Nigeria’s economic growth for the second quarter of this year saw a decline to 2.3 percent from 6.5 percent attained last year, showing that the economy, which was once a beacon of growth on the continent, was undergoing a slowdown.
The new numbers showed that growth declined across the board, as the economy grappled with headwinds.
The new GDP figures echo investor sentiment regarding recent events in the economy. Investors have been opining that the silence of the Presidency regarding the state of the economy has not done much to engender confidence and spur growth. Rather, the economy has been plagued with uncertainty, and lack of definite direction, made worse by knee-jerk reaction to events.
“There was no policy direction in the first quarter after elections were postponed and in Q2 there were elections which caused policy uncertainty, said Bismark Rewane in a recent interview, commenting on the figures.
The manufacturing sector, which grew by 14 percent this time last year, recorded a contraction or negative growth of 3.82 percent (-3.82 percent growth) in the second quarter of this year.
Industry declined by 3.3 percent compared to an 8.9 percent upsurge last year.
Oil GDP continued its decline, falling by 6.79 percent, compared with a 5.14 percent growth this time last year. Non-oil GDP however, showed positive growth of 3.46 percent, which is a sharp fall compared to the 6.71 percent growth it recorded last year.
The agriculture sector showed a 3.49 growth year on year, compared to 3.68 percent in the second quarter of 2014.
Mining and quarrying contracted by 6.62 percent compared to a 5.32 growth in the second quarter of last year
Even Arts and entertainment showed a decline in growth, growing by 6.30 percent, compared to last year’s 13.46 percent.
“The sharp drop indicates that the economy is suboptimal and underperforming in all parameters in line with the rest of the continent,” said Rewane.
Nigeria’s economy gradually ground to a halt as the 2015 Elections approached and concerns around safety started to mount. Despite the peaceful aftermath and the euphoria that came after, the economy has refused to pick up.
According to NBS statistics, economic output is on the decline. It is plunging because spending is not keeping up – i.e., both consumer / government spending (caused by oil-induced austerity) and investment spending (caused by lack of new investment).
The economy is suffering from shortage of new investment, because of 2 factors: uncertainty (caused by Buhari) and impediments to free capital flows (caused by Emefiele).
Latest foreign investment data from the NBS showed that capital imported into the country in the second quarter of 2015 plunged 54 percent from its level in 2014.
Nigeria’s capital importation record this year is the most dismal since 2013, at least.
The drop in investment was triggered by the election worries and oil price plunge. But as capital tries to find its way back, it is being impeded.
The NBS says in its report, “this new, lower level [of investment] will be maintained as long as an uncertain economic environment remains”.
Economic theory says that an internationally exposed government can only pursue 2 out of 3 central bank objectives, and it is impossible to have all three of the following at the same time:
A stable foreign exchange rate, free capital movement (absence of capital controls), and an independent monetary policy.
Governments that have tried to simultaneously pursue all three goals have failed. And the CBN isn’t faring any better.
From the above, we know that Apex bank had to make two policy choices from a possible three. And it went with a strong / stable foreign exchange rate and an independent monetary policy, while forgoing new investment flows into the economy.
Nigeria has a Gross National Savings rate of 18%. While that is decent, a fragmented financial intermediation system, and structurally high Monetary Policy rate ensures that savings is not fully passed on to investment. Hence foreign investment is needed to make up for the shortfall. Every economy needs foreign investment to meet its capital needs.
The NBS data (along with the theory of the Impossible Trinity) is saying unequivocally that economic growth is being sacrificed for a strong/stable currency, and monetary policy independence.
Edozie Ifebi
