Contracting disposable income, savings undermine Nigeria’s investment outlook

• National disposable income slumps by 2.5%

The national disposable income slumped by 2.52 per cent in real terms last year compared with the previous 2020 figure, confirming that the condition of living continues to deteriorate.

This, weighed against the positive population growth rate estimated at 2.6 per cent, underscores the rate of poverty growth in the country.

The real growth of national disposable income is expected to surpass the population growth rate to achieve prosperity. A dwindling national disposable income also suggests falling consumption and savings, which are a necessary condition for economic growth.

According to report, the gross domestic product (GDP) report (expenditure and income approach) for Q3 and Q4 released by the National Bureau of Statistics (NBS), yesterday, the country recorded negative growth in national income across the quarters except for Q4 when it was up 2.84 per cent year-on-year (YoY), leading to annualised growth of -2.52 per cent.

“National disposable income grew by -1.48 per cent in the third quarter of 2021 and 2.84 per cent in the fourth quarter of 2021, but recorded growth of 0.32 per cent and -1.28 per cent in Q3 and Q4 of 2020 on a year-on-year basis in real terms, giving a slower growth rate of -2.52 per cent for yearly figure in 2021 compared to a positive growth rate in end 2020 (1.07 per cent),” the report said.

Interestingly, household consumption was up 25.65 per cent in the same year, suggesting that many Nigerians might have reduced savings to sustain or increase their consumption pattern. In contrast, government consumption spending contracted by as much as 34.03 per cent reflecting the shock in revenue.

Household consumption, according to the report, continues to account for the largest percentage of the GDP (measured by expenditure).

“Household consumption accounted for the largest share of real GDP at market prices, representing 70.85 per cent and 71.35 per cent in Q3 and Q4 2021 respectively, compared to 61.77 per cent and 69.58 per cent in the corresponding quarters of 2020. Net Exports, which represented 8.11 per cent of total real GDP at market prices in Q3 2021, however, declined slightly in Q4 to 7.86 per cent,” NBS said.

The share of government consumption was 6.06 per cent in Q3 and declined to 5.68 per cent in Q4 2021, while gross fixed capital formation accounted for 12.88 per cent of real GDP in Q3 and rose moderately to 13.8 per cent in the last quarter.

The country recorded a slight improvement in capital formation with the real gross fixed capital formation (GFCF) recording year-on-year growth of Q1 and Q2 estimated at 7.52 per cent and 5.86 per cent respectively.

The index grew by 4.66 per cent, which was 19.38 percentage points higher than what was recorded in 2020. As expected, the rising household consumption in stark contrast with falling disposable income is taking its toll on savings. In real terms, savings grew by -30.99 per cent in Q3 and declined further by –5.45 per cent in Q4. On yearly basis, 2021, real savings contracted by -42.62 last year as against -5.19 per cent posted in 2020, meaning that national savings caved in back-to-back in the last two years.

The report stated in detail: “Quarter-on-quarter, growth in savings inclined by 8.23 per cent in Q3 and rose in Q4 2021 by 0.73 per cent. In 2021, nominal savings rose by 44.47 per cent in Q3 and 36.04 per cent in Q4 year-on-year compared to 41.14 per cent and 92.74 per cent in Q3 and Q4 2020 respectively. The yearly growth rate of 34.06 per cent was recorded in 2021, overall, this was a lesser performance relative to 2020 which recorded a 53.52 per cent yearly growth rate in nominal savings.”

This comes a day after JP Morgan said it has delisted the country from its emerging market sovereign list over its inability to leverage the bullish international oil market to achieve fiscal stability.

“Nigeria’s fiscal woes amid a worsening global risk backdrop have raised market concerns despite a positive oil environment”, the investment bank said. The delisting is being interpreted in the financial circle as a red flag, which could potentially increase the country’s cost of borrowing from the international market.