Nigeria’s economy grew marginally in the third quarter of 2023 owing largely to the service sector as the fallout of President Bola Tinubu’s reforms, including petrol subsidy removal, took a toll on several sectors.
Africa’s biggest economy saw its Gross Domestic Product (GDP) rise by 2.54 percent (year-on-year) in real terms in Q3 from 2.51 percent in Q2 and 2.25 percent in the same period last year, according to the National Bureau of Statistics (NBS).
“The performance of the GDP in Q3 was driven mainly by the services sector, which recorded a growth of 3.99 percent and contributed 52.70 percent to the aggregate GDP,” the NBS said in its latest GDP report on Friday.
It said the agriculture sector grew by 1.30 percent as against 1.34 percent in Q3 2022 and that the growth of the industry sector was 0.46 percent, an improvement from -8.00 percent recorded in Q3 2022.
“In terms of share of the GDP, agriculture, and the industry sectors contributed less to the aggregate GDP in Q3 compared to the same period of 2022.”
Israel Odubola, a Lagos-based research economist, said while the data shows a marginal improvement between Q2 and Q3, a closer look at the numbers showed that some key sectors, particularly the real sector, were badly affected by the common headwinds such as inflationary pressure, foreign exchange issues and security.
“The data shows the profound effect of recent economic reforms on the real sector, which hampered their growth performance.”
David Omojomolo, Africa economist at UK-based Capital Economics, said Nigeria’s growth was unchanged in Q3 as a smaller drag from the oil sector offset a slowdown in the rest of the economy.
“The flat growth seen in Q3 is likely to be followed by a slowdown. The travails of the naira and high inflation are challenges that are likely to persist, particularly if the central bank continues to resist raising interest rates,” he said.
A breakdown of the NBS report showed that the ICT sector slowed to 6.69 percent in Q3 from 8.60 percent in the previous quarter. Manufacturing sector grew by 0.48 percent, down from 2.20 percent, while trade’s growth was 0.89 percentage points lower compared with the 2.41 percent recorded in Q1.
“The high cost of energy and FX exposure has led to profound shocks in critical sectors of the economy. The reforms are really hitting virtually everybody,” Muda Yusuf, chief executive officer of the Centre for Promotion of Private Enterprises, said.
Tinubu in May scrapped a costly but popular petrol subsidy and lifted currency controls in June, which he said was to save the country from going under.
But his reforms have worsened inflation currently in double-digits and at the highest level in 18 years. The rising inflationary pressures have weakened the purchasing power of consumers, even as businesses grapple with higher operating costs.
The removal of the petrol subsidy tripled the petrol price to N617 from N184, causing public transportation providers such as buses, tricycles and motorcycles to raise their fares.
The naira has plunged to record lows across markets since the central bank allowed it to weaken by as much as 40 percent against the dollar in June.
The high cost of dollars and the implementation of a 7.5 percent value added tax on diesel imports, which was suspended in September, pushed its pump price to as high as N1,200 per litre.
According to the NBS, the country’s inflation rate rose to 27.33 percent in October from 26.72 percent in the previous month.
The latest monthly Purchasing Managers’ Index by Stanbic IBTC Bank showed that business activity contracted in October for the first time in seven months.
“The non-oil economy recorded a slowdown in growth, from 3.6 in Q2 to 2.8 percent in Q3. This no doubt, reflected the drag from higher fuel prices as well as currency weakness that have pushed inflation up, weighed on real incomes and, in turn, consumer facing sectors,” Omojomolo said.
Gabriel Idahosa, deputy president of the Lagos Chamber of Commerce and Industry, said the economy could grow slightly further in Q4 as economic players are already adjusting to the reforms.
“The limited amount of festive spending and travel would also help to improve growth,” he said.
Ikemesit Effiong, partner and head of research at SBM Intelligence, said the economy could grow by 2.5 percent in Q4 if the economic fundamentals remained currently.
“If there is a bit more stability in the currency market especially around availability and there are no floods that would affect agricultural productivity or any form of degeneration in the security picture, then we can do 2.5 percent,” he added.
The International Monetary Fund in October downgraded the country’s economic growth forecast by 0.3 percentage points to 2.9 percent for the full year 2023.
The Washington-based lender said growth in Nigeria is projected to decline from 3.3 percent in 2022 to 2.9 percent in 2023 and 3.1 percent in 2024, with negative effects of high inflation on consumption taking hold.