Surprise! Economy gains highest quarterly growth since 2015
• Buhari lauds GDP’s 5.01% growth in Q2,2021 • Economists dismiss figures as reflection of last year’s deep dive • Growth needs to be sustained before 2023 election slows economy down, says Rewane • Impact on citizens’ welfare matters most, Yusuf insists • ‘Transport growth is first sign of recovering economy’ • Expert see more potential in telecom, calls for better policies • Harry replaces Kale as head of NBS, Statistician-General
Rising from the miserly performance of last year, Nigeria’s economy posted a 5.01 per cent year-on-year growth in the second quarter of 2021, the highest since 2015 when President Muhammadu Buhari came to power.
But economists are quick to draw a link between the growth and complete shutdown of the economy during a comparative period last year when most sectors were grounded. They, thus, attribute the figure to outcome of the deep dive base effect.
The President has hailed Thursday’s Q2,2021 report by the Nigerian Bureau of Statistics (NBS), showing a third consecutive quarter of positive growth of Nigeria’s economy, as well as the highest quarterly growth in the Gross Domestic Product (GDP) since 2014. The GDP grew by 5.01 per cent following 0.51 per cent growth in Q1,2021.
According to a statement by the Special Adviser to the President on Media and Publicity, Femi Adesina, “the growth, which continues the progress of the preceding two quarters, is a continuing trend reflecting Nigeria’s economic rebound following the COVID-19-induced contractions seen in Q1 and Q2 of 2020.”
The non-oil sector is a significant contributor to the economic performance in Q2,2021 with growth of 6.74 per cent in real terms. The contribution of the non-oil sector to GDP increased from 91.07 per cent in Q2,2020 to 92.58 per cent in Q2,2021.
The President commended managers of the economy for hard work and commitment, urging them to keep at it till the positive development “touches the lives and pockets of the average Nigerian.”
The main drivers of the Q2,2021 economic growth include Trade, Information and Communication (mainly Telecommunications), Transportation, Electricity, Agriculture (Crop Production) and Manufacturing. The service sector, specifically, recorded its strongest performance in more than a decade, growing at 9.27 per cent.
“These main growth drivers of this second quarter performance are reflective of the gains from easing restriction of movement locally and internationally, and the improvement in the business and economic environment compared to the same period in 2020,” he said.
The President noted the decline in real growth in the oil sector in Q2,2021, compared to a year ago. Oil production levels were at 1.62 million barrels per day, compared to 1.67 million barrels per day in Q2,2020. “The lower production output as well as the volatility in oil prices since the beginning of the COVID-19 pandemic, is responsible for the decline in performance of the oil sector.”
Looking to the future, the President assured Nigerians that there is much to be optimistic about. He said that investments in agriculture and infrastructure would continue, as will ongoing efforts to achieve a significant improvement in the security situation across the country.
In Q2,2020, the economy slid by -6.1 per cent, setting the pace for a recession. The economy dipped further the subsequent quarter (by -3.62 per cent), confirming the country’s slump into one of the worst recessions.
In Q4,2020, the country scampered out of recession but posted a yearly negative growth of -1.92 per cent. The post-recession growth has been nibble, with the first quarter growing at Q4,2020 and Q1,2021 recording 0.11 and 0.51 per cent growth respectively.
Two days ago, analysts at Lagos-based Financial Derivatives Company Limited, led by Mr Bismarck Rewane, had predicted that the Nigerian economy was expected to grow by 2.6 per cent in the second quarter of this year. Rewane said expansion of the GDP growth data coupled with falling inflation could lead to the Monetary Policy Committee (MPC) leaving its interest rates unchanged at its September meeting.
They said with less than 570 days to the 2023 elections, an assessment of the Federal Government’s scorecard, with respect to achieving its broad macroeconomic goals, revealed “under-performance amid half-hearted and belated efforts at economic reform.
“While reforms have not been helped by the COVID-induced disruption and delays in implementation, fears are rife that the government may be switching gears firmly into campaign mode as the elections draw ever closer.
Citing data from the United Nations, FDC said Nigeria was the poverty capital of the world as of 2019 (40.1 per cent) with the fourth lowest life expectancy globally (2019: 53.8 years).
The analysts said: “The short-term outlook for the Nigerian economy is benign on most fronts. Output will benefit from the base effects of the slump in 2020, increased vaccinations and higher oil prices and production.
“Headline inflation is likely to decline further in Q3’21 as we enter the harvest season, while the external imbalance problem is expected to ease on higher oil receipts and increased remittances as advanced economies recover. This will also ensure forex supply to manufacturers and other importers.
“For Nigeria to bridge the recessionary gap and attain a long-term GDP growth trajectory that is both sustainable and job-creating, the timing and pace of economic reform are crucial and cannot be politicised. The subsidies in the economy have to be tackled. The most notable are the ones on forex, fertilisers, petrol, electricity and the money market.
“While the move to market-determined rates has been somewhat reluctant and has been met with resistance, it is necessary for the creation of economic incentives and investor confidence. Only this has the capacity to propel Nigeria to an accelerated GDP growth path.”
While some Nigerian economists have been bullish on the country’s prospect, leading research agencies, including the International Monetary Fund (IMF), expressed cautious optimism.
The Fund had put the country’s growth estimate at 2.5 per cent, which is a far cry from the six per cent global average projection. But Director-General of the Institute of Fiscal Studies, Godwin Ighedosa, dismissed the growth, saying it is coming from the low figure recorded last year and that it adds no value to the wellbeing of the people.
He said: “We are not seeing the positive figures that do not affect the lives of the people. Food prices are going up, which is the major concern of the average family. The prices are going up because there is a shortage of supply.”
He explained that GDP will impact positively on the people if there are improvements in manufacturing, agricultural production adding: “Unfortunately these two sectors, which would have also engaged the people in terms of employment, are currently shrinking following the severe insecurity across Nigeria.
“Manufacturing and agriculture activities have slowed down; this is why we are experiencing high prices today. This is what is driving inflation. So, for that reason, we have massive unemployment in our hands.”
Ighedosa said there is the tendency for the economy to start heating up; hence, the Central Bank of Nigeria (CBN) must monitor the response of key prices, including interest rates.
On the contrary, Vice Chairman of Highcap Securities Limited, David Adonri, said the GDP growth was a quantum leap when compared to the contraction of -6.1 per cent in Q2 2020 and 0.51 per cent in Q1 2021. He described the growth as flattering, noting that the performance is not reflective of the supply side of the economy, considering the current high inflation rate.
“The figure may have been magnified by the base effect of -6.1 per cent last year. For us to know how far the economy has moved, the absolute figure in naira for Q2,2021 needs to be compared to the figure at the beginning of 2021,” he said.
Adonri, however, said real growth was possible considering that the economy has continued to recover from the COVID-19 disruption and border reopening.The Director, Centre for Economic, Policy and Research of the University of Lagos, Professor Ndubuisi Nwokeoma, described the growth as phenomenal given the increasing level of insecurity, kidnapping, unemployment and other macroeconomic challenges.
He bemoaned the prevailing insecurity in the country, urging the government to evolve new strategies to address the trend. He said insecurity was a disincentive to investment and productivity, saying the economy could only record meaningful growth if the challenge is addressed.
In his analysis, an economist and private sector advocate, Dr. Muda Yusuf, said many sectors that posted “impressive growth numbers do not contribute significantly to the GDP,” a situation he said called for the need to reset the economy.
“The GDP numbers suggest the need to reset, rejig and reform key sectors of the economy. We need to fix issues around the regulatory environment, tax environment, the multitude of levies imposed on businesses by all levels of government, foreign exchange policies, port environment and other structural bottlenecks to productivity in the economy.
“There are still worries about the macroeconomic challenges reflecting spiraling inflation, weakening of the currency, forex market illiquidity, spiking debt profile among others. Insecurity remains a major source of risk inhibiting investments, whether domestic or foreign. It is good to celebrate the GDP growth numbers but this should be done cautiously,” he advised.
Yusuf said the impact of the GDP growth on citizens’ welfare and the productivity in the investment environment is crucial for assessing the performance of the economy. “These are the metrics that matter most, ultimately. The GDP figures are not ends in themselves; they are means to an end,” he noted.
Notwithstanding, Prof. Samuel Odewumi of the School of Transport, Lagos State University (LASU) has said the figures are a reflection of a recovering economy. He said the variables speak of vibrant trade and transport sectors, suggesting that activities that were “dead last year are coming back to life.
“When an economy is taking-off, especially after a decline, transportation usually becomes a major propeller. This is also consequent upon the COVID-19 lockdown. Whenever there is a lockdown, the first hit is transportation, at least, in the short term.
“That we had a 5.01 per cent increase does not mean the economy has recovered. We are out of recession, we should be on our road to recovering. But if agriculture falters and telecommunications performs less, they could create another problem for the country,” he said.
Responding to the growth in the ICT sector, which NBS put at 5.5 per cent, the Minister of Communications and Digital Economy, Dr. Isa Pantami, attributed the rising contribution of the ICT to the commitment of the current administration to the development of the digital economy.
In a statement signed by the Minister’s Technical Assistant (Information Technology), Dr. Femi Adeluyi, Pantami said the 16 national policies developed by the ministry, 1,667 projects and programmes, the large scale digital skills and general capacity-building efforts, stakeholder engagement and creation of an enabling environment have all played an important role in this achievement. Speaking to the report, the Chairman, Mobile Software Solution, Chris Uwaje, said the sector could do more with better policies.
The Nigerian Coordinator, Alliance for Affordable Internet, (A4AI), Olusola Teniola, said the data match and meet the expectations due to the flattening of the revenue curve post the SIM regulation policy and the cumulative effect forecasted to shape itself in Q3 due to the ripple effect.
MEANWHILE, President Buhari has approved the appointment of Simon Harry to replace Yemi Kale as the new Statistician-General of the Federation and head the NBS. Special Adviser, Media and Communication, to the Minister of Finance, Budget and National Planning, Yunusa Tanko Abdullahi, stated this in a statement yesterday. Kale, who has managed the affairs of the NBS in the past decade, ended his second tenure of five years on August 16, 2021.