• Friday, March 29, 2024
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Nigeria’s economy seen in sharp plunge in Q2 with 91% of sectors trodden by virus

Nigeria’s economy

Nigeria’s economy is forecast to see a sharp plunge in the second quarter (Q2) of 2020 with 91 percent of sectors ravaged by the coronavirus pandemic, according to early estimates by Yemi Kale, the country’s chief statistician and head of state data agency, National Bureau of Statistics (NBS).

With the chances of a pick-up in the economy slim, it means Nigeria could be in a technical recession between July and September 2020, the second economic decline for Africa’s largest economy in five years. Economists say that will most likely lead to increased job losses and rising poverty.

Preliminary numbers showed that only a small fraction of the 46 sectors of the Nigerian economy didn’t contract in the second quarter of the year, according to Kale, who spoke at a BusinessDay webinar, Tuesday.

“Forty or so sectors had significant challenges in the second quarter and that is what the numbers are showing,” said Kale, who didn’t give a specific figure. “From the numbers we have, although we are still collating, we should expect a very, very negative performance in the second quarter.”

Kale also expects the economy to contract by the end of the year with a long road to recovery, despite a positive first quarter in which the economy grew by 1.87 percent.

The impact of an initial lockdown of key states, Lagos, Abuja and Ogun, in the second quarter weighed on household spending, which accounts for about 70 percent of the GDP, Kale said.

In the second quarter, the Agriculture sector was not affected significantly because much movement is not needed for farming activities and due to the fact that 90% of activities are subsistence-based, Kale said.
Trade, however, has been affected by the disruption to international trade and domestic manufacturing.

Manufacturing was also hard hit in Q2 while there were little activities in Real Estate and Transport.
On the positive side, however, Kale said the telecommunications sector recorded strong growth as data consumption rose in the period.

Other sectors that make up 30 percent of the economy, like hotels and restaurants expectedly struggled in the quarter.

“The ban on concerts, art exhibitions, cinema, etc also impacted negatively on arts and entertainment sectors. Construction was not left out,” he said.

Experts hope the slow reopening of the economy since May will lessen the effect of the lockdowns that put around 38 percent of workers out of job, helping to soften blows to the economy.

The move, however, by Nigeria and countries across Africa to start reopening our economics before hitting their peak in infections might prolong the pandemic and cause the virus to spread more, said Acha Leke, Africa Chairman, McKinsey & Co. International Trade is also expected to be affected.

“As we reopen our domestic economies, the concern is how much of the international economy will be willing to trade with us when we have not reached our peak yet and I think that is the challenge we are going to face,” he said.

Long road ahead

Positive numbers from leading economies like the US retail data have renewed hope that the global economy might see a V-shaped recovery after all.

Charlie Robertson, global chief economist at Renaissance Capital said key variables to watch out for are oil price, coronavirus infections trajectory and retail trade data.

US retail sales rebounded by a record 17.7 per cent in May as American consumers began spending and states gradually reopened their economies following the pandemic lockdowns.

That was the biggest monthly gain on records dating back to 1992, suggesting the country’s stimulus package have helped keep cash in consumers’ pockets.

A quick recovery of Nigeria from the recession, however, is unlikely based on the structure of the economy and historic data on previous recessions, speakers at the BusinessDay conference noted.

Way Out
 
Robertson said Nigeria’s government needs to get education and electricity right to attract necessary investments that will boost the economy.

“Nigeria has not hit the 70% metric of adult literacy which has for 200 years now been the essential level that a country needs before it can industrialize,” he said.

According to Robertson, Ghana has three times electricity per person than Nigeria, their adult literacy is nearly 80 percent compared to Nigeria’s 62 percent. As a result, foreign investors are more likely to put their investment in Ghana than Nigeria.”

Sutura Aisha Bello, PPP Component lead, UK Nigeria Infrastructure Advisory Facility said ignoring the private sector to partner in provide infrastructural services will delay the recovery of Nigeria from the recession.

“It is important for the government to try and work with the private sector,” she said. “They need to bring them in both locally and internationally to be able to provide some of the infrastructure that we need in order for the economy to grow.”

Bello said that while debt isn’t bad, it must be channelled to productive sectors.

A silver-lining for Nigeria amid the pandemic is the opportunity to send investors a very clear signal regarding PPPs in the country.

“So it is very important for the country to have post-COVID very clear pipeline of critical transformational, investable projects that are people-focused,” said Bello, noting that such would help reduce income-disparity between rich and poor Nigerians already worsened by the virus.