Nigeria may have recorded its biggest real economic growth yet in the past three years in 2019, but it leaves nothing to cheer as the growth was majorly driven by the oil sector, exposing the country’s weakness in achieving its diversification goals.
The economy grew 2.27 percent in 2019 to record its biggest annual growth in about three years, and has got fiscal policymakers singing its praises, but analysts say the impressive growth is not sustainable since it was largely driven by developments in heavily volatile oil sector.
The oil sector which accounted for about 9 percent of the country’s gross domestic product expanded at an average of 4.59 percent in 2019 from as low as 0.97 percent in the preceding year, pushing up the growth in economic activities.
However, only 0.2 percent of Nigeria’s working population are employed in the oil sector and most citizens have no link to the industry, so are unlikely to feel any progress being made in that industry directly.
What affects most people directly is growth in the non-oil sector, which is currently not growing fast enough to improve people’s standards of living.
The non-oil sector which accounts for about 91.2 percent of Nigeria’s GDP remained flat at 2.06 percent from a 2.00 percent growth in 2018, making a mockery of the much-talked-about Economic Recovery and Growth Plan (ERGP) which focused on further economic diversification and macroeconomic stability and expected to run from 2017 to 2020.
The non-oil sector growth target set by the Federal Government in its ERGP has also missed its mark for four consecutive years.
The ERGP non-oil sector growth projections of -0.07 percent in 2016, 0.20 percent in 2017, 4.83 percent in 2018, and 4.52 percent in 2019 all fell short of actual figures of 0.22 percent in 2016, 0.47 percent in 2017, 2.0 percent in 2018 and 2.06 percent in 2019.
Also, subsectors of the economy which account for a larger share of the country’s GDP and have the power to shoot up economic activities either recorded negative growth, or saw their growth remain flat.
Trade, for instance, which accounts for as much as 16 percent of GDP, continued further in three-quarters of negative growth to close the year at 0.38 percent growth, while the construction and the real estate sector dipped further, signposting what analysts say is a lack of structural reforms.
“The flat growth shows that the performance of the non-oil sector is still very weak and a reflection of shoddy macroeconomic fundamentals in the broad economy,” said Gbolahan Ologunro, a research analyst at Lagos-based CSL Stockbrokers.
Since the discovery of oil in large quantities in the mid-50s, Nigeria has been largely dependent on the sector to attract revenue and grow its finances.
Despite employing less than 5 percent of its labour force, the oil sector generates over 85 percent of Nigeria’s foreign exchange and 70 percent of the country’s revenue.
This has made the country susceptible to external shocks and developments in the oil sector.
On the other hand, the country gets less than 2 percent of its revenue from the agricultural sector despite employing well over 40 percent of the labour force.
If the agriculture sector, for example, grew at the rate of the oil sector, a lot more Nigerians would benefit because that industry employs nearly 50 percent of the country’s working population.
“Only a serious country can transit into an industrialised one and achieve very strong productivity,” said Omotola Abimbola, a macro and fixed-income analyst at Chapel Hill Denham. “There are a lot of things that need to be put in place for sectors like agric and manufacturing to succeed because both are very competitive sectors.”
Abimbola highlighted structural reforms in infrastructure, human capital developments and land reforms system as major developments that must happen to drive productivity rather than focusing on closing borders and/or boosting credit alone.
President Muhammadu Buhari has vowed to diversify the economy away from the oil sector to lift on an annual basis 10 million of citizens out of poverty through 10 years after a lengthy recession greeted his first tenure in office.
While the growth could be seen as sporadic going by where the country is coming from (-1.58 percent) after a fall in oil prices and restiveness in the Niger Delta region nearly brought economic activities to a halt, analysts have said a 2.27 percent growth leaves nothing for policymakers to cheer or celebrate about.
Their argument appears plausible when Nigeria’s growth lies side by side with other smaller African countries that lack the kind of human and economic potentials which the West African nation has.
For the past three years through 2019, Nigeria’s West African neighbour, Ghana has posted an average GDP growth of 7 percent and aiming to hit a growth rate by 8 percent.
Also, Rwanda, Egypt, Ethiopia, Mauritius and Kenya all recorded growths of 7.7 percent, 5.03 percent, 9 percent, 3.7 percent and 5.7 percent respectively.
Nigeria’s GDP at 2.27 percent is only higher South Africa, whose economy has to a large extent suffered blackouts due to its debt-ridden state utility firm, Eskom. It is also higher than Central African nation and the continents second largest oil producers, Angola, whose economy has been in crisis since 2014 due to a fall in oil prices and high indebtedness by the nation.
The Nigeria’s economy is still growing behind its population growth of 3.2 percent making it impossible for the improvement in economic activities to translate into the needed growth that would be all-inclusive.
The country is still faced with numerous challenge of high poverty, widening inequality and an unemployment rate that reached an all-time high of 23 percent in the third quarter of 2018.
The country both from the monetary and fiscal side has rolled out various initiatives and pumped in billions of dollars in a bid to drive growth in the real sector which would, in turn, translate into higher economic growth.
Some of such policies initiated to growth in both the agricultural and the manufacturing sector include the Anchor borrower’s programme, commercial agricultural scheme and the ease of doing business committee.
The country has also shut its land borders against other African neighbouring countries to check commodities such as rice staples and oil which it says is smuggled in and out of its country.
From the monetary side, there has also been a policy restricting about 44 items from accessing dollars for import from the CBN’s window.
Commercial banks have also been forced to lend about 65 per cent of their deposits to the real sector.
Although the extension of credit helped in boosting financial services, evident in a massive 22.33 per cent growth recorded in the sector in the fourth quarter, growth in other sectors are still very weak.
The manufacturing sector slumped 0.77 per cent in 2019 from 2.09 per cent in 2019, while sectors like real estate and trade remain in recession, recording a negative growth of -2.36 and -0.38 respectively.
To achieve an inclusive growth, analysts say Nigeria would need to achieve a growth rate between 7-10 percent away from the oil sector.
This can only be achieved through reforms from the fiscal side on labour intensive sectors such as agric, real estate, trade and manufacturing, to complement those already seen from the monetary side.
MICHAEL ANI & DIPO OLADEHINDE
