EXPLAINER: Why Nigeria’s GDP has been unsustainable in the last 6 years

Nigeria’s Gross Domestic Product (GDP) in the last six years has oscillated between negative and positive territories but has not crossed the two percent threshold until last year (2021) when it hit 3.40% and is most likely to return to its two percent threshold before the end of the second quarter of 2022 (Q2 ’22).

Amongst the vast challenges that plagued the country’s GDP sustainability in the last six years were the two recessions the country experienced in 2016 and in 2020; the latter hitting the hardest as a result of the covid-19 pandemic which crippled the economy.

The year 2020 was a ‘malnourished’ year for both the Nigerian economy and the world at large as the coronavirus pandemic brought global economic activities to a halt, thus sending various economies globally into a recession.

The year 2021 on the other hand, came with a breath of fresh air as pandemic induced pressures eased off and economic activities gradually re-opened.

However, the transition last year was accompanied with its own set of challenges as rising inflation pushed a greater percentage of Nigerians below the poverty threshold.

Last week, the National Bureau of Statistics (NBS) released Gross Domestic Product (GDP) figures for the fourth quarter of 2021 (Q4 ’21). Data from the report revealed that while Q4 2021 GDP stood at 3.98%, annual GDP for 2021 on the other hand stood at 3.40% representing the country’s highest recorded GDP since 2014 when the country recorded a GDP growth rate of 6.22%.

Read also: Nigeria’s 2021 GDP growth beats estimates

While this antecedent might be commendable (considering how the Nigerian government navigated the economy from the 2020 pandemic induced recession to this point), the reality however, is that the country is not yet out of the well as the argument on the lips of most economic analysts are;

Would the current GDP growth rate momentum be sustainable considering the FG’s prior antecedents?

Would inflation continue to play its ‘potency dampening’ role on GDP as it has done in the last 6 years?

The Statistician of the Federation, Simon Harry while announcing the GDP figures last week indicated that “while the current GDP rate could be accrued to the wearing off of base-effect as well as effective and efficient monetary policy actions on the part of the Central Bank of Nigeria (CBN), the impact of inflationary pressures should not be overlooked or taken likely as it has been a major challenge for the Nigerian economy in its quest towards achieving sustained growth”.

The original blueprint of the Nigerian economy by the monetary/regulatory authorities was and has been benchmarked on single-digit inflation (6%-9%) and any deviation from this benchmark would naturally attract consequences that would deter the country’s growth trajectory from its sustainable threshold.

Uche Uwaleke, a professor of finance and capital market and president of the Association of Capital Market Academics of Nigeria stated that the years Nigeria actually witnessed sustained significant economic growth sequentially happened to be the years the country’s inflation figures navigated within the single-digit threshold.

“The evidence speaks for itself in the NBS report. The years that had single-digit inflation also happened to be the years that Nigeria witnessed significant growth and vice-versa,” Uwaleke said.

“Nigeria’s GDP rate is a functioning system, plug in the right algorithm, and you would get a corresponding positive output, it’s that simple,” he added.

Data culled from the NBS report revealed that the years 2013 and 2014 which witnessed significant growth rates of 5.49% and 6.22% respectively are the same years that witnessed annual single-digit inflation rates on the average.

Further analysis of the report by BusinessDay revealed that the period when the country navigated to double-digit inflation territory are years when the country got stuck within the 2% GDP threshold.

Dr. Isibor Areghan, a financial expert and a senior lecturer at the department of finance at Covenant University stated that a critical look at the recently released report actually reveals familiar economic trends.

“The Monetary Policy Committee (MPC) has been doing an excellent job which is evidenced in the recently released report. However, if you look closely, you would observe slight traces of inflationary traits in the trend.

“If you noticed, after the giant leap in GDP to five percent during the second quarter of 2021 (due to base effect), you would notice that GDP declined to 4.09% then to the current 3.98%. This decline could be accrued due to inflationary pressures amongst other economic concerns. But double-digit inflation plays a major role,” Isibor said.

“This could be evidence that sustaining Nigeria’s GDP at 3% for now is still a long-shot,” he added.

The World Bank in a report last year indicated that one of the major anchors to GDP growth in the economy was poverty. The Bank asserted that inflation had plunged more than 45% of Nigerians into poverty.

The non-commensurate nature of rising inflation against fixed incomes for households in the economy has continued to increase the rate of poverty in the country with a greater percentage located in the Northern region largely due to insecurity issues.

The Director General of the Lagos Chamber of Commerce and Industry (LCCI), Dr. Muda Yusuf stated that inflation has remained a major catalyst of poverty for citizens and a major concern for GDP which has subsequently posed challenges for both domestic as well as foreign investors.

“Inflation is perhaps the biggest poverty accelerator because of the weakening of purchasing power. This is particularly so with food inflation, which has consistently been a significant component of headline inflation.

“It weakens real income, erodes purchasing power, puts pressure on operating costs, aggravates production costs, reduces sales and negatively impacts profit margins across sectors,” Yusuf said.

According to him, the drivers of inflation have remained largely the same including the security situation, cost of transportation and logistics (which is anticipated to rise further in coming months due to the dirty petrol crisis), energy costs, exchange rate depreciation, illiquidity in the forex market, among others.

He stated that tackling inflation would require fixing these supply-side challenges and reining in fiscal deficit monetization.