Nigeria exits recession amid very weak growth
• Economy still troubled, in recession, say LCCI, Tella
• ‘Nigeria’s riotous cattle-herding system stealing growth potential’
• Experts warn against undue optimism
Defying projections and leveraging opportunities presented by the coronavirus pandemic through technology and remote work, Nigeria’s resilient private sector helped the economy to exit recession in the fourth quarter with a growth of 0.11 per cent.
However, there are concerns about the country’s structural problems in the form of foreign exchange pressures, relatively lower oil prices and production, subdued global demand, spiralling consumer prices, repressed purchasing power, heightened unemployment levels, weak investor confidence, worsened insecurity and social tensions.
The country’s Gross Domestic Product (GDP) grew 0.11 per cent in the three months through December from a year earlier, compared with a decline of 3.6 per cent in the third quarter, according to data from the National Bureau of Statistics (NBS) yesterday.
Though weak, Nigeria’s exit from recession was driven by the non-oil sector, especially the Information and Communication (Telecommunications & Broadcasting). Other drivers were agriculture (crop production), real estate, manufacturing (food, beverage & tobacco), mining and quarrying (quarrying and other minerals), and construction.
On the contrary, average daily oil production of 1.56 million barrels per day (mbpd) was recorded in the fourth quarter, lower than the daily average production of 2.00mbpd recorded in the same quarter of 2019 by -0.44mbpd and the third quarter of 2020 by – 0.11mbpd.
Members of the Organised Private Sector (OPS), including the Lagos Chamber of Commerce and Industry (LCCI), said that output contraction recorded in year 2020 further highlighted the country’s weak macroeconomic fundamentals and the persistent structural, policy and regulatory issues in the economy.
“Apart from declining growth, the economy is currently confronted with several challenges, including rising consumer prices (inflation now at 45-month high of 16.47 per cent in January 2021), weak employment level, persisting liquidity concerns in the foreign exchange market, high poverty incidence, weak investor confidence and insecurity, among others.
“These challenges, which had been part of the country’s economic narrative prior to the pandemic, were amplified by the COVID-19 induced disruptions.
“We, however, recommend clarity in government’s policy direction is critical in deepening investor confidence. Mobilising efforts in making the business environment more conducive for MSMEs and large corporates by addressing structural bottlenecks and regulatory constraints contributing to high cost of doing business,” the Director General of LCCI, Dr Muda Yusuf said.
On his part, the Director-General of Manufacturers Association of Nigeria (MAN), Segun Ajayi-Kadir, noted that growth in the fourth quarter of 2020 is a welcome departure from the negative growths witnessed in the past quarters.
“The momentum should be sustained and improved upon to finally and convincingly get us out of recession. Apart from the COVID-19 and the fall in price of oil in the international market, which were fingered to be mainly responsible for our slide into recession; insecurity, deteriorating infrastructures and inadequate policy support have militated against efforts to take the economy out of recession,” he said.
In real terms, the non-oil sector contributed 94.13 per cent to the nation’s GDP in the fourth quarter of 2020, higher than the share recorded in the fourth quarter of 2019 (92.68 per cent) and the third quarter of 2020 (91.27 per cent). For 2020, the non-oil sector contributed 91.84 per cent to real GDP, higher than 91.22 per cent recorded in 2019.
While the Q4 2020 growth rate was lower than growth rate recorded the previous year by -2.44 per cent points, it was higher by 3.74 per cent points compared to Q3 2020. On a quarter on quarter basis, real GDP growth was 9.68 per cent indicating a second positive consecutive quarter on quarter real growth rate in 2020 after two negative quarters .
Overall, in 2020, the yearly growth of real GDP was estimated at -1.92 per cent, a decline of -4.20 per cent points when compared to the 2.27 per cent recorded in 2019.
REACTIONS, yesterday, trailed the performance of the ICT/Telecoms sector in contributing positively to the GDP growth.
Speaking with The Guardian, the National Coordinator, Alliance for Affordable Internet (A4AI), Olusola Teniola, said Working From Home (WFH) and COVID-19 social distancing reduced physical travel and face-to-face meetings during most of 2020.
Teniola said this created an uptake in data demand and reliance on online learning and meeting tools for access from home and remote connections.
He said it is likely that a further increase in GDP contribution by telecoms will occur in Q1 as digital transformation and adoption of the new norm in terms of hybrid schooling and work arrangements.
According to him, the reality is that the drive to diversify our economy on the back of the National Digital Economy ad Strategy will create further growth opportunities across all sectors that rely on and depend on the telecoms sector as an enabling digital platform.
“More investments in digital infrastructure will translate into further contributions and growth to GDP,” he stated. Executive Secretary, Association of Telecommunications Companies of Nigeria (ATCON), Ajibola Olude, noted that GDP is a composition of consumption, investment and governance.
Olude said the growth would have been greater than what was reported because consumers, investors and governments were disrupted by the emergency of COVID-19 pandemic.
He stressed that the ICT/Telecoms sector would hold greater potential for the economy in 2021 if governments at all levels could focus more on the industry.
Chairman, Mobile Software Solution, Chris Uwaje, said it is instructive to ascertain if the value of Diaspora Remittance was a factor of the growth, since global economy is shrinking at a fast rate.
According to him, “although the economic side of ICT is up and beneficial, this trade benefits accrue to ICT, manufacturers and solutions providers and not ICT consumer nations. Nevertheless, Nigeria ICT infrastructure, network solutions providers and related ecosystem players must be commended for their ability to withstand the tough challenges of COVID-19.”
Uwaje noted that, world merchandise trade volume was forecast to fall 9.2 per cent in 2020, adding: “the projected decline is less than the 12.9 per cent drop foreseen in the optimistic scenario from the April trade forecast. Trade volume growth should rebound to 7.2 per cent in 2021 but will remain well below the pre-crisis trend.
“Many ICT SMEs have gone under with erased employment. Indeed, only the mega ICT companies have tried to survive. Unfortunately, we don’t have those types of mega ICT entities out here. The global business was indeed held together by the business side of COVID-19 and investment in PCR tests and Vaccines.”
A banker and economist, Dr. Rislanudeen Mohammed cautioned against ecstatic celebration over Nigeria exiting recession, noting that the growth was a very slim one and below the average population growth rate.
Mohammed, who is also the former Acting Managing Director of Unity Bank of Nigeria, however described the development as healthy, pointing out that it would give policy makers the energy to do more.
“Therefore, the authorities need to do more in terms of policies, that affect ordinary Nigerians, like in the provision of COVID-19 intervention and ramp up policies towards supporting growth. The CBN, in particular, should, for now, focus more on pro-growth policies and dither on inflation and price control; those ones would organically take care of themselves once we get the growth perspectives well,” Mohammed further advised.
Former Director General of the Nigerian Institute of Social and Economic Research (NISER), Prof. Olu Ajakaiye, described the Q4 GDP growth of 0.11 per cent as very fragile.
He, however, said the growth in agriculture and manufacturing sectors had had some positive impacts on ordinary Nigerians through food supply and restoration of jobs, which enhanced household incomes for many.
He called on the authorities to quickly tame the riotous cattle-herding system, which was affecting other productive chains in the agric sector so as to ramp up growth in the first quarter to stave the economy from slipping back into recession.
Sheriffdeen Tella, Professor of Economics, Olabisi Onabanjo University, Ago-Iwoye, Ogun State stated that Nigeria was still in recession. He said that a country’s entry or exit into or out of recession is not measured by the performance of one variable.
He said: “In fact, the recovery in the GDP was not noticeable in the economy. Up till now, inflation is still high and rising, unemployment still high and exchange rate remains unstable and highly depreciated.
“The NBS should know all these and report accordingly, so that policy makers will know they have much to do to bring the economy out of the recession. Professionalism should not be sacrificed for politics. Nigeria is still currently in recession but recent increase in price of crude oil may reduce the stress if the improved finance is well managed.”
Vice President of Highcap Securities, David Adonri described the recovery as dramatic, considering that from minus six per cent in Q2, within six months, GDP has bounced to plus 0.11 per cent.
“It is a pleasant surprise that Nigeria has exited recession. Although the 0.11 per cent GDP growth recorded in Q4, 2020 is quite insignificant, it is a great relief. It took Nigeria over one year to recover from 2016 recession when GDP fell to minus 1.73 per cent.
“There might be serious questions about this quick turnaround, considering that, unlike in the past, the agricultural and manufacturing economies were seriously in limbo during Q4, 2020 due to intensified farm insecurity and shortage of forex respectively.
“Escalated costs of production due to increase in prices of fuel and electricity were downside factors in disfavor of growth. It may be premature to jump into conclusions until the breakdown of sectoral contributions are carefully analyzed. In the meantime, let us bask in the euphoria of this development, which resembles a fairy tale.”
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