Nigeria risks jobless growth with reliance on oil-led recovery

Nigeria’s strong reliance on crude oil as a means of exiting its worst economic crisis in 25 years and a quarterly decline in agricultural output are heightening fears of a weak rebound, devoid of the required growth to create jobs and ensure inclusiveness.

The worry is that the march away from recession is almost entirely dependent on improvement in oil output and price, rather than policy or reform-led economic growth, and as a result, its sustainability is being questioned.

The economy shrank 0.5 percent in the first three months of 2017, the National Bureau of Statistics (NBS) said Tuesday, representing the fifth consecutive quarter of contraction, but government officials and a number of analysts look to positive growth of around 1 percent in Q2, on the back of improving oil fortunes.

However, only growth of at least five percent will suffice for Nigeria, home to some 180 million people, wherein 14 percent of the working age population are unemployed and the misery index is above 50 percent.

“Given that our population growth is close to three percent, five percent GDP growth is the absolute minimum for Nigeria to start to alleviate poverty and move forward,” said Andrew Nevin, chief economist at advisory firm, PriceWaterhouseCoopers (PWC) Nigeria.

“This is only possible with an investment-led recovery,” Nevin said by email.

In recent times, Kalu Idika Kalu, two-time Nigerian finance minister, has won quite a reputation sharing similar views and discrediting the government’s growth target of 2.5 percent for the full-year as unambitious for an economy the size of Nigeria’s.

African peers Ivory Coast, Ethiopia and Kenya will probably grow an average of 7 percent this year, according to the International Monetary Fund; the kind of growth Nigeria (tipped to expand 0.8 percent) should be gunning for.

Whereas the GDP numbers for the first quarter show an economy emerging from recession, analysts identified a troublesome setback in the decline of the agriculture sector which slowed to 3.39 percent, compared to the 4.03 percent recorded in the previous quarter.

Agriculture, which contributes the most to GDP and one of the sectors that create the most jobs, has now contracted in two consecutive quarters, although a year-on-year comparison, which adjusts for seasonal changes, points at marginal growth.

The decline in agric output, “coupled with the rise in naira illiquidity in the market, could undermine recovery and growth targets,” according to advisory firm, Financial Derivatives Company.

“The pace of growth in Q1’17 remains sluggish, in spite of the improvement recorded in some business proxies used to describe output performance,” FDC observed; adding that “for the economy to feel the full impact of investment, private sector investment has to be amplified.”

Getting the required investment to achieve robust and inclusive growth, will require clarity in exchange rate, sustained focus on fighting corruption and efforts to improve the ease of doing business, according to Nevin.

PWC estimates that Nigeria requires between N25 and N30 trillion of annual investment to reach a GDP growth rate of 5-10 percent.

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

Analysts suggest that government explore the option of privatising some state assets, speeding up the process of passing the critical petroleum industry bill which has been stuck in parliament for almost seven years and utilise Public Private Partnerships (PPP) to solve the country’s infrastructural deficits.

There has also been some foot-dragging on a draft gas policy which provides the institutional, legal, regulatory and commercial reforms necessary to attract investment to the sector and move Nigeria from a crude oil export-based economy to an attractive, gas-based industrial economy.

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 World Bank predicts an expansion of 1.2 percent in GDP, while Moody’s sees a 2.5 percent growth, buoyed by higher oil prices and the relative calm in the Niger-Delta, which could see production increase to the two million barrels daily mark.

Douglas Rowlings, vice president, corporate finance at Moody’s, however says the estimate “is reflective of low base effects” from last year and not much of “real growth.”

OPEC peers from Saudi-Arabia to Kuwait plan sale of government assets in mobilising private capital, with both countries showing more urgency than Nigeria, despite the former producing more oil per person.

Saudi, planning to sell five percent of state oil company Saudi Aramco, pumps some nine million barrels daily, compared to Nigeria’s two million, which it has struggled to achieve since militants sabotaged oil pipelines.

A further breakdown of the Q1 GDP figure shows that the oil sector recorded a negative growth of 11.64% (from –17.70% in Q4-2016 and -4.81% in Q1-2016).

Over the three months period, output from the oil sector was affected by relatively lower domestic crude oil production, as the effect of militants’ attacks on crude oil and gas facilities in 2016 lingered.

The NBS estimated crude oil production during the three- month period to be 1.83 million barrels per day (mbpd) which improved from the 1.76 mbpd reported in Q4-2016, but was much lower than the 2.05 mbpd achieved in Q1-2016. Compared to Q4 2016, the oil sector grew by 14.86%.

The non-oil sector exited the negative growth region, growing by 0.72 percent y/y in Q1-2017 (compared to -0.33% y/y in Q4-2016 and -0.18% y/y in the corresponding quarter of 2016) supported by activities in agriculture, manufacturing, information and communication, transportation, and other services.

 

LOLADE AKINMURELE