Oil-fueled recovery broadens; Risks remain

Nigeria’s economy grew by 0.83% in 2017 according to recently-released figures from the National Bureau of Statistics (NBS). That is certainly better than 2016’s recession of -1.54% but set against our average population growth rate of 2.8-3.0%, it is no surprise that Nigerians are getting poorer! Per capita income has declined for three straight years in Naira from N370,191.76 in 2014 to N343,874.36 by 2017; in dollar terms the diminished income of the average person is more stark-from $2,334.82 in 2014 to $$1,124.82 by 2017. It is good that the recession is over, but the goal must now be stronger growth that will take people out of poverty and restore jobs!
In Q4 2017, overall GDP growth reached 1.92% up from 1.4% in Q3 and 0.72% in Q2-the trajectory is clearly positive, a clear departure from the 2016 trajectory which at a point appeared to look like the country was descending rapidly into depression! Thankfully that danger has been averted but any sincere analyst will have to direct our gratitude towards global oil markets for lifting prices to around $65 per barrel and the militants in the Niger-Delta for not sabotaging oil production since 2017! The GDP data is unambiguous that our recovery is almost entirely due to the oil sector-in Q2 2017, when we exited recession, oil sector growth was 3.5% while the non-oil economy grew a puny 0.45%; in Q3 the non-oil economy went back into contraction with negative -0.76% growth, but the overall economy was lifted by oil sector growth of 25.89%; and in Q4 the oil sector grew by 8.38%, while non-oil expanded by 1.45%.
Indeed one is very relieved that the non-oil economy is now growing, even though still below 2.0% as oil sector effects diffuse through the economy through stability and convergence of FX rates; growing reserves; oil sector procurement; and the impact of government spending on sectors like construction. The other good news is that the slide in the growth rate of the critical agricultural sector has been halted and the growth rate improved in Q4. Contrary to the expectations of most people, the growth rate of agricultural production actually declined for four straight quarters from 4.5% to 3.01% before rising in Q4 to 4.23%. We hope the incessant conflicts spurred by the activities of herdsmen in central Nigeria may not have hampered the sector in Q1 2018!
On the positive side, finally the majority of sectors are now growing again in Q4 2017 and Nigeria’s recovery may now be said to be more real, even as it remains driven essentially by the oil sector. In Q4, agriculture, crude petroleum and natural gas, construction, transport, utilities, hotels and restaurants, professionals, administrative and support services, arts, entertainment and recreation were all growing at disparate rates of growth, some marginal, but growing all the same, unlike the poor state of sectors even as at the end of the third sectors. Some sectors continue to contract however including real estate, telecommunications, education, health, solid minerals and government!The growth in manufacturing in Q4 was very marginal at a mere 0.14%.
The general macroeconomic stabilization however continues with reserves reaching over $45billion; inflation declining to 15.13%; exchange rates holding stable; and capital markets active again. The PMI holds some warning with January and February declines on some components of manufacturing and non-manufacturing PMI, and we would have to wait to see if this is a seasonal blip or a substantive trend. Nigeria continues the absurdity of expending more than 30% of scarce foreign currency importing refined petroleum products, a self-imposed malaise as we insist on subsidizing domestic fuel consumption; and crude oil and gas as a percentage of our export revenue stays at 96% meaning beyond all the talk of diversification, current rhetoric does not match the outcomes!

In my opinion, an opportunity for substantive policy reforms may have been lost-we refused to deregulate the downstream oil sector; we have not made new investments in our upstream more attractive to investors; we have not made any privatisations since 2015; NNPC remains opaque and indeed is now worse with evidently poor governance and low transparency! A state-owned oil company which can award contracts worth billions of dollars without the knowledge of the minister of state for petroleum who is also chair of its board, and which can administer a petrol subsidy scheme that is not budgeted for is probably not an epitome of anti-corruption! We have not confirmed any significant private sector investments in infrastructure under the current government, even though there are perennial discussions; and real FDI (as opposed to portfolio investors trading listed equities and government securities) continues to decline! Recent NBS data shows that real FDI declined to $981.75million in 2017; from $1.044billion in 2016 and $1.45billion in 2015, which were already historical lows!
Given the reality of the underlying structure of this economic recovery, risks remain around global oil markets; security and political reconciliation in the Niger-Delta; policy; and of course the political transition. And risks of fiscal sustainability are also elevating, but that will be the focus of a subsequent article.

Opeyemi Agbaje