Banks, telcos defy recession as COVID-19 pandemic lingers

• Growth to remain weak till 2021
• Economists seek interventions in productive sector, debt
servicing

With the imposition of social-distancing measures dominating second quarter of 2020, demand for financial and telecommunications services appears to have aided the resilience of the two sectors at a time the world is preparing for the worst recession.

Contrary to projections by the Central Bank of Nigeria (CBN), World Bank, the International Monetary Fund (IMF) and the African Development Bank (AfDB), Nigeria’s -6.10 per cent contraction in Gross Domestic Product (GDP) for the second quarter, affirms concerns that the negative impact of COVID-19 may be far-reaching than estimated.

Historically, the telecoms sector’s output corresponds with the broader economy’s results, with GDP decreases followed by accompanying falls in operator’s revenues as earnings are squeezed. The complexity of the current coronavirus epidemic, however, and the role of telecoms in alleviating it, may mean a deviation from that pattern.

Nigeria’s GDP decreased by -6.10 per cent(year-on-year) in real terms in the second quarter of 2020, ending the three-year trend of low but positive real growth rates recorded since the 2016/17 recession. This was against CBN’s projection of -0.88 per cent Q2 GDP growth earlier this month.

Analysts said that the performance of the telecoms sector was not unexpected, as it remained the only active sector when the economy was shut down in the second quarter due to the pandemic.

Sectors that recorded the highest negative growth in Q2 2020 include transport and storage, accommodation and food services, construction, education, real estate and trade, among others.

According to the National Bureau of Statistics (NBS), the ICT sector contributed 14.06 per cent to total nominal GDP in Q2 2020, higher than the rate of 13.83 per cent recorded in the same quarter of 2019 and also higher than the 10.31 per cent it contributed in the preceding quarter.

Though economic managers have begun implementation of some initiatives, economists project that growth will continue to remain weak and fragile till the first quarter of 2021, noting that the effect of the pandemic was deeper than envisaged.

The NBS noted that the decline was largely attributable to significantly lower levels of both domestic and international economic activities during the quarter, which resulted from nationwide shutdown and other efforts aimed at containing the COVID-19 pandemic.

The domestic efforts ranged from initial restrictions of human and vehicular movements implemented in only a few states to a nationwide curfew, bans on domestic and international travels, closure of schools and markets, among others, affecting both local and international trade.

When compared with Q2 2019, which recorded a growth of 2.12 per cent, the Q2 2020 growth rate indicates a drop of -8.22 per cent points and a fall of -7.97 per cent points when compared to the first quarter of 2020 (1.87 per cent).

Consequently, for the first half of 2020, real GDP declined by -2.18 per cent year on year, compared with 2.11 per cent recorded in the first half of 2019. Quarter on quarter, real GDP decreased by -5.04 per cent. Further, only 13 activities recorded positive real growth compared to 30 in the preceding quarter.
IN its reaction, the Lagos Chamber of Commerce and Industry (LCCI), expressed concerns about the state of the economy, noting that there was an urgent need for policymakers to reflate the economy, especially tackling the challenges of rising inflation and unemployment.

LCCI’s Director-General, Dr. Muda Yusuf, said: “We note that the fiscal and monetary authorities have implemented several policies to mitigate the adverse impact of the COVID-19 shock on the economy and business environment.

“Although there has been a gradual reopening of the economy, we note that business and commercial activities remain subdued, evidenced by July PMI readings, which shows business activities are still in the recessionary threshold.

“Given the protraction of the COVID-19 pandemic and the lack of vaccine, there is high possibility the economy would contract, though marginally, in the third quarter and this would mark the second recession under the watch of the current administration”.

To manage the effect of the recession, Yusuf advocated effective synchronisation of fiscal and monetary policies and proper implementation of the sustainability plan, among other measures.’’

On his part, a Professor of Economics, Olabisi Onabanjo University, Ago-Iwoye, Ogun State, Sheriffdeen Tella, said the contraction was expected, considering that the country was in complete lockdown with production nearly at zero level within the period.

Although he stated that the service sector recorded marginal rebound through online services, recovery was not sufficient to build up the GDP.

‘The contraction of the country’s GDP is as expected. The global COVID-19 stormed Africa, including Nigeria towards end of March 2020. The second quarter was from April to June 2020, when the country was in complete lockdown, particularly April and May 2020. Production in the formal sector was nearly at zero level.

“Though by end of May, the service sector started picking up through online services, it was not sufficient to build up the GDP,” he added.

He therefore argued for a planned and orderly government intervention devoid of bureaucracy in the production sector to propel significant rebound in the third quarter.

He also urged government to seek moratorium on current debt servicing and suspend further request for foreign loans to push for intervention in domestic production.

An economist, Johnson Chukwu said the contraction in nation’s GDP in Q2 2020 was most expected given the fact that the economy was virtually shut down.

INDEED, the telecoms sector, which has been very active throughout since lockdown, shows that more Nigerians utilise the services of service providers to the fullest. This has resulted in huge revenue both on voice and data.

For instance, data revenue for the two leading telecommunications operators in the country, MTN and Airtel, hit N123.8 billion between April and June this year.

According to the financial records of the companies released recently, the period, which also marked the peak of the COVID-19 pandemic in Nigeria, witnessed a surge in data usage by mobile subscribers.

The number of Internet subscribers for both MTN and Airtel as of June end stood at 60.6 million and 37.5 million respectively, according to data from the Nigerian Communications Commission (NCC).

Specifically, MTN Nigeria generated N79.9 billion from data subscriptions within the three-month period, which reflected a 40.9 per cent growth on its data revenue year-on-year. MTN’s data revenue for the same period in 2019 stood at N56.7 billion.

Airtel Nigeria also recorded a 39.7 per cent year-on-year growth in data revenue as it generated N43.9 billion ($122 million) for the quarter ended June 2020. The telco’s data revenue for the same period last year was N31.6 billion ($88 million), according to the financial record released by the company’s parent body, Airtel Africa.

While Airtel managed a marginal growth in voice revenue for the quarter under review, MTN’s record shows a decline in voice income, reflecting a shift in telecoms consumer usage of voice calls to data. Airtel’s voice revenue for the period stood at N70.9 billion ($197 million), a 6.9 per cent growth from N66.6 billion ($185 million) recorded in the same period last year.

Reacting to the development, the President of the Association of Telecommunications Companies of Nigeria (ATCON), Olusola Teniola, said though a welcome trajectory growth in ICT activities, it needs to be buttressed by the fact that COVID-19 stay-at-home-lockdowns contributed to the spike in demand in Q2 and this had already been priced into the numbers in terms of industry performance.

Teniola, an engineer, said the growth also came on the back of a positive Q1 set of results.

According to him, what makes this more revealing is the decline in real GDP growth on a contracted GDP absolute figure in Naira or Dollar, “so the fact that an increase in activity is sub-20 per cent demonstrates that the actual GDP contribution is tapered by the macroeconomic realities we face.”

Sustaining the growth, the ATCON boss noted that ICT growth will continue at best and may remain flat as the country approach Q4 due to reduced effect of government palliatives and increased pressure on consumer spending powers with rising unemployment numbers.