Although there is still much to be desired, the Nigerian economy has grown the fastest since the recession in 2016.
Nigeria’s Gross Domestic Product (GDP) expanded by 2.27 percent in 2019, higher than the 1.91 percent growth rate recorded in 2018, the Nigerian Bureau of Statistics (NBS) said on Monday.
In line with BusinessDay forecasts, economic growth strengthened in the final quarter of 2019 to 2.55 percent, printing at the strongest level since Q3 2015.
GDP is relevant because it provides an overview of how a country’s economy is faring. A rise in GDP may be an indication of improvements such as more people getting jobs and spending their wages or businesses investing more.
Developments in the oil sector have been a major determinant of the direction of economic activities in Africa’s largest economy which depends largely on the sector to rake in about 70 percent of its revenue and 85 percent of its foreign exchange earnings.
The GDP figures outperformed various predictions of sluggish growth. World Bank had estimated Nigeria’s economy to edge up to 2.0 percent, while IMF projected a 2.1 percent growth in 2019.
Nigeria’s fortunes are still closely linked to oil markets and growth could be threatened this year if oil prices continue to fall the way they have done in 2020 so far. Brent crude traded at $55.61 per barrel Monday following a surge in new coronavirus cases, highlighting the severe risk market volatility poses to oil-dependent economies like Nigeria.
What analysts say
The non-oil sector remained the major driver of growth in the fourth quarter of 2019, as it improved 2.1 percent in 2019, although this was a little change from 2.0 percent in 2018. Aside from the ICT and agriculture sectors, there was a broad-based underperformance in major sub-sectors.
“In our view, this suggests that the economic recovery would continue at a sluggish pace without the implementation of reforms and market-friendly policies,” said analysts at Afrinvest.
“Beyond cheap credit, there has been little progress towards boosting agriculture yields, helping farmers adapt to a changing climate and curbing insecurity. In manufacturing, the weakness in consumer purchasing power remains the major theme as growth slowed to 0.8 percent in 2019 from 2.1 percent in 2018,” the analysts said.
The financial services grew faster at 2.4 percent in 2019 from 1.4 percent in 2018.
“We suspect this was driven by the raft of policies rolled out by the CBN in H2:2019, particularly the 65.0 percent increase in loan-to-deposit ratio. We retain our growth forecast of 2.4 percent for 2020 as we do not expect significant improvements,” Afrinvest analysts said.
Omotola Abimbola, a macro and fixed income analyst at Chapel Hill Denham, said the GDP was a positive surprise as it was much higher than what the market expected but that’s because of the CBN’s policy, particularly on the LDR as seen in the massive growth in the financial services level due to the increased lending by the banks in the period.
“We saw a very strong pick-up in credit when banks where rushing to meet the LDR requirement and as a result of this, we saw a very strong growth in that sector that then had an impact on the aggregate GDP numbers,” Abimbola said.
However, Abimbola noted that the real economy was flat going by the agric and manufacturing sectors despite all the rhetoric on how the border closure would help the sectors.
“We are yet to see the positive impact of the border closure on both sectors. We need to attack the competitiveness of the economy in terms of infrastructure and ease of doing business environment. There’s need to focus more on structural reforms to drive growth,” Abimbola said.
Gbolahan Ologunro, a research analyst at Lagos-based CSL Stockbrokers, said the growth in the oil sector is quite impressive helped by stable or relative peace in the Niger Delta region and oil price that remained favourable supporting the performance of the sector.
“We still have the PIGB hanging in the air, and that is the bill that has the opportunity to open the economy to attract FDI. The non-oil sector growth was slightly better showing that the performance of the sector is still weak, a reflection of weak macroeconomic fundamentals in the broad economy,” Ologunro said.
“The current macro-economic structure does not support the growth prospect of the economy so we just need to implement those reforms that would remove those barriers that have affected the productivity of the non-oil sector,” he said.
2019: The year of economic improvement
Thanks to a combination of relative higher oil production of 2 million barrels daily and favourable average oil price of $57.05 in 2019, Nigeria’s oil sector grew by 4.59 percent compared to 0.97 percent last year.
Oil sector GDP grew by 6.36 percent in Q4 2019, compared to 6.49 percent recorded in Q3 2019 and 7.98 percentage points increase compared to -1.62 percent in Q4 2018.
In terms of contribution, the oil sector contributed 7.32 percentage to the total real GDP in Q4 2019, up from 7.06 percentage recorded in the corresponding quarter. Meanwhile, the sector’s contribution to GDP went down when compared to 9.77 percent recorded in the third quarter of 2019.
Also, oil production improved slightly due to relative stability in the Niger Delta region and that’s despite shortfalls across key pipelines in the sector and the force majeure on SPDC Bonny Light Export Terminal.
As a result, oil production volume averaged 2.01 mbpd in 2019, 1.93 million barrels daily in 2018, from 1.88 mbpd in 2017.
The agricultural sector grew by 2.36 percent annually in 2019 compared to 2.12 percent in 2018 with crop production remaining the major driver of the sector.
Human capital indicators such as education, health and five other sub-sectors such as coal mining, motion pictures, non-metallic products, motor and vehicles assembly, other manufacturing all exited recession.
For full-year 2019, the education sector grew by 0.80 percent from -0.03 percent in 2018 and -0.72 percent in 2017. Health and social services grew by 0.31 percent in 2019 from -0.32 percent, -0.31 percent and -1.79 in 2018, 2017 and 2016, respectively.
Education sector had been in recession since 2017, while the health and social services sector was in recession since 2016.
Manufacturing sector grew by just 0.77 percent in full-year 2019, sliding from 2.09 percent in 2018, though some improvement from an -0.21 percent contraction in 2017.
For full-year, manufacturing real contribution was 9.06 percent in 2019 as against 9.20 percent contributed in 2018, the NBS said.
The non-oil sector grew by 2.06 percent in real terms in 2019 compared to 2.00 percent in the previous year which was driven mainly by Information and Communication (telecommunications), agriculture (crop production), financial and insurance services (financial institutions), and manufacturing.
In real terms, higher crop production, telecoms, and trade helped non-oil sector in contributing 91.22 percent in 2019 compared to 91.44 percent in 2018.
Crop production, trade and telecommunications contributed 22.67 percent, 16 percent and 10.30 percent in 2019.
MICHAEL ANI, DIPO OLADEHINDE & BUNMI BAILEY
