With at least 39 activity sectors recording a growth rate of less than 2 percent out of a total of 52 sectors, Africa’s biggest economy will need more than a miracle to avoid more doom in the remaining months of 2020.
Nigeria’s economy slowed to its lowest level in more than a year, recording 1.87 percent in the first quarter of 2020 compared with growth of 2.55 percent in the previous quarter. This development means negative per capita GDP, which implies that Nigerians are growing poorer as the impact of the coronavirus pandemic takes a toll on both the oil and non-oil sectors of the economy.
The slower growth in the economy was reported in the oil and non-oil sectors as both sectors eased from 6.36 percent and 2.26 percent, respectively, in the previous quarter to a growth of 5.06 percent and 1.55 percent in Q1 2020, the Abuja-based National Bureau of Statistics (NBS) said on its website on Monday.
“Broad assessment of the sectors reveals underwhelming performance in critical sectors with potentials to facilitate diversification,” Damilola Adewale, a Lagos-based economist and independent consultant, said.
Other economists have said the lower GDP numbers reflect rising uncertainties in the country, low growth and contraction across many sectors of the Nigerian economy which, more than ever, underscore the need for an urgent set of policies and engagements to rescue the economy.
The lower GDP rate is also expected to impact Nigerians’ spending habit after research has shown most people typically spend more than 50 percent of their incomes on food.
This implies that after spending on food, most Nigerians would not have enough money for other important things, such as investment, which is bad for an economy struggling to free itself from toxic oil revenue.
Oil output rose to 2.07 million barrels a day, its highest level since at least the start of 2016, thanks to a ramp-up in production to compensate for the fall in income which was due to tension between some of the world’s biggest producers and the effect of coronavirus outbreak.
Apart from the oil sector, other sectors that did relatively well to rank among the highflyers in first quarter 2020 include financial institution, information and communication, mining and quarrying, and transportation and storage system.
Finance and insurance sector, most especially financial institution and insurance, recorded the highest performance of 24 percent and 20.29 percent compared to -9.21 percent and -7.60 percent, respectively, recorded in the corresponding quarter last year.
Telecommunication and information service recorded a growth rate of 9.71 percent in Q1 2020 compared to 10.26 percent recorded in the previous quarter, while information and communication recorded a growth rate of 7.65 percent compared to 10.16 percent recorded in the previous quarter.
“The LDR policy engendered strong output performance in the financial services sector while the ICT sector sustained excellent performance,” said Adewale.
“Amid the COVID-19 pandemic, the ICT sector will demonstrate remarkable performance in Q2. Huge youthful population, deep mobile penetration and higher data consumption will buoy growth in the second quarter,” he said.
Mining and quarrying sector recorded a growth rate of 4.58 percent in Q1 2020 while transportation and storage sector recorded a growth rate of 4.58 percent.
Despite government effort to diversify revenue base, the agriculture sector declined to 2.20 percent in Q1 2020 from 3.17 percent in the corresponding period last year, despite recording 2.31 percent growth in Q4 2019.
Ayodeji Ebo, managing director, Afrinvest Securities Limited, told BusinessDay that the continued decline in the contribution from agriculture should also be a major concern despite the intervention funds and crowdfunding platforms to support the sector.
It gets even worse
The labour-intensive sectors, such as quarrying and other minerals, air transportation, public administration, coal mining and oil refining, underperformed.
Quarrying and other minerals
Quarrying and other minerals sector of the economy emerged the worst performer as the sector contracted further by -83.03 percent in Q1’20 from -5 percent in Q4 2019 and 29.31 percent in Q1 2019.
That’s the biggest drop ever in the sector since the state-funded statistical agency started tracking GDP figures.
The coal mining subsector was the second worst performer, dipping further by -43.41 percent in the quarter from a contraction of -12.32 percent in the previous quarter.
On a year-on-year comparison, the contraction reported in the sector in this quarter was a far cry from a growth of 31.10 percent recorded a year ago.
The contraction seen in both coal mining and in the quarrying and other minerals sectors culminated into slowing down the growth of the entire mining and quarrying sector to 4.58 percent from the 6.07 percent in the previous quarter.
The oil refining subsector was among the poorly performing sectors that contributed to the slowdown of the growth in real GDP. The sector, which is among 12 other subsectors under manufacturing, contracted by -52.81 percent in Q1 2020 from -25.71 percent in Q4 2019 and -49.62 percent in Q1 2019.
The aviation sector made the list of the five sectors to have performed badly in the latest GDP figures, with the growth in the sector dipping by more than half, due largely to the coronavirus pandemic that made countries restrict movement to and from their countries, according to analysts who spoke to BusinessDay.
The sector expanded at a slower pace by 5.68 percent in Q1 2020, compared with the growth of 14.98 percent reported in the previous quarter.
Although the Federal Government enacted a closure of air transportation sometime in March after the first index case was reported in late February, many persons had already cut travels to countries that are known to have a high risk of the virus.
Public administration contracted by -8.72 percent in Q1 2020, from an expansion of 0.06 percent in Q4 2019.
That’s its first negative growth in three quarters, as employees in the public sector worked remotely in order to contain the spread of the pandemic.
Omotola Abimbola, macro and fixed income analyst at Chapel Hill, expects both Q2 and Q3 GDP figures would be a lot worse as the country begins to see the impact of the coronavirus-induced lockdown on virtually all sectors of the economy. For him, a recession is more or less guaranteed.
“We should expect a steep contraction in both Q1 and Q2 numbers due to an almost economic lockdown that started in April,” Abimbola said.
Going forward, Ayodele Akinwunmi of FSDH Merchant Bank said, “We need to see how the country will implement policies that will drive growth.”