Ahmed expects Nigeria to exit recession Q1, 2021 with 0.5% GDP contraction

Finance Minister Zainab Ahmed said she expects Nigeria to exit a shallow recession sparked by the coronavirus pandemic by the first quarter (Q1) of next year, if a N2.3 trillion Economic Sustainability Plan (ESP) approved by the Federal Government is strictly implemented.

“The National Bureau of Statistics (NBS) has already done an initial assessment that the economy could go into recession to as much as 4.2 per cent by 2020 but if we are fully able to deploy this N2.3 trillion, we might end up in -0.59 per cent. That is a bit fair,” Ahmed said Friday in an interview with BusinessDay in her Abuja office.

“Meaning that by the end of Q1 2020, we should have been out of the recession and back to steady growth. So the implementation of the ESP is very important.”

Central Bank of Nigeria (CBN) Governor, Godwin Emefiele has sounded similar optimism with a forecast of a -1.03 percent contraction in GDP for the second quarter of 2020, even though many economists say a deeper recession is more likely.

The International Monetary Fund (IMF) projects Nigeria’s gross domestic product (GDP) will contract by 3.4 percent this year.

Ahmed said Federal Government revenues have surprised to the upside, a signal that the economy is healing quickly from the ravages of the lockdowns imposed on the country’s 2 largest cities Lagos and Abuja.

“Even in our Federation Account Allocation Committee (FAAC), we kept being surprised because we were expecting a huge dip. The last FAAC we did recently, we saw revenues of around N690 billion,” Ahmed told BusinessDay.

In another sign of the economy performing better than expected, the NBS reported Monday that the Federal Government generated a total of N651.77 billion as Value Added Tax (VAT) for the first half (January-June) of 2020, an 8.45 percent increase compared to N600.98 billion recorded in first half of 2019.

Ahmed said one of the reasons for the better than expected revenue collection by the government was the impact being made by the Federal Inland Revenue Service (FIRS).

“What happened was that, when the outlook for oil and non-oil revenue dropped, there were still many other stimulators that were acting as stabilizers for the economy. The FIRS is also active in pushing revenues up even though this is a time where you can’t push so much in terms of collection of taxes,” Ahmed said.

The Federal Executive Council FEC in June approved the immediate implementation of the Nigeria Economic Sustainability Plan (NESP) or stimulus that has an estimated N2.3 trillion price tag.

Given Nigeria’s limited fiscal space the source of the funds were to be: special Accounts – N500bn, CBN structured lending – N1.11 trillion, external bilateral/multilateral sources – N334bn, other funding sources – N302.9bn.

The plan aims to stimulate the economy by preventing business collapse and ensuring liquidity, retaining or creating jobs using labour intensive methods in key areas like agriculture, facility maintenance, housing and direct labour interventions and extending protection to the very poor and other vulnerable groups – including women and persons living with disabilities – through pro-poor spending, among others.

Nigeria’s GDP decelerated in the first quarter (Q1) of 2020 with a 1.87 percent growth compared to 2.55 percent growth recorded in the fourth quarter (Q4) of 2019.

Services and the Oil sector GDP posted growth of 3.5 percent and 5.1 percent year on year (YoY) respectively in Q1.

The impact of the coronavirus lockdowns on cyclical Nigerian corporates has been mixed so far, as Q2 results begin to trickle in.

Dangote Cement, Africa’s largest maker of the building material reported a 1.95 percent increase in revenues to N476.85 billion in the half year period (January – June).

Standalone revenues for Q2 rose marginally by 0.04 percent to N227.67 billion, despite the economic slowdown from lockdowns due to the covid-19 pandemic.

After-tax profits rose by 5.79 percent to N126.1 billion in the six months’ period ending June 2020.

On the other hand, Julius Berger, the largest listed construction company saw sales drop by 48.022 percent to N102.055 billion in June 2020.

The construction giant posted a loss of N1.93 billion as at June 2020 from N2.83 billion profit it recorded the previous year.

Ahmed said the Nigerian economy has proven to be quite resilient, despite the coronavirus.

“Sincerely, we have hope that we might escape this recession or even if we slide into a recession, it will be a shallow one that will be easy for us to come out and that is the target of the ESP,” Ahmed told BusinessDay.