Rising prices and the high cost of Foreign Exchange (FX) are factors responsible for the slow growth of Nigeria’s second biggest sector by output (trade sector) in the second quarter of 2022, according to data from the National Bureau of Statistics (NBS).
According to the 2022 second quarter Gross Domestic Product (GDP) report released by NBS, trade’s year-on-year growth stood at 4.51 percent, which is 17.98 percentage points lower than the growth rate recorded in the previous year at 22.49 percent, and 2.03 percentage points lower than in the preceding quarter at 6.54 percent growth rate.
“While the trade sector sustained its positive performance for the fifth consecutive quarter, FX-related crisis, global inflationary pressures, continued supply chain disruptions and high custom tariff impacted the sector performance,” said Ayodeji Ebo, the managing director and chief business officer at Optimus by Afrinvest limited.
Muda Yusuf, the chief executive officer at the Centre for the Promotion of Private Enterprise also said that across all sectors, there are issues around the high energy cost, currency depreciation, soaring inflation, weak purchasing power, FX scarcity and the structural problems of infrastructure.
“Even though the non-oil sector contributed 93 percent of the GDP in the period under review, weak productivity remains an issue,” Muda added.
The NBS report also highlighted that the country’s overall GDP grew by 3.54 percent (year-on-year) in Q2 2022, showing a sustained positive growth for the seventh 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 under the COVID-19 pandemic.
“In addition, the recent rising prices have adversely impacted on the second quarter 2022 performance,” the report stated.
Trade’s contribution to GDP was 16.81 percent, higher than the 16.66 percent it represented in the previous year and higher than the 16.13 percent recorded in the Q1 2022.
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Damilola Adewale, a Lagos-based economic analyst noted that the 4.51 percent growth in Q2 means that the sector did perform despite many challenges it faced in that quarter.
The sector which comprises wholesale and retail trade can be likened as the barometer of consumer purchasing power.
The higher the level of consumption, the better the sector performs. But the surge in prices which has intensified since February, as a result of the Ukraine-Russia crisis has added more pressure on cash-strapped consumers in Africa’s most populous country.
Data from the NBS shows that the country’s inflation rate rose to a 17-year-high to 19.64 percent in July 2022 from 18.60 in June 2022.
The surge which also increased for the fifth consecutive time was caused by insecurity, high energy prices caused by the crisis and exchange rate depreciation
Food inflation, which constitutes more than 50 percent of the general inflation rate, surged to 14-months high to 22.02 percent in July from 20.6 percent in June.
FX has also surged. On August 5, 2022 at the official market, the exchange rate between the naira and the US dollar closed at N430/$1, an increase of 31.4 percent from 327/$1 in March 2020.While at the parallel market, it closed at N670/$1, an increase of 82 percent from N368/$1 in March 2020.
For diesel, its price in July 2022 increased by 209 percent to N774 per litre from N251 in July 2021, according to the NBS.
“The high cost of diesel has doubled the cost of transporting our wines across the states thereby affecting our distribution chain. Just recently, a customer complained about the cost when he made orders from Lagos to Abuja,” Victor Ikem, a Lagos-based wine retailer, complained to BusinessDay.
Similarly, Wole Akeju, executive director at RedBox Deluxe Café & The Base Lagos said the raw materials that we use to prepare our foods have gone up.
And even when we pass this cost to our customers, the prices in the market will still continue to jump up which is already affecting patronage,” Akeju said.
