Nigeria’s underperforming economy
Nigeria’s economy grew by a measly 1.5% in the second quarter of 2018, ending June. It was the second quarterly decline in output growth-from 2.11% in Q4 2017 to 1.95% in the first quarter of 2018; and down to 1.5% in the second. The fact that oil prices averaged $75 per barrel in that quarter yet growth remained so weak, confirms that the problem with the Nigerian economy is not oil prices but poor economic policy and management. Since our Buharian recession ended in Q2 2017, growth is yet to recover averaging merely 1.49% in the last five (5) quarters while population growth is around 2.8-3.0%, a sure recipe for increasing poverty, under-development and misery!
It is now a notorious fact that Nigeria’s exit from recession had little or nothing to do with the quality of economic policy or management but was simply a result of higher oil prices and production-in Q2 2017 when we exited recession, oil output surged from a decline of -15.6% to a growth of 3.53%, a percentage swing of 19.13%, while the non-oil sector grew marginally by only 0.45%; in Q3 2017 oil output grew by 23.03% while the non-oil economy contracted by -0.76!!! It was not so different in Q4 2017 and Q1 2018-oil output grew by 11.2% and 14.77% respectively, while non-oil output managed only 1.45% and 0.76% growth respectively in the two quarters. The data until Q1 2018 was unambiguous that our exit from recession was driven solely or at least almost entirely by higher oil prices and production.
A more curious development however emerged in Q2 2018-growth of oil output went negative again (-3.95%) while the only reason Nigeria did not return to recession was because mercifully, non-oil output growth increased to 2.05%. If you combine the negative total GDP growth trend (i.e. declining GDP growth rates for two consecutive quarters in spite of growth remaining positive) with the fact of negative oil sector growth (in spite of recovering oil prices) then the conclusion that Nigeria’s risk of a second recession is significantly high, is inescapable!
Official data suggests that oil production declined from 2 million barrels per day (bpd) in Q1 2018 to 1.84 million bpd by the second quarter; and we know production declines could not have been due to sabotage of oil production as the Niger-Delta has been quiet, which raises the question, “is Nigeria having problems selling its oil?”
The performance of sectors has also been discouraging-of the nineteen (19) major sectors we reviewed, only six (6) performed better in Q2 2018 than in Q1. These six were construction (-0.54% to 7.6%), transport (14.4% to 21.76%), information and communication (1.58% to 11.81%), Utilities (8.01% to 8.91%), accommodation and food services (0.25% to 2.43%) and arts, entertainment and recreation (0.30% to 3.48%). On the other hand, agricultural growth rate declined from 3% to 1.19%; crude petroleum and natural gas declined from 14.77% to -3.95%; solid minerals sector growth declined from 26.29% 2.86%; manufacturing declined from 3.39% to 0.68%; finance and insurance worsened from 13.30% to 1.28%; and other sectors including administrative and support services, public administration (government), education and health also recorded declining/poor growth trends.
Beyond the short term, long term sector trends are mostly weak or deteriorating-the average growth rate in agriculture, solid minerals, accommodation and food service, finance and insurance, administration and support services, public administration, education, health, arts/entertainment/recreation and other services have faired badly since 2014! Within manufacturing, virtually all sub-sectors are performing woefully including oil refining, cement, food/beverage/ tobacco,textile/apparel/footwear, wood and wood products, pulp/paper/paper products, chemical and pharmaceutical products, non-metallic products, plastic and rubber, electrical and electronics, basic metal/iron/steel and motor vehicles and assembly.
There are some positive economic data to be sure, especially in relation to levels of inflation (declining) and foreign reserves (rising until recently) but not sufficient to impact employment, consumer purchasing power and overall quality of living of most Nigerians. Moreover capital markets, GDP per capita, unemployment, poverty and literacy data all heavily offset any positives from declining inflation and rising reserves. I’ve recently reviewed the projections upon which the Brookings Institution based it’s prognosis that Nigeria is heading towards being the poverty capital of the world – as India is projected to steadily reduce its population of people living in poverty, Nigeria and Democratic Republic of Congo continue to see their poverty headcount rising with Nigeria’s poor people overtaking India’s around 2017 and reaching over 100million people in short course. It’s a tragedy of unimaginable proportions in the making!
As I was writing this, I saw Businessday’s editorial of Monday October 22, 2018 titled, “Can Nigeria avert a fiscal crisis?” the precise point I was going to end this article on! My short answer to the newspaper’s question is simply, “No! At least, not under Buhari’s economic management!”-revenues are performing at about half of government’s projections; budgeted expenditures are consequently not realised; government’s fiscal deficits are large, growing and increasingly unfunded; government is massively crowding out the private sector from banks’ borrowings; the country’s total debts has reached N22trillion ($71billion) growing by $4.4billion in 2017 alone (!) and debt servicing now consumes 75% of actual revenues, higher than capital expenditures; and government is seeking to borrow $6billion more from China! It would all be funny if it wasn’t so tragic! The next time oil prices dip, Nigeria would be essentially bankrupt!
Opeyemi Agbaje