The National Bureau of Statistics (NBS)
last Wednesday disclosed that the nation’s real Gross Domestic Product
(GDP) growth rate dipped by -2.06 per cent (year-on year) in the second
quarter of this year, which was 1.70 percentage points or 170 basis
points lower than the decline by -0.36 per cent recorded in the
preceding quarter. It was also 4.41 percentage points or 441 basis
points lower than the growth rate of 2.35 per cent recorded in the
corresponding quarter of 2015.
The latest GDP figures have put paid to
the fear of recession that had enveloped the economic landscape of
Nigeria and thus confirmed that the economy is officially in recession. A
recession occurs if an economy has contracted for two consecutive
quarters or longer but it is not expected to last for more than a year.
It is a period of general economic decline characterised by high
unemployment, high inflation, fall in retail sales, stagnation, amongst
others.
NBS attributed the further decline in
GDP growth rate in the second quarter mainly to significant drop in
output in the oil sector (year-on-year) and partly to slight decrease in
non-oil sector growth.
According to the bureau, “during the
period under review, oil production was estimated at 1.69million barrels
per day (mbpd), 0.42 million barrels per day lower from production in
first quarter of 2016. Oil production was also lower relative to the
corresponding quarter in 2015 by 0.36million barrels per day when output
was recorded at 2.05mbpd
“As a result, real growth in the oil
sector was negative 17.48 per cent (year-on-year) in the second quarter
of 2016. Growth declined by 10.68 percentage points and 15.59 percentage
points relative to growth in the second quarter of 2015 and first
quarter of 2016 respectively. Quarter-on-quarter, growth also slowed by
-19.11 per cent. As a share of the economy, the oil sector contributed
8.26 per cent to total real GDP, down from the contribution recorded in
the corresponding period of 2015 and the first quarter of 2016 by 1.54
percentage points and 2.03 percentage points respectively.
“Growth in the non-oil sector was
largely driven by the following seven activities of agriculture,
information & communication, water supply, arts entertainment and
recreation, professional scientific and technical services, education
and other services which all grew positively while the remaining 19
major sectors, many of which are substantially indirectly dependent on
the oil sector recorded negative growth.
“The non-oil sector accordingly,
declined by 0.38 per cent in real terms in the second quarter of 2016.
This growth rate was 0.20 percentage points lower than the first quarter
of 2016 (-0.18 per cent), and 3.84 percentage points lower from the
corresponding quarter in 2015 (3.46 per cent) In real terms, the non-oil
sector contributed 91.74 per cent to the nation’s GDP, higher from
shares recorded in the first quarter of 2016 (89.71 per cent) and the
second quarter of 2015 (90.20 per cent).”
However, when measured quarter on
quarter, NBS further revealed, the real GDP increased by 0.82 per cent.
According to the bureau, during the quarter, nominal GDP was N23.483
trillion at basic prices, which was 2.73 per cent higher than the second
quarter 2015 value of N22.859 trillion. This growth, it explained, was
lower than the rate recorded in the second quarter of 2015 by 2.44
percentage points or 244 basis points.
FG’s Optimism
Nevertheless, following the appalling
outing of the economy as indicated by the NBS data, the presidency
contended that the nation’s economic outlook remained bright,
irrespective of the contraction in the GDP growth rate recorded.
According to a statement issued in Abuja
last Wednesday by the Media Aide to the Vice President, Laolu Akande,
the Presidency assured Nigerians that the second half of the year would
be better.
Apparently allaying the fears of
Nigerians, the presidency in the statement, which quoted the Special
Adviser to the President, Economic Matters, Dr. Adeyemi Dipeolu, noted
that the recession would be short-lived, assuring Nigerians that many of
the challenges faced in the first half either no longer existed or had
begun to ease.
It pointed out that the data released by
the NBS on the GDP growth rate, while confirming a temporary decline,
also indicated hopeful expectations for the country’s economic
trajectory.
Besides, the presidency also said apart
from the growth recorded in the agriculture and solid mineral sectors,
the Nigerian economy, in response to the policies of the Muhammadu
Buhari presidency, was doing better than the IMF’s forecast, with clear
indications that the second half of the year would be much better.
It assured Nigerians that the
administration would continue to work diligently on the economy and
engage with all stakeholders to ensure that beneficial policy
initiatives are actively pursued and the dividends delivered to them.
This is the not the first time the
Buhari administration would be allaying the fears of Nigerians on the
economy in recent times. The Minister of Finance, Kemi Adeosun, had last
month, while reacting to the projection of the International Monetary
Fund (IMF) that the Nigerian economy would contract by 1.8 per cent this
year, stated that even though the economy was ‘technically in
recession’, the downturn would be short-lived as she was optimistic that
the economy would bounce back by the third quarter of the year.
According to her, IMF projections were
not necessarily in tandem with reality, insisting that she remained
confident in the potential of the Nigerian economy to weather the
current economic crisis.
“I am not too worried about IMF
projections. I will tell you why: The IMF, one of its functions is
global economic surveillance. They equally issued a negative report on
Britain as a result of Brexit.
“But I don’t think we should panic every
time IMF speaks. I think we need to be confident about what we are
doing and where we are going. I remain extremely confident as I said.
“IMF has given its projections which is
that we may continue to go into negative territory and I am not sure
what we have seen suggests that.
“Agricultural output seems to be going up… That tells you that things are moving in the right direction,” she said.
Her optimism that the economy would come
out stronger was predicated on the policies and programmes that the
government had put in place to address the downturn.
The IMF Position
The IMF, which reviewed its April
Regional Economic Outlook growth rate forecast for Nigeria last month,
had projected -1.8 per cent GDP growth rate for the country by end of
the year. It cut the growth rate forecast from 2.3 per cent for the
year, which it earlier lowered from 3.2 per cent published in February.
Effectively, by the IMF calculation, the economy would witness a
recession this year.
The Bretton Woods institution, however,
predicted that the economy would bounce back with a growth rate of 1.1
per cent in 2017, even the figures are way down from the 3.5 per cent it
earlier projected for the next year.
The IMF, which gave its latest
submission on Nigeria, amongst other countries, in its World Economic
Outlook (WEO) Update had cited “foreign currency shortages as a result
of lower oil receipts, low power generation, and weak investor
confidence.”
The fund noted that it cut its forecasts
for global economic growth this year and next as the unexpected UK vote
to leave the European Union creates a wave of uncertainty amid already
fragile business and consumer confidence.
Apparently giving a foretaste of what
was to come few days earlier, Senior Resident Representative, IMF
Nigeria, Gene Leon, had said the Nigerian economy would probably
contract this year citing shortages in energy and the delay in the
passage of the 2016 budget by the National Assembly.
According to him, these factors have
affected the national output, especially in the first half of the year
and notwithstanding how better the economy performs in the second half,
the positive growth would not “be sufficiently fast, sufficiently rapid
to be able to negate the outcome of the first and second quarters.”
Leon, who gave these indications on
behalf of the Bretton Woods institution in Abuja was quoted as saying,
“I think there is a high likelihood that the year 2016 as a whole will
be a contractionary year.”
No Surprise
Economic analysts and market watchers
said they saw it coming as indications were already rife that the
economy would slip into recession as evidenced in the prolonged
challenges in the economy. Notwithstanding, the pundits are optimistic
that the economy is redeemable.
Managing Director and Chief Economist,
Global Research, Africa, Standard Chartered Bank, Razia Khan, said the
poor performance of the economy in the second quarter was expected given
that the “FX shortages impacting activity had come to a head just prior
to the FX liberalisation.”
And Khan believed that “with FX
availability not having improved significantly, some headwinds are
likely to remain, even into H2.”
However pointing that “the weaker NGN
has provided a boost to FAAC allocations”, she noted that,
“implementation of the budget will also help,” going forward.
Wondering “if these factors alone will
drive sufficient momentum for a recovery in the second half of the year,
Khan was however concerned that, “with banks unlikely to be driving
lending growth much higher, recovery could be more drawn out.”
“What was interesting about the GDP
print was that the dip in non-oil GDP was fairly shallow – only 0.4%
y/y. It’s a situation that can be recovered pretty easily. The
contraction was mostly driven by the oil sector – and that is a much
more severe problem (but not insurmountable),” she added.
Similarly, Executive Director, Corporate
Finance Department of BGL Capital, Femi Ademola, pointed out that the
economic recession was not unexpected, recalling that “since late 2014
when preparation started for the 2015 general elections, economic
activities in Nigeria has been suffering decline.” Ademola noted that,
“The expectation of a reigniting of the economy immediately
post-election was impacted by the change of government which has to
start with its own plan.
He added that, “The sharp and consistent
decline in oil prices and its effect on national revenue also limited
the capacity of the government to return the economy to its earlier
peak.”
All these economic fundamental
challenges, he therefore stated, “resulted in volatile exchange rate
regime which practically snuffed out life from domestic production while
importation become overly expensive.”
He said, “The combination of these two
resulted in the decline in the GDP and high inflation since the
beginning of the year 2016.”
“In other words, the GDP and inflation
figures are not unexpected considering that economy has been
experiencing a lull for over a year now. Although there should be a lag
period before the effect of the MPC actions are felt, the increase in
inflation may also be justifying the notion that inflation in Nigeria
cannot be controlled using monetary policy instruments, it requires
structural and fiscal reforms to abate,” he explained.
Ademola advised: “With the GDP figure
for the second quarter which shows a sharper decline than the previous
quarter, it becomes clearer that the government needs to boost economic
activities by releasing funds to the economy through capital votes while
the monetary authority needs to channel funds to the sectors of needs
while sterilising excess liquidity in the financial services sector
using other policy instruments outside of interest rate.” He believed
“If we can do things differently now, there is a chance that the country
would return to positive growth by early to middle 2017.” Aligning with
Khan and Ademola, Associate on Macroeconomic and Fixed Income Analysis
at FBN Capital Ltd, Chinwe Egwim, said, “There are no major surprises in
this release as we expected a contraction in Q2.” “Given the macro
challenges (steep slide in oil prices, production shortages due to
vandalism, FX sourcing issues in an import dependent country and hike in
inflation) the negative reading was a foregone conclusion.”
Egwim recalled Adeosun saying the
federal government was committed to stimulating the economy through its
capital releases, social intervention programs, import substitution
strategies, tackling the oil production crisis in the Niger Delta and
policies geared towards attracting foreign portfolio and direct
investments.
The FBN Capital analyst expects “to
begin to see signs of recovery as we enter Q4,” but cautioned that,
“there is still a lot of work to do and delays in releasing capital
could also delay the recovery.” “There is also a risk that revenue
collection shortfalls may lead to capex cuts,” she added.
In the same vein, CEO, Global Analytics
Consulting Limited, Tope Fasua, who was not surprised by the unfortunate
development, noted that, “It is a final testimony that all is not
well.”
“Officially we are now in a recession
even though we have since been living with the realities of an economic
depression – high unemployment, high inflation, or stagflation, high
poverty rates, and low human development indices. It seems all the bad
guys have congregated on Nigeria. I hope the government rediscovers its
mojo. The time for buck-passing is long over,” he stated.
Way Forward
Meanwhile, analysts at Eczellon Capital
Ltd led by its chief executive officer, Diekola Onaolapo, said the
second quarter report “only further reiterate the need for greater
collaboration between monetary and fiscal authorities to address the
current poor performance of the economy .”
According to the analysts, “On the
monetary side, there is a need for the CBN to review its stance of the
41 items exempted from the inter-bank which defeats the essence of a
single FX market and starve businesses of required foreign capital to
transact.
“We opine that fiscal measures will be
more effective and will help achieve the goals of import substitution
that the apex bank had in mind when it banned the 41 items from the
inter-bank FX market.”
The Eczellon analysts took cognizance of
the 0.84 per cent quarterly growth that was largely influenced by the
4.5 per cent expansion in the Agriculture sector. This, they posited,
could be “linked to the relative peace in the North-Eastern part of the
country; and possibly a gradual shift towards increased local production
of food; given the very unfavourable FX environment.”
“It is expected that Agriculture will
continue its strong performance for the remaining quarters of the year
particularly as the nation enters its harvest season, and government’s
push for greater local production of food in the country especially for
staple commodity like Rice,” they added.
The Eczellon analysts believed “the
foregoing, coupled with the injection of c.N430.0bn into the economy in
recent months for capital projects should provide a lever for a gradual
recovery of the nation’s economy in the coming quarters.”
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