• Wednesday, November 29, 2023
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Low base effect seen lifting Nigeria to 7.9% growth in Q2

The problem is distribution, not resources

The second-quarter gross domestic product (GDP) figures for Nigeria are expected to show as much as a 7.9 percent growth rate.

This is the most robust quarterly growth in over eight years. The optimistic growth expectation by CardinalStone is projected on the back of base effect and the full re-opening of Africa’s largest economy.

Even though the World Bank projects that the growth in Sub-Saharan Africa will likely be slower at 2.8 percent (1.8% for Nigeria) due to relatively slower vaccine rollouts, policy uncertainty, and weaknesses in investment, research analysts at CardinalStone expect Nigeria to ride on the low base effect and five growth induced-sectors to deliver a 3.1 percent GDP growth in 2021.

“In our view, Nigeria could record its paciest GDP growth in over 32 quarters in Q2’21-7.9%,” Etseoghena Imoagene, an analyst at CardinalStone said in a recent report with the title Nigeria: Half of Year Outlook 2021- the Big Bounce.

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Before the 2016 recession, Nigeria’s economy grew by 4.7 percent on average in the preceding thirteen quarters. Since then (over twenty-five quarters), the country has only once recorded growth above 2.5 percent.

The growth projected by the research analysts who focus mostly on Sub Sharan Africa is 5.4 percentage points higher than the 2.5 percent the International Monetary Fund (IMF) expects Nigeria to expand every quarter to attain a full-year GDP growth of 2.5 percent.

The state-funded data agency, the National Bureau of Statistics (NBS) is due to publish the GDP report for the second quarter of 2021 on August 26, as gathered from the calendar on the website of the statistics office.

Sectors like construction, trade, manufacturing, real estate, and crude petroleum & natural gas are expected to push the projected growth by CardinalStone following their low base from last year due to the impact of the COVID-19 pandemic on economic activities.

The second and third quarters of 2020 were the most hurt as lockdown measures stifled production and disrupted the supply chain, leading to inflationary pressure, according to analysts.

In addition to the high rate of job losses, analysts said the inflationary pressure of 2020 strained domestic consumption and led to a recession. As a result, severe weaknesses were reported in Trade (-16.6%), Manufacturing (-8.8%), Crude Petroleum & Natural Gas (-6.6%), Real Estate (- 22.0%) and Construction (-31.8%) sectors in Q2 2020.

Due to the reopening of the economy of Africa’s top crude producing nation, its economic activities grew by 0.51 percent in the first quarter of 2021, after a sluggish exit from a recession. The expansion in the review quarter marks the country’s second successive quarters of expansion after negative growth in the second and third quarters of 2020.

“While we believe that a rebound in the five sectors could lead to the highest quarterly GDP growth in over 25 quarters, we note that actual activity levels are likely to underperform Q2’19, indicating a lingering pandemic-induced output gap,” Ngozi Odum, an analyst at CardinalStone said.

Beyond the accelerated recovery expectation of CardinalStone for 2021, Nigeria’s possible return towards a level of sustainable growth remains the perennial concern for many economists.

After the third quarter of 2021, analysts at CardinalStone said Africa’s largest economy is likely to slow down its pace of growth to around 2.0 percent levels, highlighting the lingering macro vulnerabilities that last year’s low base may have masked.

“Damage to already frail economic structures, alongside weaker consumption and investments, have dented the economy with high unemployment and an unsurprising fallout,” the report by CardinalStone said.

According to the research analysts of the Lagos-based company, agitations have risen just as quickly as living standards have deteriorated, and these, worryingly, may have cascaded into severe growth-constraining security concerns for the country.

Agricultural production, the dominant economic sector in most of the states affected by insecurity challenges in Nigeria, has been one of the major drivers of the country’s food inflation, a key contributor to the high overall inflation rate. CardinalStone, however, forecasts the inflation downtrend to continue through H2’21, closing at 15.3 percent with an overall average of 17.2 percent for 2021 vs 13.2 percent in 2020.

Through the destruction of productive assets, diversion of resources, death and injury to the population, and damage to health and education systems, the economies of the BAY states, Borno, Adamawa, and Yobe states have been significantly affected by the persistent conflict in the region.

Buildings and transportation infrastructure have been destroyed, while road closures and military bans have impeded the movement and sale of certain goods, a recent UNDP report said. Since conflict curbs economic growth, it often leads to heightened levels of poverty.

A World Bank assessment estimated cumulative GDP losses from 2011 to 2015 at $6.21 billion ($3.54 billion in Borno, $1.57 billion in Adamawa, and $1.1 billion in Yobe).
Already strained by inequality, low agricultural productivity, and high unemployment that was highest among the youth, conflict further damaged the economy of north-eastern Nigeria.

According to data by a US statistics agency, Collier, the reduction in economic growth after seven years of conflict lowers income by 15 percent and increases the poverty rate by 30 percent. The north-eastern part of Nigeria has persistently suffered from conflict since 2009.