headwinds include macroeconomic instability, heightening inflationary pressures, currency depreciation, foreign exchange illiquidity, surging energy cost, weakening purchasing power, legacy structural constraints, lingering insecurity, and crippling trade facilitation issues.
Low Hanging Fruit
According to the NBS data, the low-hanging fruit in the Nigerian economy for the third quarter was the non-oil sector. The sector was driven mainly by information and communication (telecommunication); trade; transportation (road transport); financial services and insurance (financial institutions); agriculture (crop production) and real estate, accounting for positive GDP growth.
“In real terms, the non-oil sector contributed 94.34% to the nation’s GDP in the third quarter of 2022, higher than the share recorded in the third quarter of 2021, which was 92.51% and higher than the second quarter of 2022 recorded as 93.67%,” NBS noted.
The list of the non-oil sector that recorded positive performances includes the agricultural sector, which grew by 1.34%, chemical and pharmaceutical by 11.09%, Iron and steel, by 2.99%, electrical and electronics – by 2.56%, motor assembly – by 2.69%, construction – 5.52%, trade – 5.08%, ICT – 10.53%, Metal ores – 36.24%, non-metallic products – 4%, quarry/other minerals – 39.6%, insurance – 19.9%, real estate – 4.56%, and motion pictures and music – 22.4%.
Meanwhile, some other sectors that witnessed remarkable rebounds include the motor assembly sector, which moved into positive territory from a contraction of 6% of the non-metallic in the second quarter to a positive growth of 22.4% in the third quarter; metal ores rose from a negative growth of 25.5% in the second quarter to a positive growth territory of 36% in the third quarter. Other impressive sectoral rebounds are the insurance sector from 7% growth in Q2 to 19% in Q3, the quarry from 22.2% in Q2 to 39.6% in Q3; motion pictures and music from a contraction of 6% in Q2 to positive growth of 22.4% in Q3.
Others with a slower pace of growth but whose growth rates were still in the positive territory include cement at 4.13%, wood and wood products at 2.19%, road transportation at 49.68%, air transport at 14.58%, finance & insurance at 12.7%, education 1.1%, financial institutions – 12.03%.
Negative GDP Growth
The GDP figures for the third quarter also showed sectors that suffered contractions. These are sectors that posted negative GDP growth, and which according to analysts, happened to be victims of the diverse headwinds in the economy. They include crude oil and gas which contracted by 22.67%, oil refining contracted by 44.7%, coal mining – at 43.5%, the manufacturing sector – at 1.91%, food and beverage sector which is one of the most shocking contracted at 4.05%, textiles contracted by 3.98%, the manufacturing sector- 1.91%, electricity and gas – 3.56%, plastics and rubber Products – 3.92%.
The oil sector recorded -22.67% (year-on-year) as of Q3 2022, indicating a decrease of 11.94% points relative to the rate recorded in the corresponding quarter of 2021.
Also, the growth rate decreased by 10.91% points compared to the 11.77% contraction recorded in the previous period.
The oil sector contributed 5.66% to the total real GDP in Q3 2022, down from the figures recorded in the corresponding period of 2021 and the preceding quarter, where it contributed 7.49% and 6.33%, respectively.
In the third quarter of 2022, Nigeria recorded an average daily oil production of 1.20 million barrels per day (mbpd), lower than the daily average production of 1.57mbpd recorded in the same quarter of 2021 by 0.37mbpd. It is also lower than the 1.43 mbpd recorded in the previous quarter.
Real GDP growth in the manufacturing sector in the third quarter of 2022 was -1.91 per cent (year-on-year), lower than the same quarter of 2021 and slower than the preceding quarter by 6.20 percentage points and 4.91 percentage points respectively.
The real contribution to GDP in the 2022 third quarter was 8.59 per cent, lower than the 8.96 per cent recorded in the third quarter of 2021 and lower than the 8.65 per cent recorded in the second quarter of 2022.
Analysts are particularly worried by the contraction in the food and beverage sector which contracted by 4.05% in the third quarter. It was the first contraction since 2020 when the economy slipped into recession.
The food and beverage sector is the flagship of the Nigerian manufacturing sector, recalling that for several decades, it was the toast of investors in the stock market. However, the sector contributed N2.2 trillion to GDP in the third quarter of 2022.
According to the observation of the Chief Executive Officer of the Centre for the Promotion of Private Business Enterprise (CPPE), Dr. Muda Yusuf, “This development is a reflection of a major setback for the Nigerian manufacturing sector which calls for emergency response by the government.
“The plunge in the manufacturing sector performance has profound implications for food inflation, food security and employment. The food processing sector has the biggest impact on jobs because of the strong backward integration content and high multiplier effect in the agriculture value chain.”
In his reaction to the NBS figures, a Financial Inclusion/Wealth Management expert, Mr. Idakolo Gbolade. said 2023 would be a challenging year for Nigeria.
He said: “The growth is likely to decline further in Q4 because the slowing economic growth is significant due to inactivity and slump in oil production and other critical productive sectors of the economy.
“The sluggish growth can also be attributed to the non-oil sector, whose growth covers the oil sector. This report also shows that the government’s significant policies are not yielding the desired outcome as food inflation, energy cost, and cost of production are expected to rise.
“Nigerians should be prepared to face tougher times this yuletide as the cost of food experiences a higher percentage increase in 10 years.
“With inflation biting harder and the cost of goods and services increasing, the impact will bring untold hardship on the people coupled with elections next year. The present government might not achieve much before its tenure expires.
“The Year 2023 will be a challenging year for our economy, and budget implementation might not be achieved.”
Reforms and Interventions
In his opinion, Yusuf, who was also a former Director-General of the Lagos Chamber of Commerce and Industry (LCCI), said to fix the economy and address sectors that are in recession, sectors that slowed and those that have contracted, there is a need to put in place reforms and intervention measures.
Some of the measures recommended include the following: Fixing the macroeconomic headwinds of high inflation and currency volatility; addressing the structural impediments to production and other economic activities; reforming the foreign exchange market to inspire investors’ confidence; addressing the challenges of insecurity; addressing the challenges of logistics; taking urgent steps to tame inflation and boost the purchasing power of the citizens; accelerate the implementation of the Petroleum Industry Act; reform the monetary policies to facilitate financial deepening in the economy; creative support for small businesses to promote economic inclusion; accelerating efforts to ensure domestic refining of petroleum products and Fiscal reforms which prioritise infrastructural development and transparency in the budgetary process.
As data for the last quarter of the year are being collated, analysts say there is a need for the current administration to make a last-ditch effort to address all the negative issues highlighted in the third quarter report if it is serious about its touted desire to hand over a robust economy to the next administration in 2023.