Economic experts have raised concerns about the prostrate nature of the economy, exemplified by the contraction in the country’s Gross Domestic Product (GDP).
A recent data by the National Bureau of Statistics (NBS) shows that the GDP recorded 3.54 per cent growth in Q2 2022. On year-on-year basis however, the GDP contracted from the 5.01 per cent record of Q2 2021 during which rapid growth was recorded after the devastating experience of the Covid-19 pandemic.
Nigeria exited recession in Q4 2020 after the contraction by -6.10 per cent and -3.62 per cent in Q2 and Q3 of 2020 respectively when the pandemic held sway.
The persistent decline of the GDP since the third quarter of 2021 has left many worried.
The GDP was 5.02 per cent in second quarter but dropped to 4.03 per cent in Q3 2021. It fell further to 3.98 per cent in Q4 2021 and 3.11 per cent in Q1 2022.
The drop is the outcome of the extreme macroeconomic challenges including galloping inflation, currency depreciation, foreign exchange illiquidity, high energy cost, heightened insecurity, weakening purchasing power, structural bottlenecks and trade facilitation issues that have beset the country.
Expectedly, the rising prices of commodities and other items adversely impacted on the performance as growth rate decreased by 1.47 per cent in Q2 2022, relative to Q2 2021.
Oil refining contracted highest by 42 per cent; rail transportation, 38 per cent; crude oil and gas, 11.8 per cent; metal ores, 25.5 per cent; electricity vehicle assemblies, 7.8 per cent; electricity and air-conditioning, seven per cent; motion pictures and music, six per cent; and textiles, 2.8 per cent in Q2 this year.
Muda Yusuf, the Founder/Chief Executive Officer of the Centre for the promotion of private enterprise (CPPE) said the key drivers of the contraction include continued inactivity of the country’s major refineries, all of which have been posting losses in recent years as well as the cloud of insecurity hovering over the railway system which has caused the suspension of railway services.
“Crude oil theft and vandalisation of oil facilities in the oil producing areas, by NNPC estimates, the country loses $2 billion monthly on account of oil theft. Loses are also suffered on account of vandalisation of oil facilities, pipelines and the activities of illegal refineries.
Also productivity and competitiveness issues continue to impact negatively on performance across sectors of the economy, and the general operating environment continues to be very challenging for most investors. The SMEs were particularly more vulnerable to prevailing macroeconomic shocks, resulting in a high mortality rate of small businesses,” he explained.
Sectors in recession include crude oil and gas, oil refining, textiles, electricity, gas and steam engines as many businesses are struggling to cope with the numerous challenges and shocks to the economy.
Yusuf said the welfare of the citizens has been adversely impacted as they are also experiencing serious economic hardship resulting from the galloping inflation and the impact on purchasing power.
While the non-oil sector grew to 93.67 per cent, the oil sector declined to 6.63 per cent, even though the latter has continued to play a leading role in the generation of foreign exchange and a significant role in the generation of government revenue.
According to the CPPE boss, this underscores the persistent productivity challenges which has continued to characterise the non-oil sector of the economy, explaining why its contribution to export earnings is still less than five per cent.
Notably, the service sector sustained its dominance in the economy, contributing 57.35 per cent of the country’s GDP in Q2; agriculture, 23.24 per cent; and Industries, 19.40 per cent.
Yusuf said this development highlights the capacity of the sector to cope with the numerous shocks and dislocations that the economy is experiencing.
“It also underscores the fact that the service sector is less vulnerable to the macroeconomic and structural shocks in the economy. The service sector is able to cope a lot more with these challenges than the real sector of the economy.”
Meanwhile, the real sector of the economy grew marginally as agriculture grew by 1.2 per cent; manufacturing, three per cent; and construction, 4.2 per cent.
The service sector also posted positive growth as the road transport, for instance, grew by 56.4 per cent, which represented the highest sectoral growth; air transport, 22.5 per cent; financial services, 20 per cent; information telecommunication technology (ICT), 7.71 per cent; trade, 4.5 per cent; and real estate, 4.4 per cent.
The service sector growth outperformed the real sector, reflecting the sectoral variabilities in the constraints faced by investors in the economy, Yusuf said.
To him, implications of policy for sectors that are still in recession should be for the government to consider addressing the challenges of massive oil theft, which is affecting the oil output, as well as safety of the oil facilities to reverse the under performance of the oil and gas sector while not looking away from the implementation of the Petroleum industry Act (PIA) to boost investment in the sector.
“The electricity sector reforms need a review to improve efficiency and productivity in the sector. The challenges in the electricity supply chain need to be urgently addressed – gas to power, transmission, distribution, energy pricing, metering, and the capacity of the distribution companies. All of these are needed to improve performance and attract more investment into the sector.
“Need to put fiscal incentives in place to boost investment in renewable energy in line with the energy mix objective of the government. Such incentives could be in the areas of tax incentives and the waivers of import duty on renewable energy equipment,” he said.
Yusuf, who was the former director-general of the Lagos Chamber of Commerce and Industry (LCCI), said urgent need was needed to decentralise the national grid for ease of management and efficiency as well as deliberate policy to attract private investment in the electricity grid.
“The textile sector is a victim of the current harsh business climate, especially for the real sector. The key element is the high energy cost, forex illiquidity, currency depreciation and weak domestic patronage. The government should ensure that all uniforms of security agencies and other government institutions are produced from local textile fabrics. Generic issues of high energy cost also need to be addressed.
“The rail system needs adequate security to rebound. Government needs to accelerate the security cover for the rail lines and the railway transportation system across the country. There should be an urgent engagement with investors in the auto assembly plants to identify the peculiar challenges facing them. But surely, better patronage of vehicles assembled in Nigeria would have a positive impact on the performance of these firms,” Yusuf added.
On his part, the President/CEO, Irish Nigeria Business Alliance (INBA), Eugene Nwosu, said the 0.43 per cent growth would be seen as an improvement in any economy where basic amenities are available and functional, with an improved quality of life for the citizens.
“I don’t think Nigeria can celebrate statistical GDP growth of any sort when we have not been able to take care of the necessities such as education, energy, healthcare, guaranteed welfare to the most vulnerable (children, elderly, and the unemployed), security of life and properties, etc,” he added.
Ikechi Agbugba, a senior lecturer at the Department of Agricultural and Applied Economics, Rivers State University, said, “It is exciting that at the time the United Kingdom, United States of America (GDP) are in red and not performing creditably.”
The U.S. economy contracted by -0.6 per cent in Q2 2022, after a -1.6 per cent drop in Q1 as the country’s economy is said to have technically entered a recession.
Agbugba described Nigeria’s Q2 GDP growth as somewhat stellar, saying, “As a matter of fact, we must not get carried away with numbers or digits. After all, a number does not make a trend.
“I also think using nominal growth is unpopular due to the inflation effect. In Q2 (real growth), the agriculture sector actually slowed down to some reasonable extent to 1.20 per cent from 3.16 per cent in Q1. This is the least growth rate in 10 quarters. I feel this is a clearer picture and this implies why the rate of inflation is high and explains the nominal growth you referred to.”
Asserting that the Central Bank of Nigeria (CBN) is making moves to tame inflation while the fiscal authority appears not to be moving in that direction, he lamented, “If fiscal spending, and overdraft from the CBN are not checked, inflation may persist and could become more growth-retarding than we have seen.”
