Optimism over Nigeria’s economic recovery despite weak numbers

The last few days have brought to the fore three weak numbers that have pointed to the recovery of the Nigerian economy, which sluggishly exited recession in the fourth quarter of 2020.

Starting from the latest, these numbers include the Manufacturing Purchasing Managers’ Index (PMI), which grew to 49.0 index points in April 2021 from 48.8 index points in March 2021. Though below 50 benchmark index points, Godwin Emefiele, governor, Central Bank of Nigeria (NBN), said the increase was a lead indicator of recovery of output growth following the easing of restrictions to curtail the spread of COVID-19.

A composite PMI above 50 points indicates that the manufacturing/non-manufacturing economy is generally expanding; 50 points indicate no change and below 50 points indicate that it is generally contracting.

The second weak number was the 0.51 percent growth recorded in Nigeria’s Gross Domestic Product (GDP) in the first quarter (Q1) of 2021, according to the National Bureau of Statistics (NBS).

Data from the NBS show that real GDP grew by 0.51 percent in the first quarter of 2021, compared with 0.11 percent and -3.62 percent in Q4 2020 and Q3 2020, respectively.

Real GDP was driven largely by the non-oil sector, which grew by 0.79 percent in Q1 2021 compared with 1.69 percent and -2.51 percent in Q4 2020 and Q3 2020, respectively. The major drivers of the non-oil GDP were Agriculture and Industry with sectoral growth rates of 2.28 percent and 3.05 percent, respectively, in Q1 2021.

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Inflation was the third of the weak numbers. Nigeria’s inflation rate marginally retreated for the first time in 19 months to 18.12 percent in April from 18.17 percent recorded in March 2021, the NBS report shows.

In view of the fact that Nigeria had been grappling with low growth before the coronavirus pandemic triggered recession and created large financing gaps, including dollar shortages and inflation, can these weak numbers be a sign of recovery?

Responding, Uche Uwaleke, professor of capital market and president, Capital Market Academics of Nigeria, said, “There is no doubt that economic activities are gradually picking up following the receding impact of COVID-19 and easing of movement restrictions. I think that real GDP will remain positive though at a slow pace.”

Although the PMI reading is still below the 50 point threshold, he said there was a strong chance that it would stay above 50 points given the gradual expansion in economic activities.

According to Uwaleke, the real challenge is the inflation rate, which is elevated at over 18 percent. The slight drop recorded in April does not appear sustainable considering the significant risks to inflation outlook including likely hike in petrol pump price and electricity tariffs, exchange rates unification by the CBN and insecurity.

“Unless inflation rate moderates considerably, especially the food component, GDP growth will not be felt by the ordinary Nigerian,” he said.

On his part, Ayodele Akinwunmi, relationship manager, corporate banking at FSDH Merchant Bank Limited, said the government needs to address the fundamental issues affecting the economy, which include insecurity and infrastructure deficit.

“With all the security challenges in the country, foreign investors will not come; even domestic investors who are in Nigeria here may not be comfortable to expand production. So, we really need to address the fundamental issues,” he said.

Available data and forecasts for key macroeconomic variables for the Nigerian economy suggest that output growth will continue to recover for the rest of 2021, Emefiele said.

This, he said, is premised on the continued support for agriculture to improve food supply, reduce inflation and improve employment. Others include efforts of both the monetary and fiscal authorities to improve infrastructure challenges in the country. The forecast for the Nigerian economy for 2021 is, thus, a strong domestic push to support recovery, particularly to ensure an end to insecurity in the country.

For Taiwo Oyedele, head of tax and corporate advisory services at PwC, the GDP growth is fragile and much lower than population growth rate while inflation is still high and well above the 6-9 percent target. Additionally, other key indicators such as unemployment and government revenue remain worrisome.

“While the positive signs in GDP, inflation and PMI indicate some level of moderation, it will be premature to start celebrating them as signs of economic recovery,” Oyedele said.