Motion without movement: Key sectors still in recession despite Q2 3.54 per cent growth

NIGERIA’S economy witnessed growth in the second quarter of 2022, according to the National Bureau of Statistics (NBS), a development many economic analysts have pooh-poohed as “a baseline growth”, saying it practically has no positive impact on the lives of most Nigerians.

Despite the recorded 3.54 per cent growth, the economy is weighed down by inflationary surge at 19.64 per cent, as calculated using the consumer price index (CPI).


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The surge is fuelled by increased borrowing to the tune of N41.6 trillion, according to figures from the Debt Management Office (DMO) records, to support the 2022 budget deficits and help execute infrastructural projects, especially in roads, rail and electricity. A major driver of the inflationary spike is hikes in the prices of petroleum products – petrol, kerosene, diesel, cooking gas, and aviation fuel – especially the first four, which affect the everyday activities of the Nigerian masses, as well as impact on production of goods and services.

The Director-General, Debt Management Office, Patience Oniha

Subsidy payments by the federal government of over N4 trillion to stem increase in the price of petrol has done little to achieve its objective, as marketers jacked up prices. A pump price of petrol, which opened the year at N165 at the official rate, now goes for between N169 and N200. The NNPCLtd claimed the marketers acted unilaterally and it had no hand in the decision. But oil industry analysts did not fail to note that even NNPCLtd retail stations also jacked up their pump price per litre, from the official uniform N165 price to N169 in Lagos and N174 in Abuja. The price is higher in other states. The ICIR gathered that pump prices of petrol in distant areas in states in the Southeast, Southsouth, Northwest, Northeast and Northcentral sub-regions go as high as N200 per litre.

The way the Nigerian economy works, it is always bad inflation news for the citizens every time oil marketers add even a kobo to the pump price of petrol. Economic analysts are, therefore, finding it hard to reconcile the theoretical growth in the economy with increases in the prices of, not only petrol, but also in cooking gas, diesel and kerosene, and, indeed, in the prices of foodstuffs generally.

Apart from the subsidy concerns, Nigeria is losing billions of dollars it needs desperately to shore up its limping economy to large-scale theft of crude, and to inadequate oil production. The NNPCLtd confirmed it had been losing an average of 400,000 barrels of crude per day to thieves.

Industry analysts say the country is confronted by multi-dimensional economic challenges that have rendered the recorded 3.54 per cent growth unimpactful on the people.

“The 3.54 per cent gross domestic growth is what is called baseline growth. If you compare the GDP quarter-to-quarter growth, it is negative. On a baseline comparison, the country is not growing. These are the nuances we look at to have a clearer picture of growth in an economy,” an economist, Kalu Aja said.

Aja: The economy is not growing

Aja, particularly considering Nigeria’s low revenue base, stressed there was no way a country can boast a strong economy on weak revenue.

“Imagine Nigeria as a business outlet with no revenue coming in, yet it is borrowing. That is the picture. Even the Nigeria’s Debt Management Office has raised an alarm over the level of borrowing,” he said.

Many sectors still in recession despite 3.54 per cent growth

The 3.45 per cent GDP growth, The ICIR findings have shown, marked the seventh consecutive quarterly GDP growth since the country’s exit from recession in the fourth quarter of 2020.

However, there are concerns about how poor macroeconomic management, galloping inflation, currency depreciation, foreign exchange illiquidity, high energy costs and weakening purchasing power are impoverishing millions of Nigerians.

Some of the sectors that experienced marginal growth are the two real sectors of agriculture, which recorded 1.2 per cent; and manufacturing, which recorded 3 per cent; followed by construction, which recoded 4.2 per cent.

The services sector, however, outperformed the real sector, reflecting the sectoral variabilities in the constraints faced by investors in the economy. Road transport, for instance, grew by 56.4 per cent, which represented the highest sectoral growth.

Air transport grew by 22.5 per cent, financial services by 20 per cent, Information and Communication Technology by 7.71 per cent, trade by 4.5 per cent and real estate by 4.4 per cent.

Businesses struggling to survive

The Executive Director, Centre for the Promotion of Private Enterprise, Muda Yusuf, told The ICIR that the country cannot be meaningfully boasting of growth in its economy when, businesses, from small to large scale, are struggling to cope with numerous challenges.

Yusuf: No reason to boast of growth

Yusuf stressed that apart from businesses, the citizens are experiencing serious economic hardship, as a result of galloping inflation and its impact on purchasing power.

“Notwithstanding the fact that the Nigerian economy has been out of recession since the fourth quarter of 2020, oil and gas, refining, textiles, electricity and gas are still in recession,” said Yusuf.

He said the government needed to intensify efforts in addressing rising oil theft, which he identified as seriously affecting Nigeria’s oil output and, by implication, revenue.

“The safety of the oil facilities is also paramount to reverse the underperformance of the oil and gas sector. The implementation of the Petroleum Industry Act would boost investment in the sector,” he said.

He also mentioned the need to improve efficiency in Nigeria’s electricity sector, as well as to put fiscal incentives in place to boost investment in renewable energy sector.

“There is the urgent need to decentralise the national grid for ease of management and efficiency. There should be a deliberate policy to attract private investment in the electricity grid,” he suggested.

Yusuf also spoke of the need for reforms in the real sector of the economy for wealth creation. “The textile sector is one victim of the current harsh business climate. The key elements of crisis are high energy cost, forex illiquidity, currency depreciation and weak domestic patronage.

He stressed the need for the rail system to rebound to create a pathway for those in the economic value-chain.

Task for next President:

Economist analysts are hoping President Muhammadu Buhari’s successor next year would have the will to take bold decisions to pull Nigeria out of its economic woes.

The Minister of Finance, Zainab Ahmed, reiterated Nigeria was in dire straits when she appeared before the House of Representatives Committee on Finance on Monday, August 29 to defend the 2023-2025 Medium Term Expenditure Framework (MTEF) and Fiscal Strategy Paper (FSP).

Zainab Ahmed
Ahmed: Nigeria in dire financial straits

Zainab said the federal government was considering the sale of some national assets to finance its budget deficit in 2023. The deficit is expected to exceed N12.42 trillion, if government decided to keep petroleum subsidy for the entire 2023 fiscal cycle.

According to the minister, the government was projecting a total revenue of N8.46 trillion, out of which N1.9 trillion was expected to come from oil-related sources, while the balance would come from non-oil sources.

This is not the first time Nigeria is going through borrowing to fund its budget deficit, as it has become a recurring incidence under President Buhari. Industry analysts say the development shows economic distress.

“For more than eight years, Nigeria has consistently maintained a budget deficit, which has progressively grown from four to six per cent of the GDP,” a public affairs analyst, Victor Emejuiwe, told The ICIR.

Emejuiwe: Inflation is reaching for the sky

Emejuiwe said that in such a deficit situation, where monies were being borrowed to pay salaries and inflation is reaching for the sky, the agencies of government responsible for fiscal policies implementing must adopt a collaborative response to Nigeria’s economic challenge.

No respite in 2023

The projected deficit for the 2023 budget is N11.30 trillion, 54 per cent higher than the previous budget’s estimated deficit, with petrol subsidy set to gulp N3.36 trillion in the first six months of the year.

The 2023 budget deficit represents 5.01 per cent of the GDP, which is above the 3 per cent threshold stipulated in the Fiscal Responsibility Act, 2007. The deficit could jump higher if the petrol subsidy practice does not end by June 2023, as President Muhammadu Buhari hopes.

Experts’ suggestions, and possible solutions

An economist and Chief Executive Officer of Cowry Assets Management Limited, Johnson Chukwu, told The ICIR that the management of Nigeria’s foreign exchange should be addressed to win investors’ confidence, with the ultimate view of creating wealth.

Chukwu: Government should address problems in foreign exchange management

“The government needs to address the supply side of the foreign exchange market by increasing support for non-oil exports, which has been doing appreciably well, according to latest released figures. Once this is done, there wouldn’t be so much problem from market speculators,” Chukwu said.

Aja lent his voice to the importance of government stopping oil theft and giving Nigerians confidence on the actual fuel subsidy and consumption figures. “If the government can fix oil theft and curb opaque subsidy, which is the big elephant in the room gulping huge amount of money, we would have much more money for infrastructure, and curb excessive borrowing, which the DMO boss, Patience Oniha, has raised a concern about.




     

     

    “The Customs Comptroller-General, who is also part of this government, is questioning the volume of litres of fuel being consumed daily consumption, insisting the 98 million litres consumption figure is fraudulent,” the economist said.

    Hamid Ali
    Hamid Ali/PC: Daily Trust

    The Federal Government, Aja said, must plug all loopholes to drive the needed economic growth.

    A professor of Energy Economics, Ken Ifedi, urged support for the Central Bank of Nigeria’s monetary policies with fiscal policies to create wealth.

    “The CBN has made numerous interventions during COVID-19 and post-Covid by offering single digit interest rate to the real sectors of the productive economy. The CBN also did statutory forbearance of re-working some of the loans to the real sector from 9 per cent to 5 per cent. These measures are good, but they must be backed with fiscal buffer for the economy to be up and running,” Ifedi said.

    Harrison Edeh is a journalist with the International Centre for Investigative Reporting, always determined to drive advocacy for good governance through holding public officials and businesses accountable.

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