• Saturday, June 15, 2024
businessday logo

BusinessDay

Transport sector exits recession as rail growth hits two-year high

Transport sector exits recession as rail growth hits two-year high

The growth in road and railway subsectors lifted Nigeria’s transport and storage sector out of the recession it suffered since the second quarter of 2023, according to a BusinessDay analysis.

The latest Gross Domestic Product report by the National Bureau of Statistics (NBS) showed that in real terms the sector expanded to 3.33 per cent in Q1 this year after shrinking for three straight quarters.

“The sector grew by 3.33 percent in Q1. This rate is an increase of 32.33 percent points relative to the preceding quarter. The contribution of the sector to the GDP was 1.18 percent, relatively same with the 1.18 percent recorded in the preceding year and higher than 1.10 percent in Q4,” the report said.

Muda Yusuf, chief executive officer of the Centre for the Promotion of Private Enterprise, said some infrastructural development and safety improvement around roads may have contributed to the growth in transport.

“Road transportation accounts for almost 90 percent of our transportation. And in terms of insecurity, I don’t think it is as bad as it used to be before. People are now driving freely from Kaduna to Abuja and some parts of North,” he added.

Read also: Unrestricted flights beckon as US-Nigeria Air Transport agreement enters into force

Adeola Adenikinju, a professor of economics and president of the Nigerian Economic Society (NES), said the decline in security challenges and the coming on board of some of the railway projects implemented by the last administration also accounted for the growth.

“Also, when airfares became very expensive, some people moved to road and railway.”

A breakdown of the GDP report revealed that three of the six sub-activities under the sector grew at a faster pace. Road transport expanded to 5.58 per cent in Q1 from a negative growth of 33.76 per cent in the previous quarter and rail transport & pipelines rose to the highest in two years of 66.63 per cent from 10.39 per cent. Transport services grew to 5.93 per cent from 3.42 per cent.

Water and post & courier services slowed to 4.34 per cent and 2.40 per cent respectively. While air transport entered a recession for the first time since Q1 2021.

“The recovery in the transport sector seems promising but cannot be celebrated yet. It is obviously due to the base effect of the massive contraction recorded for the majority of 2023 in rail and road transport. While the run rate of sector performance at N865.4 billion shows an improvement over 2023, this is shy of about N1.0 trillion recorded in 2021 and 2022, respectively,” Temitope Omosuyi, investment strategy manager at Afrinvest Limited, said.

Read also: How high fuel costs hindered transport sector growth in 2023

He added that it is noteworthy that the rail sector enjoyed some level of tranquillity from the reduced kidnapping that scared users in 2023 and that the opening of Lagos Rail Mass Transport may have also added to the interest in that means of transport.

“For road transport, the major shock to the sector stemmed from the abrupt subsidy removal last year. The absence of further massive shocks might have provided some support for the sector.”

The removal of the fuel subsidy last May tripled the petrol price to above N600 from N184, causing public transportation providers such as buses, tricycles and motorcycles to raise transportation fares. This situation affected those who rely on public transportation, particularly workers in the private sector.

With higher transportation fares, many Nigerians are forced to allocate a substantial portion of their salaries to cover commuting expenses, leaving little for other essential needs like food and rent.

Data from the NBS shows that the average retail price paid by consumers for petrol last month was N701.2, an increase of 176 per cent from N254.1 in April last year. The average retail price of diesel also rose from N842.3 per litre in April 2023 to N1,415.1 per litre in the same period of 2024.

The increase in the cost of petrol led to the average fare paid by commuters for bus journeys within the city dropping as it rose year-on-year by 49.6 per cent to N969.3 from N648.2. The average fare paid by commuters for bus journey intercity per drop was N7,152.9, up from N3,992.4.

“The country is back to business as usual as people have adjusted to the prices. For rail, the Lagos-Ibadan railway might have been a key driver in the sector recovery. We have seen traction with commuters using rail as opposed to road,” Gbolahan Ologunro, portfolio manager at FBNQuest, said.

Data from the NBS shows that the total number of passengers that travelled via rail system rose for the third straight quarter to 672,198 in Q4 from 594,348 in the previous quarter. The volume of goods/cargo transported stood at 119,286 tons, up from 81,963 tons.

According to Samuel Odewumi, a professor and past dean of Lagos State University’s School of Transport and Logistics, transportation is a derived demand and when the transportation sector freezes, the entire economic life of the country comes to a halt, as it is like the bloodstream for the economy

Adenikinju of NES noted that the growth in the transport sector will drive down production costs, improve productivity in the economy and further enhance the performance of other sectors.