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Nigeria’s economy in 2019: Woes or fortune?

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As 2019 begins with hopes and aspirations, there are expectations from the federal government to better the economy with a view to making it have more meaningful impact on Nigerians. Here are the looks at the key indicators that will characterize the economy and determine its fortunes this year.

The economy appears to have lost its sparkle; its growth has dwindled. And there are palpable fears that the effect of political activities in the lead-up to the general elections, scheduled to commence on February 16, could overshadow whatever gains the economy may muster during this period, thus, compounding its woes. As it stands, the federal government has abandoned the economy for politics and the economy is already bearing the brunt.

After five quarters of recession, which the economy entered in the second quarter of 2016, having plummeted to a gross domestic product (GDP) growth rate of -2.06 per cent, the economy exited the quagmire in the second quarter of 2017 with a GDP growth rate of 0.55 per cent, which was revised upward to 0.72 per cent, according to data from the National Bureau of Statistics.

Then, the economy turned the corner as it grew at 1.40 per cent in the next quarter- that is, the third quarter of the year, and sustained the improvement recording a GDP growth rate of 2.11 per cent in the fourth quarter of the year 2017. However, in the first quarter and second quarter of 2018, the economy reversed the rising streak as evidenced in the slowed growth rates. NBS data showed that the GDP growth rate fell to 1.95 per cent in the first quarter of 2018 from the 2.11 per cent it achieved at the end of 2017. It dropped further to 1.50 per cent in the second quarter.

The agency noted that the clashes between farmers and herdsmen, which took its heavy toll on agriculture, mainly dragged down the growth rate during the quarter under review. Agriculture, being a major component of the non-oil sector was badly affected. However, with improvement in the non-oil sector, the economy received an impetus for growth, which pushed the GDP growth rate to 1.81 per cent. According to NBS, growth in the third quarter was largely helped by the non-oil sector, which contributed 90.62 per cent to the total GDP, while the oil sector contributed 9.38 per cent to growth in the review period. Oil GDP was reported to have contracted by -2.91 per cent compared to -3.95 per cent in second quarter and 23.93 per cent in third quarter 2017.

Despite the improvement in growth rate in the third quarter of 2018, the economy is still experiencing slowdown and was recently put on red alert of slipping into another recession over weak economic growth.

According to the Governor of the Central Bank of Nigeria, Mr. Godwin Emefiele, who raised the alarm at a recent Monetary Policy Committee meeting, the economy may be under threat of relapse into a recession, which it recently exited from with fanfare, given the weak economic growth of the second quarter of 2018.

Emefiele also raised concerns about threat to efforts to curb inflation, stabilise exchange rate and build reserves, considering the macroeconomic fundamentals at the period.

The consumer price index, which measures inflation dropped from 11.28 per cent in September 2018 to 11.26 per cent in October 2018 and rose again to 11.28 per cent in November 2018, but when compared with the levels in the corresponding year of 2017, when it dropped from 15.98 per cent in September to 15.91 per cent in October and 15.90 per cent in November, it was not where the monetary authority had envisaged it would be. The apex bank has the onerous task of bringing inflation to its targeted single digit, especially in an election year.

Also, of note as a potential contributor to relapsing the economy into recession, as pointed out by the CBN governor, was the delay in budget implementation. A situation, where three months after presidential assent and about three months to the end of 2018, there was no budget implementation was unhealthy for the economy. According to the apex bank, long years of fiscal policy lag had contributed to the weakness in the economy. Most of the inimical factors identified by Emefiele at that time are still at play.

Given this scenario, as the New Year begins, economic managers have the arduous task of resolving those issues as well as ensuring the economy not only continues to grow, but also record appreciable and inclusive growth. While 2019 is an unusual year, being an election year, more, but critical efforts would be required by handlers to put the economy on a sure footing with a viewing to avoiding a relapse into recession.

The federal government has proposed a budget of N8.83 trillion for the 2019 fiscal year. Nigerians would not accept any excuse for delay in its passage and poor Implementation. The executive and the National Assembly should therefore quickly address the grey areas and harmonize their positions so that the appropriation bill could be passed into law and implemented in earnest.

The budget has been predicated on an oil-price benchmark of $60 per barrel. In recent times, oil prices have been sliding at the international market and currently stood around $54 per barrel. The falling oil prices have been identified as threat to implementation of the budget and as such, the relevant authorities would do well to peg the budget at the most appropriate benchmark.

As part of its strategy to mobilize revenue, the federal government through the ministry of finance, in July 2017, created Voluntary Assets and Income Declaration Scheme (VAIDS), a tax amnesty, which was expected to rein in $1 billion from tax evaders and avoiders. By the end of the scheme, one year later, with only about N30 billion, the proceeds fell short of the government target, but the scheme was able to swell the tax database by five million to 19 million from 14 million. The government is expected to follow up on this initiative as well as intensify the revenue mobilization from more alternative sources than oil and borrowing to fund the budget. As at the end of 2018, the total collection by the Federal Inland Revenue Service was about N7 trillion.

Besides, the federal government is expected to review the power sector transition market policy performance this year after its first five years of implementation.

It is obvious that this present administration led by President Muhammadu Buhari, which is already pre-occupied with politicking ahead of the general elections, would not be able to solve the burgeoning unemployment problem. With unemployed Nigerians now at 20.9 million, having risen by 17.6 million in nine months, one of the major tasks before the incoming administration is to tackle the factors causing unemployment or to put it more aptly, provide employment opportunities in the economy and tame the rising scourge of unemployment.

Besides, Nigerians are anxiously waiting for positive outcomes from the talks, between the Nigeria Labor Congress and federal government over the N30, 000 minimum wage, that have resumed and are expected to be brought to a logical conclusion before the general elections.

 

Experts’ Views on the Economy

But in the view of the Chief Executive Officer of Financial Derivatives Company Ltd, Mr. Bismarck Rewane, political jostling and the elections would becloud the talks on the minimum wage. He also expressed the opinion that political activities and elections would becloud 2019 budget talks by the legislature and the first monetary policy committee (MPC) meeting in the month of January.

Also, in his projections, Director, Union Capita Market Ltd, Mr. Egie Akpata, posited that 2019 would likely be more challenging for the Nigerian economy than 2018.

According to him, most variables which were in the country’s favor last year, but not capitalized on, have reversed. “Oil prices, local interest rates, inflation, stock market indices, political environment and other variables that were positive for most of 2018 are now negative and will remain so for most of 2019.”

On the key areas that are likely to impact the entire economy, Akpata noted that in the aspect of government finances, it was unfortunate that for the federal government, tax revenues could be generated by threat or decree.

“The VAIDS programme fell far short of expectation and so did many other initiatives to diversify government revenues away from oil. These failures are not surprising. Individuals and companies have to be financially buoyant to pay a lot of tax. The reality is that most sectors of the economy are in a recession and profitability has been badly eroded.

“Self-inflicted damage from Apapa ports congestion, inability to solve the power crises, government crowding out the private sector in the debt markets, insecurity in large sections of the country amongst others mean that corporate profitability is unlikely to improve and hence better non-oil revenue for the government will take a while to materialize.”

Akpata added that, the federal and state governments had shown that they were unable to reduce their costs and instead had resorted to massive borrowing, particularly at the federal level.

This borrowing, he pointed out, was almost entirely to fund overheads. “Unfortunately, this produces very high market borrowing rates which very few private companies can afford. As long as the economy continues to have a risk free rate close to 20 per cent, it is unlikely that there will be massive credit to the private sector to drive the investment needed to grow the economy at the required levels.”

“Until there is a political force to stop government simply borrowing to fund overheads, FGN debt will continue to grow at an alarming rate. Since a default is very unlikely, the market will happily give the FGN all the debt it wants to pay its bills today. Repayment is largely a problem for future governments to worry about,” he also submitted.

He argued that the presented 2019 budget showed that “it is business as usual – unrealistic revenue targets, huge borrowing and waste on fuel subsidy. None of these are a positive for government finances,” stating that, the ongoing minimum wage battle with the NLC would likely result in some kind of wage increase, which will put more pressure on government finances.

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Nigeria

Nigeria’s GDP overview in Q1, 2019: focus on major economic activities

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Nigeria’s Gross Domestic Product (GDP) grew by 2.01%(year-on-year), in real terms, in the first quarter of 2019. Compared to the first quarter of 2018, which recorded real GDP growth rate of 1.89%, the Q1 2019 growth rate represented an increase of 0.12% points. However, relative to the preceding quarter (fourth quarter of 2018), real GDP growth rate declined by –0.38% points (See figure 1).

It is worth noting that general elections were held across the country during the first quarter of 2019 and this may have reflected in the strongest first quarter performance observed since 2015. Aggregate GDP stood at   N31,794,085.85 million in nominal terms.

This aggregate was higher than in the first quarter of 2018 which recorded N28,438,604.23 million, representing a year on year nominal growth rate of 11.80%. The aggregate was, however, lower than in the preceding quarter of N35,230,607.63 million, by –9.75%. The nominal GDP growth rate in Q1 2019 was higher than the rate recorded in Q1 2018 by 2.54% points. For further analysis, the Nigerian economy can be classified broadly into the oil and non-oil sectors.

The Oil Sector

In the first quarter of 2019, average daily oil production stood at 1.96million barrels per day (mbpd), lower than the average daily production of 1.98mbpd recorded in the same quarter of 2018 by -0.02mbpd but higher than the fourth quarter 2018 production volume by 0.05mbpd. (Figure2).  The level of oil output during the quarter was the highest recorded over the past one year and the second highest since mid-2017.

Real GDP growth in the oil sector was –2.40% (year-on-year) in Q1 2019 indicating a decrease by –16.43% points relative to the rate recorded in the corresponding quarter of 2018. Growth decreased by –0.79% points when compared to Q4 2018 which was –1.62%.  Quarter-on-Quarter, the oil sector recorded a growth rate of 11.60% in Q1 2019. The Oil sector contributed 9.14% to total real GDP in Q1 2019, down from figures recorded in the corresponding period of 2018 but up compared to the preceding quarter, where it contributed 9.55% and 7.06% respectively. 

The Non-Oil Sector

The non-oil sector grew by 2.47% in real terms during the reference quarter.  This was 1.72% points higher compared to the rate recorded in the same quarter of 2018 but -0.23% points lower than the fourth quarter of 2018. During the quarter, the sector was driven mainly by Information and communication technology. Other drivers were Agriculture, Transportation and Storage, Trade and Construction. In real terms, the nonoil sector contributed 90.86% to the nation’s GDP, higher than recorded in the first quarter of 2018 (90.45%) but lower than the fourth quarter of 2018 (92.94%).

Mining & Quarrying

The Mining & Quarrying sector consists of Crude Petroleum and Natural Gas, Coal Mining, Metal ore and Quarrying and other Minerals sub-activities. This sector grew, in nominal terms, by –20.09% (year on year) in Q1 2019. Quarrying and other minerals exhibited the highest growth rate of all the sub-activities at 137.41% followed by coal activity at 57.36%. However, Crude Petroleum and Natural gas remains the main contributor to the sector with a weight of 99.10%. Comparing Q1 2019 against the Q1 2018 and Q4 2018 revealed that nominal GDP growth rate declined by –102.92% and –10.69% points respectively. The Mining & Quarrying sector contributed 9.90% to aggregate GDP in the first quarter of 2019, lower than the contributions recorded in Q1 2018 (at 13.85%) but higher than the 6.83% recorded in the preceding quarter. 

In real terms, the Mining and Quarrying sector grew by –2.31% (year-on-year) in the first quarter of 2019. Compared to the   first and last quarters of 2018, this represented a decline of –16.41% points and –1.07% points respectively. Quarter on quarter, growth rate recorded was 9.87%. The contribution of Mining and Quarrying to real GDP in the quarter under review stood at 9.21%, lower than the rate of 9.62% recorded in the corresponding quarter of 2018, though higher than the 7.23% recorded in the fourth quarter of 2018. 

Agriculture

Four sub-activities make up the Agricultural sector: Crop Production, Livestock, Forestry and Fishing. sector grew by 22.58% year-on-year in nominal terms in Q1 2019, showing an increase of 16.78% points from the same quarter of 2018. Compared to the preceding quarter, the nominal GDP growth rate was about 4% points higher. Crop Production remains the major driver of the sector. This is evident as it accounted for 85% of agriculture GDP. Quarter on quarter, growth stood at –25.27%. Agriculture contributed 19.11% to nominal GDP during the  quarter, higher than the recorded contribution in the first quarter of 2018 but lower than recorded in the fourth quarter.  

In real terms, the agricultural sector grew by 3.17% (year-on-year) in the first quarter of 2019, an increase of 0.17% points compared to the corresponding quarter of 2018, and 0.72% points compared to the preceding quarter. During the quarter, the sector contributed 21.91% to real GDP, higher than the contribution in the first quarter of 2018 (21.66%) but lower than the fourth quarter of 2018 (26.15%).

Manufacturing

The Manufacturing sector comprises of thirteen activities:   Oil Refining; Cement; Food, Beverages and Tobacco; Textile, Apparel, and Footwear; Wood and Wood products; Pulp Paper and Paper products; Chemical and Pharmaceutical products; Non-metallic Products, Plastic and Rubber products; Electrical and Electronic, Basic Metal and Iron and Steel; Motor Vehicles and Assembly; and Other Manufacturing.

In the first quarter of 2019, nominal GDP growth in the Manufacturing sector was recorded at 36.45% (year-on-year), or 27.52% points higher than the rate recorded in the corresponding period of 2018 (8.93%), and 2.88% points higher than in the preceding quarter. Quarter on quarter, manufacturing sector recorded a growth rate of 1.09%. The sector’s contribution to nominal GDP during the quarter was 11.32%, higher than its contribution in both the first quarter (9.28%) and the fourth quarter (10.11%) of 2018.

Real GDP growth in the manufacturing sector was 0.81% in the first quarter of 2019 (year on year). This was lower than in the same quarter of 2018 by –2.59% points, and the preceding quarter by –1.54% points (Figure 6). On a quarter-on-quarter basis, the growth rate stood at –4.62%. In terms of its contribution, the sector accounted for 9.80% of real GDP in Q1 2019, lower than the 9.91% recorded in the first quarter of 2018 but higher than the 8.86% recorded in the fourth quarter of 2018.

Construction

The Construction sector grew by 66.99% in nominal terms (year on year) in the first quarter of 2019, an increase of 58.02% points compared to the rate recorded in the same quarter of 2018. This was also higher when compared to the rate recorded in the preceding quarter. On a quarter on quarter basis, nominal growth was recorded at 10.62%. Construction contributed 6.17% to nominal GDP in the first quarter of 2019, higher than the 4.13% contribution a year earlier, and the 5.03% contributed in the fourth quarter of 2018.

The real growth rate of the construction sector in the     first quarter of 2019 stood at 3.18% (year on year), or 4.71% points higher than the rate recorded a year earlier. Relative to the preceding quarter, there was an increase of 1.13% points. Quarter on quarter, the sector grew by 1.36% in real terms. By contribution, the construction sector accounted for 4.09% of real GDP in the first quarter of 2019, higher than its contribution of 4.04% in the same quarter of 2018, and the 3.48% contribution recorded in the preceding quarter.

Trade

 In the first quarter of 2019, the nominal year on year growth in Trade services stood at 4.82%. This indicates an increase of 6.94% points when compared to the first quarter of 2018, and 0.40% points when compared to the fourth quarter. The quarter on quarter growth rate was –11.23%.  Trade’s contribution to nominal GDP in the first quarter of 2019 was 16.96%, lower than the contribution in the same quarter in 2018, and lower than the preceding quarter’s contribution, recorded at 17.24%.

In real terms, the year on year growth rate for Trade services stood at 0.85%, which is 3.42% points higher than the rate recorded the previous year, and –0.17% points lower than in the preceding quarter. Quarter on quarter, growth stood at –11.80%. In real terms, Trade’s contribution to GDP was 16.87%, lower than the 17.07% it accounted for in the previous year, but higher than the 16.50% recorded in the fourth quarter of 2018.

Finance and Insurance

The Finance and Insurance Sector consists of the two activities: Financial Institutions and Insurance, which accounted for 84.76% and 15.24% of the sector in real terms respectively in Q1 2019. 

The financial services sector grew at –3.96% in nominal terms (year on year), with the growth rate of Financial Institutions as –5.64% and Insurance recording a nominal growth rate of 6.61% in Q1 2019. The sector growth rate was, however, slower than that in Q1 2018 by –17.78% points, and –5.50% points than in the preceding quarter. Quarter on quarter, growth was 2.56%. The sector’s contribution to aggregate nominal GDP was 3.23% in Q1 2019, lower than the 3.76% it represented the previous year, but higher than the contribution of 2.84% recorded in the preceding quarter.

In real terms, growth in this sector was estimated at –7.60%, lower by –20.90% points compared to the rate recorded in Q1 2018, and by –5.83% compared to the preceding quarter. Quarter on quarter, growth in real terms stood at 1.90%.  The contribution of Finance and Insurance to real GDP stood at 3.21% during the quarter, which is lower than its contribution of 3.55% recorded in the first quarter of 2018, although higher than 2.72% recorded in Q4 2018.

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