How Nigeria Came Out Of Recession

  • Agric, Financial Services, Mining Lead
  • ICT, Real Estate, Transport Drag
  • 0.5% Growth Falls Far Short Of Potential

(Sundiata Post) – Nigeria, Africa’s largest economy, was able to exit its longest economic slump since 1991 largely due to a rise in agriculture output, mining and financial services. However, the recovery falls far short of the output gap, suggesting that this may be more of a statistical blip, than the beginning of a sustained upward swing.

The output gap is an indicator of the difference between the actual output of an economy and the maximum potential output of the economy, expressed as a percentage of gross domestic product (GDP).

Gross domestic product in Nigeria, advanced for the first time in six quarters in the three months ended June, from a year earlier, growing 0.55 per cent, the National Bureau of Statistics (NBS) said.

“This is not at all a robust GDP print,” said Razia Khan, chief economist for Africa at Standard Chartered, of Tuesday’s figures.

“It still falls far short of the growth rates the Nigerian economy should be achieving.”

The agric sector which contributes 22.97 per cent to GDP, grew by 3 per cent from a year earlier, mining and quarrying, which makes up 9.04 per cent of GDP, expanded by 1.65 per cent, while the finance and insurance sector (3.33 % of GDP) grew by 10.45 per cent in the second quarter of 2017 to N542.51 billion in real terms.

The financial institutions sub-sector grew by 11.78 per cent year-on-year and 4.58 per cent quarter-on-quarter, to N457.72 billion; the insurance subsector expanded by 3.79 per cent year-on-year and 27.70 per cent quarter-on-quarter, to N84.78 billion.

The sector had slumped by 1.91 per cent in the second quarter of 2016 versus the first quarter, as its contribution to real GDP was N491.16 billion in the quarter, compared to the previous quarter.

The oil industry climbed 1.6 per cent, the first time since Q4, 2014.

“Overall, the end of the recession is welcome but economic growth remains fragile and vulnerable to exogenous shocks or policy slippages. Accordingly, it remains essential to intensify efforts going forward on the implementation of the Economic Recovery and Growth Plan (ERGP) to achieve desired outcomes, including sustained inclusive growth, further diversification of the economy, creation of jobs and improved business conditions,” said the Special Adviser to the President on Economic Affairs, Adeyemi Dipeolu, in a statement.

Nigeria’s ERGP released in March, is a four-year programme that aims to boost growth to 7 per cent by 2020 through lifting oil output, opening farmlands and increasing investment in power, roads, rail and ports.

Electricity, gas, steam and air conditioning supply expanded the largest in the period, having grown by 35.50 per cent to N71.86 billion in the quarter, from N53.03 billion in the second quarter of 2016.

The water supply, sewerage, waste management, remediation sector, grew by 18.43 per cent in real terms. Public administration, manufacturing, and construction completed the league of growth sectors, as they expanded 1.65 per cent, 1.63 per cent, 0.64 per cent, and 0.13 per cent.

“The growth rate is below the country’s potential, but it sends a positive signal of a possible improvement in the coming quarters. It also indicates a lesson for the authority, that economic problems, such as the FX challenges, should be solved very quickly in future,” said Tajudeen Ibrahim, head of research at Chapel Hill Denham Limited, in an emailed response to questions.

Nigeria improved foreign-currency liquidity by introducing a trading window for portfolio investors at market-determined rates, and later by allowing commercial banks to quote the Nafex rate that is now close to pricing on the black market.

Before this, the CBN regularly intervened to keep the naira at about 315 per dollar, even after months of abandoning a 197-199 peg.

The naira weakened 0.9 per cent to 358.74 per dollar at 2:48 p.m. in Lagos, the commercial capital.

The economy was dragged down by the transportation and storage that contracted by 6.18 per cent, the highest year-on-year slump by any sector in the economy.

Accommodation and food services and real estate sectors shrank 4.05 per cent and 3.53 per cent, while professional, scientific, and technical services declined by 1.72 per cent.

ICT, which makes up 12.39 per cent of GDP also contracted by 1.15 per cent.

While the International Monetary Fund (IMF) forecasts growth of 0.8 per cent this year, as output of oil climbs, and supply of foreign currency needed by manufacturers to import inputs continues to improve, it may not be enough to lift millions of Nigerians out of poverty, with a population growth rate still north of 2 per cent per annum.

The Central Bank of Nigeria (CBN) has kept its main lending rate at a record high of 14 per cent since July 2016 to support the naira and to fight inflation that was at 16.1 per cent last month, still almost double the target.

Economists, including Yvonne Mhango at Renaissance Capital, see the Central Bank continuing a tight monetary-policy stance, however Bismarck Rewane the Chief Executive Officer of Financial Derivatives Company, an economics consulting firm based in Lagos, says the government’s attempt at stimulating the economy is being undermined by high interest rates.

Nigeria’s unemployment rate rose to 14.2 per cent in the 4th quarter of 2016, the National Bureau of Statistics (NBS) said in June.

Some 28.5 million Nigerians were unemployed in the period, compared to 27.12 million in the 3rd quarter.

“It is time for a discussion about the high rates the government is borrowing at,” Rewane said.

“If you say growth is up 0.55 per cent when the population is growing by 2 per cent per year, then you need growth of 3 – 4 per cent just to improve incomes and jobs.” (BusinessDay)

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