After five consecutive quarterly contractions, Nigeria’s second biggest sector by output contribution, trade, may be heading towards economic depression as major headwinds stifling the sector’s growth show no signs of abating any time soon.
According to the recent National Bureau of Statistics (NBS) Q2 2020 GDP report, activities in the trade sector declined steeply by -16.59 percent in the three months through June 2020, as the combined impact of the global pandemic and associated containment measures, coupled with lingering foreign exchange crisis, hit the sector hard.
With consumers’ purchasing power getting weaker in the light of rising domestic prices and the Federal Government stuck with its decision of shutting land borders, analysts expect trade to record negative growth in subsequent quarters over the medium term.
“The sector will contract in the third quarter because people that are into trading activities are finding it difficult to access dollars,” Ayodeji Ebo, managing director at Lagos-based Afrinvest Securities Limited, says, noting, “We have five negative growth and we need three more. So, it is not impossible for the sector to slip into depression.”
Economists define depression as an extreme recession that lasts for at least three years. Since 12 quarters make three years, growth rate needs to be in the negative region in the next seven quarters, starting from the Q3-2020, before trade can be officially declared to be in depression.
This is imminent, especially with the continued closure of the Nigeria-Benin Republic border in almost four quarters now.
Ibrahim Tajudeen, head of research at Chapel Hill Denham, who agrees that the sector could plunge into depression, notes the absence of real growth catalysts capable of lifting the sector into positive growth territory.
Trade sector, which comprises wholesale and retail, has been in and out of negative growth territory since 2016, but at a marginal level over myriad challenges ranging from unpredictable government policies to weak consumer demand.
“The negative growth trend will most likely be sustained in coming quarters,” states Damilola Adewale, a Lagos-based economic analyst, who identifies weak consumer demand, rising inflation, port inefficiencies, foreign exchange uncertainties and border closure as the major challenges confronting the sector.
The trade sector, which contributes roughly 15-16 percent to the GDP, has been touted by economists as an important tool in the quest for development. It also contributes 16.9 percent to total employment, Financial Derivatives Company notes in its latest monthly report.
Ayorinde Akinloye, a consumer analyst at CSL Stockbrokers, says FX still remains a critical growth driver of the sector and typically it takes the country 12-18 months to resolve the FX issues, which is largely dependent on oil prices. “So, if we don’t see deliberate efforts solving the issues from the Apapa Port, FX and borders, it is really going to enter a depression and trade accounts for a major part of employment,” Akinloye further notes.
Nigeria has been battling substantial increases in unemployment, high inflation, poverty, among others, which are some of the economic factors that characterise a depression.
The NBS headline inflation, which serves as a measure of consumer prices, rose at a faster pace for 11 consecutive months, reaching a 27-month high of 12.8 percent in July, while Nigeria’s unemployment rate came to 27 percent in Q2 of 2020, as more and more were rendered jobless from the impact of the covid-19 pandemic.
To have the narrative re-written, analysts recommend the reopening of the land borders, this would help moderate pressure on food prices and give consumer demand a marginal boost. They say it is critical to digitise cargo-clearing operations while ensuring friendly-policies are implemented to foster the ease of doing business, particularly among SMEs.
