• Sunday, June 23, 2024
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Rail growth hits 2-yr high as transport sector exits recession

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A first quarter expansion in the road and railway subsectors halted three straight quarters of contraction for Nigeria’s transport and storage sector.

The latest Gross Domestic Product report by the National Bureau of Statistics (NBS) showed that in real terms the sector expanded by 3.33 percent in Q1 2024, exiting the recession it entered last year.

“This rate is an increase of 32.33 percent points relative to the preceding quarter. The contribution of the sector to the GDP was 1.18 percent, relatively same with the 1.18 percent recorded in the preceding year and higher than 1.10 percent in Q4,” the report said.

Muda Yusuf, chief executive officer of the Centre for the Promotion of Private Enterprise (CPPE), said some infrastructural development and safety improvement around roads may have contributed to the growth in transport.

“Road transportation accounts for almost 90 percent of our transportation. And in terms of insecurity, I don’t think it is as bad as it used to be before. People are now driving freely from Kaduna to Abuja and some parts of the North,” he said.

Adeola Adenikinju, a professor of economics and president of Nigerian Economic Society (NES), said the decline in security challenges and the coming on board of some of the railway projects implemented by the last administration also accounted for the growth.

“Also, when airfares became very expensive, some people moved to the road and railways,” Adenikinju said.

A breakdown of the GDP report revealed that three of the six sub-activities under the sector grew at a faster pace.

Road transport expanded 5.58 percent in Q1 from a negative growth of 33.76 percent in the previous quarter.

Rail transport & pipelines jumped 66.63 percent, the highest in two years. Transport services grew 5.93 percent from 3.42 percent.

Air transport however entered recession for the first time since Q1 2021.

“The recovery in the transport sector seems promising but cannot be celebrated yet,” Temitope Omosuyi, investment strategy manager at Afrinvest Limited, said.

“It is obviously due to the base effect of the massive contraction recorded for the majority of 2023 in rail and road transport. While the run rate of sector performance at N865.4 billion shows an improvement over 2023, this is shy of about N1.0 trillion recorded in 2021 and 2022, respectively,” Omosuyi said.

Analysts say it is noteworthy that the rail sector enjoyed some level of tranquility from the reduced kidnapping that scared users in 2023. The opening of the Lagos Rail Mass Transport may have also added to the interest in that means of transport.

“For road transport, the major shock to the sector stemmed from the abrupt subsidy removal last year. The absence of further massive shocks might have provided some support for the sector,” Omosuyi added.

The removal of the fuel subsidy last May tripled the petrol price to above N600 from N184, causing public transportation providers such as buses, tricycles and motorcycles to raise fares. This situation affected those who rely on public transportation, particularly workers in the private sector.

With higher transportation fares, many Nigerians are forced to allocate a substantial portion of their salaries to cover commuting expenses, leaving little for other essential needs like food and rent.

Data from the NBS shows that the average retail price paid by consumers for petrol last month was N701.2, an increase of 176 percent from N254.1 in April last year.

The average retail price of diesel also rose from N842.3 per litre in April 2023 to N1, 415.1 per litre in the same period of 2024.

The increase in the cost of petrol led to the average fare paid by commuters for bus journeys within the city per drop to rise by 49.6 percent to N969.3 from N648.2 last year. The average fare paid by commuters for bus journey intercity per drop was N7, 152.9, up from N3,992.4.

“The country is back to business as usual as people have adjusted to the prices,” Gbolahan Ologunro, portfolio manager at FBNQuest, said.

“For rail, the Lagos-Ibadan railway might have been a key driver in the sector recovery. We have seen traction with commuters using rail as opposed to road,” Ologunro said.

Data from the NBS shows that the total number of passengers that travelled via rail system rose for the third straight quarter to 672,198 in Q4 from 594,348 in the previous quarter. The volume of goods/cargo transported stood at 119,286 tons, up from 81,963 tons.

According to Samuel Odewumi, a professor and past dean of Lagos State University’s School of Transport and Logistics, transportation is a derived demand and when the transportation sector freezes, the entire economic life of the country comes to a halt.

Adenikinju of NES noted that the growth in the transport sector will drive down production costs, improve productivity in the economy and further enhance the performance of other sectors.