Household spending rises for first time in three years
Nigeria’s household consumption expenditure returned to positive growth in 2021 for the first time in three years, BusinessDay analysis shows, an indication that economic activities picked up.
The annual growth rate in real household consumption expenditure stood at 25.65 percent in 2021, compared to -1.69 percent and -1.06 percent in 2020 and 2019 respectively, according to data from the National Bureau of Statistics (NBS). It rose by 4.63 percent in 2018.
“The observed trend in 2020 indicates that real household consumption expenditure declined in Q1 and Q2, accounting for negative growth rates informed by the COVID-19 pandemic,’ the NBS said in a report.
It, however, added that positive growth rates were recorded in Q3 and Q4 2020 as well as the four quarters of 2021. “On a quarter-on-quarter basis, real household consumption expenditure grew by 13.77 percent in Q3, and 10.45 percent in Q4 2021.”
Household final consumption expenditure, which accounts for the largest share of real GDP at market prices, consists of the expenditure incurred by resident households on individual consumption goods and services.
Unlike the output approach which measures the supply side of the GDP, the income and expenditure approach gives a clear insight into the demand side of various economic agents.
Abiola Gbemisola, an analyst at FBNQuest, said the recovery in spending was a result of improvement in economic activities from the negative economic effects from the pandemic. “In 2021, a lot of businesses did better compared to 2020 and also inflation played a part too.”
Gbolahan Ologunro, a senior research analyst at Cordros Securities, added that the low base in 2020 played a key role in the strong expansion seen last year.
Ologunro also added that although the GDP growth might not be reflective of the true growth of the economy, it showed that the country had bounced back from the challenges encountered in 2020.
“The increase in household spending is a signal that people are spending more as a result of an increase in prices of goods and services not because they are earning more,” Ayodeji Ebo, Managing Director, Chief Business Officer, Optimus by Afrinvest said recently. “This will have significant implications on savings and investment.”
Data from the NBS show that the country’s overall GDP grew by 3.98 percent (year-on-year) in Q4 2021, showing a sustained positive growth for the fifth consecutive time since the recession witnessed in 2020 when output contracted by -6.10 percent and -3.62 percent in Q2 and Q3 of 2020 during the pandemic.
A 2021 report by FBNQuest showed that Nigeria’s real household consumption as a proportion of GDP rose to 76 percent in 2021, the highest level since 2010. According to the report, the surge led to a fast recovery post-pandemic for its consumer’s industry.
On the factors that contributed to the recovery, Temitope Omosuyi, an investment strategy analyst at Afrinvest Limited, cited improvement in business activities and monetary and fiscal support, which provided income buffers for households.
“In 2020, we did not have an idea where the economy was going but now there is a level of clarity as restrictions to movement have been removed,” he said.
The GDP expenditure and income report of the NBS also highlighted that the annual growth rate for government consumption expenditure stood at -34.03 percent in 2021, compared to 61.58 percent in 2020.
Analysts at FBNQuest attributed the decline in government expenditure mainly to high base effect.
“The combination of special fiscal interventions and supplementary expenditure in the wake of the pandemic pushed up government expenditure sharply in 2020,” the analysts said in a note.
Other components highlighted were net exports, which grew by -55.77 percent in 2021 compared to -13.17 percent recorded in 2020 and compensation of employees growth rate stood at 13.68 percent from 0.96 percent in 2020.
On a year-on-year basis, national disposable income recorded a slower growth rate of -2.52 percent in 2021 compared to a positive growth rate in 2020 (1.07 percent).
“We infer that tax reforms introduced by the Finance Act 2020 contributed in part to the decline. And also the base effects in 2020 when fiscal stimulus provided income buffers to households,” FBNQuest analysts said.
On the expectation for household consumption in 2022, Gbemisola said it will grow further due to election spending by politicians which will filter into households and also higher prices too.
The country’s inflation rate increased to 16.8 percent in April 2022, the highest in eight months, from 15.92 percent in March, the NBS said on Monday.
The composite food index rose to 18.37 percent in April 2022 compared to 17.2 percent the previous month and 22.72 percent in April 2021.
“This rise in the food index was caused by increases in the prices of bread and cereals, food products, potatoes, yam, and other tubers, wine, fish, meat, and oils,” it said.
Core inflation, which measures the inflation rate of all items excluding farm produce, stood at 14.18 percent in April 2022, compared with 12.74 percent recorded in April 2021 while on a month-on-month basis.