It wasn’t all gloom and doom for the Nigerian economy in 2018, but much is still left to be desired.
While the economy expanded at the fastest rate since 2015, it marked the third straight year of negative per capita GDP- which implies that Nigerians are growing poorer.
In addition, despite slowly picking up since the oil price crash in 2014 and showing the first true signs of a recovering economy in the fourth quarter of 2018, the 2 percent full-year growth is however not fast enough to deal with rising unemployment.
The NBS reported last year that unemployment rate hit a near decade-high of 23 percent in the third quarter of 2018.
The labour-intensive sectors, agriculture, construction and real estate underperformed, with real estate the worst of the pack, having contracted 4.74 percent in 2018. That’s worse than the -4.27 percent contraction recorded the previous year, meaning the fortunes of the sector are growing worse.
Real estate joins Trade, Health and social services and administrative support services to rank among the worst performing sectors.
The contrasting economic realities of Africa’s most populous nation don’t stop there.
While the ICT sector shrugged off a costly regulatory collusion between the local unit of South-African Telecommunications Company, MTN and the Central Bank of Nigeria, to expand by the most since 2014, agriculture had a bad year.
The ICT sector expanded 9 percent in 2018 while the agriculture sector slowed from 4.2 percent to 2.5 percent.
Agriculture was growing at between 3 to 4.5 percent in 2016 and 2017, but was more like between 1-2.5 percent in most of 2018.
That’s despite the current government’s effort to boost agriculture output and diversify the economy. The herder-farmer clashes in Northern Nigeria are taking their toll, it would seem.
It gets even worse.
The oil sector contracted by 1.62 percent year-on-year in the fourth quarter of 2018, a worrying performance for an economy that continues to rely heavily on the oil sector.
The annual growth rate for the sector stood at 1.14 percent, much less than the 4.69 percent growth recorded in 2017. The growth rate in 2018 was lower than the previous year despite higher oil prices and production.
Oil prices averaged USD71.62 per barrel in 2018; a 30 percent jump from 2017’s average price of USD54.67pb, thanks to the movement in US crude inventories, sanctions on Iran, supply outages in Venezuela, Libya and Angola, as well as increased demand supported price levels.
Also, oil production improved slightly due to relative stability in the Niger Delta region and that’s despite shortfalls across key pipelines in the sector the force majeure on SPDC Bonny Light Export Terminal.
As a result, oil production volume averaged 1.93 million barrels daily in 2018, from 1.88 mbpd in 2017.
Nigeria’s fortunes are still closely linked to oil markets and growth could be threatened this year if oil prices continue to depreciate the way they have done in 2019 so far. Brent crude traded at $62 per barrel Tuesday, and has largely hovered around that price for nearly two months now.
Another reason for gloom is the performance of the health sector.
The health sector plunged back into recession in 2018, after contracting two straight quarters. It contracted by 0.68 and 0.64 percent in the third and fourth quarter respectively.
Poor government funding and a lack of investment have crippled growth in the sector, which ranks alongside the Education sector as the major drivers of human capital development.
Education contracted -0.03 percent in 2018 albeit it was an improvement from a contraction of -0.72 percent in 2017.
Analysts have their say:
Lukman Otunuga, FXTM Research “It will be a monumental week for the Nigerian markets as presidential elections loom. Although the Naira was stable against the Dollar yesterday in the parallel markets, there could be some volatility this week due to election uncertainty.”
Gbolahan Ologunro, an equity research analyst at Lagos-based CSL stockbrokers
“Our current economic growth can’t solve our challenges as unemployment and inflation are still at double digits while poverty is increasing.
Ologunro explained that the critical sectors in the economy are still struggling to record improvement.
“The Trade and Real Estate sectors, which are used as a gauge to measure consumption level in the economy, are still under performing. Therefore, much work still needs to be done in terms of lifting the real sectors and putting them on the path of sustainable growth path.”
“Insecurity, high interest rate, unstable power is some of the major constraints to full recovery in the real sector. The absence of strong reforms to address these issues suggests they may remain in 2019, making us maintain our forecast for real GDP of 1.5 – 2.0% in 2019.”
Charles Robertson, Chief economist at Rencap
“We think Nigeria will do better in the next four years, because oil prices won’t repeat the fall of 2014 – 2016.
But policy choices will determine how much better Nigeria does.
Nigeria is probably no longer the biggest economy in Africa – if we use the market exchange rate which averaged 362/$. Note however, we can’t be sure as we don’t have SA 2018 GDP figures so it’s possible the IMF forecasts for SA in 2018 is too high (we used the correct ZAR average rate).
Adetola Adelu, Financial Analyst at Fides Capital Partners
“The GDP performance is impressive, especially in the non-oil sector while the significant drop in oil GDP can be attributed to the global drop in price of crude oil caused by oversupply.
Adelu attributed the festivities season as the reason behind the Q4 performance of non-oil sector thanks to key performing activities like Transport (enhanced by Yuletide), Information & Communication, Agriculture (festivity and harvest period) and Entertainment (festivity).
Meristem
“Given our outlook on oil prices, we expect the CBN to continue its intervention in the FX market, thereby sustaining liquidity and attracting more investment in the real sector.
We also envisage increased growth in the ICT sector, particularly after the elections, as more investors continue to invest in start-ups and mid-market businesses. The services sector should also be supported by the CBN’s growth agenda in 2019, which may necessitate increased collaboration with Fintechs.
This, alongside our outlook on agriculture sector, should further sustain the non-oil sector’s growth in 2019, albeit moderately.
In line with our outlook on the equities market, bargain hunting activities are dominant in the bourse due to relatively low valuations. Consequently, the equities market has recorded two consecutive weeks in the green to peg the YtD return in positive territory (+1.12%). We expect the negative sentiment towards the equities market to moderate as political risks ease off and investors take advantage of cheap stocks with strong potential for capital appreciation.
In the fixed income space, we expect the sustained growth in the economy to strengthen investors’ optimism and confidence in the economy, hence, improving participation in the debt market.
Going forward
With the Q4 2018 expansion, the Nigerian economy booked its seventh consecutive positive GDP growth since 2016 to beat the International Monetary Fund (IMF) and World Bank’s forecast of an annual growth rate of 1.9 percent for the year.
Four years ago markets hoping for a quick pivot to reforms cheered the new President Muhammadu Buhari administration amid a wave of optimism.
Nigerians had very high hopes that their economic situation will improve with his election but three years after, the personal living circumstances of many Nigerians have deteriorated as rising inflation and unemployment has weakened their purchasing power and forced many to readjust their lifestyle downwards.
Four years later, the tables have turned and Buhari is employing all the weapons in his arsenal to fight off the challenge from Atiku Abubakar, a former vice president, who swears the nation could be doing so much better under his leadership.
LOLADE AKINMURELE & DIPO OLADEHINDE
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