Finance, Insurance Sectors Gain 26% YoY Growth to Boost GDP in Q1 2023

Kayode Tokede

Despite Nigeria’s tough operating business environment, the finance and insurance sectors gained 26 per cent Year-on-Year (YoY) in real Gross Domestic Product (GDP) growth in the first quarter (Q1) 2023.

The growth rate from both sectors reached N949.11 billion, up from N781.98 billion that was reported in the corresponding first quarter of 2022, according to the latest report by the National Bureau of Statistics (NBS).

The bureau revealed that the finance and insurance sector consist of two subsectors: Financial institutions and Insurance companies operating in the country.

Analysts have expressed that online transactions in the period under review increased significantly amid the Central Bank of Nigeria (CBN) currency swap policy. They stressed that increase impacted positively on finance and insurance contributions to real GDP outcome in the period.

President Muhammadu Buhari, in November 2022, officially unveiled the newly redesigned naira denominations of N1000, N500 and N‎200 that were introduced by the CBN.

The CBN Governor, Godwin Emefiele had said the CBN was fully poised to make Nigeria a cashless economy, and had insisted that the January 31 2023 deadline for the exchange of old notes would not be extended, a development that compelled most Nigerians to adopt electronic channels for payment of goods and services.

The policy deepened online transactions in the period as Nigeria Inter-bank Settlement System (NIBSS) reported 298 per cent increase in e-payment transactions, which reached N135 trillion in Q1 2023, up from N34.04 trillion recorded in Q1 2022, reflecting the impact of cash scarcity on the payment culture of Nigerians.

According to the report released by NBS, the finance sector closed Q1 2023 at N870.82 billion, up from N696.87 billion in Q1 2022, while insurance sector dropped from N85.11 billion in Q1 2022 to N78.3 billion in Q1 2023.

NBS stated that the contributions of Finance and Insurance to real GDP totaled 5.35 per cent in Q1 2023, higher than the contribution of 4.51per cent recorded in the Q1 2022 by 0.84 per cent points, and higher than 3.95 per cent recorded in Q4 2022 by 1.40 per cent points.

Speaking with THISDAY, Managing Director/Chief Economist at Analysts Data Service and Resources Limited, Dr. Afolabi Olowookere, attributed the growth in finance and insurance to the increased online transactions during the period.

On his part, the CEO, Wyoming Capital and Partners, Mr. Tajudeen Olayinka, said: “Even though the financial services sector contributed 5.35 per cent to first quarter GDP, what should interest any analyst is the growth rate in that sector between Q1 2023 and Q1 2022, which printed 21.37 per cent (24.96 pepr cent for Financial Services Sector without Insurance).

“This means that the sector recorded an aggressive growth rate through excessive use of online and internet banking facilities because of cash scarcity, but without positively impacting the economy, as GDP growth rate slowed down to 2.31 per cent in that quarter.”

According to NBS report, “The finance and Insurance Sector consists of the two subsectors, Financial Institutions and Insurance, in which the former accounted for 91.75per cent and the latter 8.25 per cent of the sector respectively in real terms in Q1 2023.

“As a whole, the sector grew at 22.37 per cent in nominal terms (year-on-year), with the growth rate of Financial Institutions at 25.99 per cent and -7.25 per cent growth rate recorded for Insurance.

“The overall rate was lower than Q1 2022 by 9.91 per cent points, and lower by 0.21 per cent points than the preceding quarter. The quarter-on-quarter growth was 12.55 per cent.”

A member of the Monetary Policy Committee of the CBN, Festus Adenikinju, who is from the Department of Economics, University of Ibadan, said: “I fear that the staff output growth forecast of 2.64 per cent in Q1 2023 may not be realised because of the problems associated with the implementation of the currency redesign policy and the fuel queues in parts of the country for January and February 2023.

“The currency redesign policy imposed significant negative shocks on the economy as both aggregate demand and aggregate supply were constrained. The informal sector and SMEs were heavily impacted by the huge net withdrawal of cash from the economy and widespread failures of online banking transactions.

“The effects of cash withdrawals constitute a huge shock, in my view that the MPC should wait to assess their net effects on the economy and prices before considering additional rate hikes.”

Mike Obadan of the Department of Economics and Statistics, University of Benin, said: “This is a very well-intended policy aimed essentially at achieving economic objectives, in particular, ensuring the integrity of the national legal tender, ensuring effectiveness of monetary policy, promoting the cashless policy and financial inclusion, and checking currency hoarding and counterfeiting. Unfortunately, various vested interests have worked assiduously to undermine the implementation for their private gains.”