Q1 GDP shows Nigeria gradually emerging from recession

…Manufacturing sector grows for first time since Q4 2015

Lurking in pockets of Nigeria’s first quarter Gross Domestic Product (GDP) report released Tuesday May 23, by the National Bureau of Statistics (NBS) are signs of an economy cranking back to life.

Although GDP shrank 0.5 percent in the first three months of the year, bogged down by a sickly oil sector and slowing agricultural expansion, the period marks the second successive quarter of milder contraction, following a 1.7 percent retreat in the final quarter of 2016.

“That means we are gradually getting out of recession,” said Muda-Yusuf, director-general of the Lagos Chamber of Commerce and Industry (LCCI).

“There are signs the economy will exit negative territory in the second quarter,” Yusuf said by phone, hinging his outlook on increased dollar supply in the period, as well as initiatives to boost the ease of doing business.

“The Central Bank Nigeria (CBN) upped dollar supply significantly in the second quarter, even as radical reforms boosted the ease of doing business. These should move the economy into positive territory in Q2,” Yusuf said.

The CBN has sold more than $4 billion in the last four months to ease pressure on the naira, which has now firmed on the black market from a record low of N520 to the dollar prior to the interventions.

The black market naira exchanged for N380 per dollar on Tuesday, according to Abokifx, which collates daily prices from traders. The official interbank rate has stagnated at N305 per dollar since the start of the year.

Bayo Adeyemo, markets head and country treasurer at Citi Bank thinks the CBN deserves a pat on the back for the naira appreciation.

Nigeria’s economy contracted last year, for the first time in 25 years, after it took a beating from a slump in oil prices and militant attacks on pipelines, which caused production to fall to an almost three-decade low.

Foreign-currency shortages fuelled by falling oil exports caused inflation to accelerate every month for more than a year until January. But the index has since slowed, while optimism for an economic rebound has grown.  Inflation printed 17.2 percent in April, after slowing for the third consecutive month.

The International Monetary Fund forecasts the economy will grow by 0.8 percent this year and the World Bank predicts expansion of 1.2 percent, buoyed by higher oil prices and the relative calm in the Niger-Delta, which could see production increase to the 2 million barrels daily mark.

“Although this economic contraction may weigh heavily on sentiment moving forward, it should be kept in mind that it still remains the best performance seen in four quarters,” said Lukman Otunuga, a research analyst at forex brokerage firm, FXTM.

“With many sectors of the Nigerian economy turning positive, the overall outlook still looks encouraging with the bullish impacts likely to be realized in the second and third quarter of this year,” Otunuga said by email.

Manufacturing turned positive for the first time since the fourth quarter of 2015, following a 1.3 percent growth year-on-year.

Improved foreign exchange liquidity helped return the sector to growth, according to Femi Jacobs, chairman of the Manufacturing Association of Nigeria (MAN).

The sector’s growth is consistent with the improving Purchasing Managers Index (PMI), which rallied to 58 points in April, according to FBN Quest.

“Growth in critical sectors that create jobs has been impressive and that is positive for the economy,” said John Chukwu, the managing director and CEO of Cowry Assets, pointing at the manufacturing, construction and agricultural sectors.

“Government must now focus on reversing the decline in the oil and gas sector for a holistic economic rebound. We may see another marginal contraction in Q2, but my guess is that we will exit recession in Q3,” Chukwu said.

The oil sector contracted 11.6 percent from a year earlier, a sixth straight quarter of declines, while agriculture, which contributed 24 percent of GDP, expanded 3.4 percent, the slowest pace since the first three months of last year, the NBS said.

With a population growth rate of close to 3 percent, the implication of the economy continuing to shrink is that Nigerians are getting poorer, and poverty is increasing, according to Andrew Nevin, chief economist at PriceWaterhouseCoopers (PWC).

“Nigeria’s economy needs to grow at least 5 percent for us to make progress,” Nevin said by email.

“This is only possible with an investment led recovery. We estimate that Nigeria requires at least N25 trillion- N30 trillion of annual investment to reach a GDP growth rate of 5-7%.”

The Federal Government is providing around N2 trillion of this. “So GDP growth will only happen when we get significant flows of private sector investment, from both domestic and international sources,” Nevin added.

For Nevin, getting the required investment is only possible with three major initiatives.

These are; a continued focus on corruption, particularly preventing corruption before it happens with proper process and procedures as well as improving the ease of doing business.

Nigeria currently ranks 169th out of 190 countries tracked by the World Bank.

The country must also clarify the exchange rate regime, Nevin says. “The multiple windows are confusing for international investors and preventing us from getting required investment.”

Lawmakers approved a 21 percent increase in 2017 spending plans to 7.4 trillion naira ($23.5 billion) in May. The government plans to spend 30 percent of the budget on building roads, rail, and ports, to stimulate economic activity and create jobs.

LOLADE AKINMURELE & HEZRON ATUNDE