As GDP Declines, Analysts Call for Policies to Stimulate Growth

• FG encouraged by non-oil sector growth, says Udoma

Iyobosa Uwugiaren and James Emejo in Abuja

Following the Gross Domestic Product (GDP) figures released Monday, which showed that Nigeria’s growth rate slowed to 1.50 per cent (year-on-year) in the second quarter of the year (Q2, 2018) compared to the 1.95 per cent rate recorded in the preceding quarter, some economists and financial market operators have stressed the need for policies that will stimulate economic recovery.
The GDP figures were released by the National Bureau of Statistics (NBS).

This is just as the Minister of Budget and National Planning, Senator Udoma Udo Udoma, said that the federal government was encouraged by the continuing growth recorded in the non-oil sector.
According to the latest GDP figures, while real GDP stood at N16.58 trillion, nominal GDP was estimated at N30.69 trillion in the period under review.
The non-oil sector grew by 2.05 per cent in real terms during the period under review.
This represented 1.60 per cent points increase compared to the rate recorded for the same quarter in 2017, and 1.29 per cent points over the first quarter of 2018.

The non-oil sector was mainly driven by information and communication services.
Other notable drivers included construction, agriculture, transportation and storage and other services.
In real terms, the non-oil sector contributed 91.45 per cent to the nation’s GDP, compared to 90.96 per cent recorded in Q2 2017 and 90.39 per cent recorded in the preceding quarter.
On a quarter-on-quarter basis, real GDP growth rate however stood at 2.94 per cent.
Though, the rate of growth in Q2 was 0.79 percentage points higher than the 0.72 percentage points recorded in Q2, 2017, it was nonetheless -0.45 percentage points slower than the Q1, 2018 estimates.

Aggregate GDP in the period under review stood at N30.69 trillion in nominal terms — representing an increase of 7.85 per cent when compared to N28.46 trillion increase in the first quarter (Q1,2018) and N27.03 trillion or 13.57 per cent increase in Q2, 2017.
According to the NBS, growth in Q2 was buoyed by the strongest positive growth in the non-oil sector since 2016, adding however that the relatively slower growth when compared to Q1 2018 and Q2 2017 was largely due to developments in both the oil and non-oil sectors.
Notably, in the oil sector, average daily production slowed to 1.84 million barrels per day (mbpd) in Q2 compared to 2.0 mbpd in Q1 as well as lower than the 1.87 mbpd in Q2, 2017.

The statistical agency further put the real growth in the oil sector within the review period stood at -3.95 per cent, indicating a decrease in growth by -18.72 percentage points when compared to Q1- as well as -7.48 percentage points decrease when compared to Q2, 2017.
However, quarter-on-quarter, the oil sector recorded a growth rate of -8.34 per cent in Q2 and contributed 8.55 per cent to total real GDP- although these figures were lower than the 9.61 per cent share in the previous quarter as well as 9.04 per cent in the corresponding quarter of 2017.
The NBS stated: “The developments in the oil sector occurred at the same time as crude price (Brent) has maintained steady rise from $65.32 per barrel in January, reaching $76.98 in May, before falling slightly to $74.4 per barrel in June.”
Also, industries and services contributed 23.18 per cent and 53.97 per cent to real GDP.
The Mining and Quarrying sector contributed 12.32 per cent to real GDP while manufacturing contributed 9.29 per cent.
Electricity, Gas, Steam and Air-conditioning Supply also contributed 0.47 per cent to GDP growth in Q2.

Analysts React

Speaking on the GDP figures, the Chief Executive Officer, Financial Derivatives Company Limited, Mr. Bismarck Rewane, said the numbers were not good at all.
He said: “It just shows that there is a time lag between when you take a decision and when you feel the impact. So, it’s time to do some work on interest rate, on policy incentives and others. The good news is that the oil sector got us up and oil has taken us down, so we need to focus on the oil production numbers.

“We need to focus on agriculture as the herdsmen clashes is taking its toll on the economy.”
On his part, a former Managing Director of Unity Bank Plc, Dr. Mohammed Rislanudeen, said the country’s slow growth after its exit from recession was largely due to the fact the federal government’s diversification programme was yet to be actualised.
He told THISDAY: “Our exit from recession and beginning of growth trajectory from mid-2017 was largely driven by oil sector recovery, hence slow, epileptic growth. After the exit from recession, the economic trajectory has been showing positive signs albeit shaky growth rate. The fourth quarter 2017 GDP growth rate was 2.11 per cent, while we had a contraction to 1.95 per cent in the first quarter of 2018, down to 1.5 per cent in second quarter of 2018.

“While inflation is going down, foreign reserves growth is also shaking due in part to pre-election slowdown in foreign portfolio investment. Our diversification efforts as encapsulated in the economic recovery and growth plan is yet to be actualised while we remain susceptible to vagaries of oil price/ output shocks just as unemployment rate at 18.8 per cent is yet to be subdued.
“The decline in the oil sector growth was partly due to lower oil production levels with output averaging in 1.84 million barrels per day in second quarter of 2018 against two million barrels per day in first quarter of 2018.”
According to the former bank chief, “Improved GDP growth in third and fourth quarters of 2018 will depend on increased government spending especially the capital aspect of the 2018 budget.

“Election spending will also be a determinant for improved growth in the non-oil sector especially trade and manufacturing sectors.
“Government need to also initiate incentive measures to support food production and food security, given the farmers/ herdsmen disruptions in the core food producing areas of the north and hence reduce the food inflationary risk.
“At the risk of being pessimistic, policies like the recent Central Bank of Nigeria initiated real sector support facility, leveraging on banks’ cash reserve requirements might not achieve the strategic objective of stimulating growth and improved GDP, due in large part, to low risk appetite to lending to that sector by the banks.”

FG Foresees Bright Prospects

But Minister of Budget and National Planning, Udoma, in a statement by his media adviser, Mr. James Akpandem, said it was evident that the implementation of the targeted policies and programmes of the Economic Recovery and Growth Plan (ERGP) were yielding positive results.
The minister said he was happy to see that the Nigerian economy had continued to register positive growth in the first and second quarters of the year in spite of the security and other challenges faced by the country.
He emphasised that the focus of the ERGP is on diversifying the economy away from dependence on the oil and gas sector and was encouraged that efforts are yielding fruits by the continuing growth in the non-oil sector.
The minister noted that this 2.05 per cent growth in the non-oil sector represents the strongest growth in the non-oil GDP since the fourth quarter of 2015.

However, the minister decried the fact that there was a slight drop in real GDP growth rate for the second quarter principally as a result of the contraction in the oil sector.
“The oil and gas sector contracted by -3.95 per cent in the second quarter of 2018 compared to a growth rate of 14.77 per cent recorded in the first quarter of 2018 and 3.53 per cent in the corresponding period in 2017,” Udoma stated.
However, the minister noted that the contraction in the crude oil and gas sectors was attributable to some production issues which are being addressed by the Nigerian National Petroleum Corporation (NNPC).

The minister added: “For instance, average crude oil production was only 1.84 million barrels a day in Q2 2018 as opposed to an average production of two million barrels a day in Q1 2018.”
He was optimistic that once these issues are addressed, the nation should be able to, once more, achieve positive growth in the oil and gas sector, emphasising that the Nigerian economy needs growth from both the oil, as well as the non-oil sectors, to achieve its ERGP growth targets.

“Another area of concern for government was the slightly weaker growth in the agriculture sector which slowed to 1.19 per cent in the second quarter in 2018 compared to three per cent in the first quarter of 2018.This is partly attributable to security challenges mainly in the North-east and North-central zones,” he explained.
He further stated that the security challenge affected activities of farmers with the resultant impact on commodity output, indicating that the various measures being taken by government to tackle the situation is already reducing incidents of violent conflicts and other disruptions to farming activity.

The minister said he expected to see a rebound in growth in the agriculture sector in subsequent quarters, adding that he was also pleased to see that industry has continued to maintain a positive growth rate as a result of the performance of manufacturing and solid minerals which retained positive growth of 0.68 per cent and 5.24 per cent respectively in the second quarter of 2018.
“The total value of capital importation into Nigeria stood at $ 5.5 billion in the second quarter of 2018, representing a 207.62 per cent increase compared to the second quarter of 2017,” he said.

While capital importation declined slightly in the second quarter of 2018, the total for the first half of 2018 at $11.8 billion represented the highest half year capital importation since 2014, indicating increasing confidence in the Nigerian economy, he pointed out.
He was optimistic that as the federal government intensifies its activities in the implementation of the ERGP, the economy would sustain the growth momentum.