Fear of recession looms as Nigeria’s GDP contracts by 6.10%


…We’re delighted with ICT’s 17.83% contribution to GDP— Minister

…14 sectors are in recession over GDP contraction on COVID-19 pandemic- LCCI

…FG must sustain ICT policies to sustain growth in 2020  — ALTON

…FG must be efficient in managing resources— Analysts

By Ibiyemi Mathew, Joshua Elekwachi and Ogaga Ariemu

The National Bureau of Statistics (NBS) on Monday released Nigeria’s second quarter (Q2) 2020 Gross Domestic Product (GDP), showing that the economy contracted by -6.10  as against  1.87 per cent reported in Q1 2020.

With the latest figures by NBS, analysts have expressed fear over the nation’s economy not entering recession in third quarter of 2020.

A recession is defined as consecutive declines in quarterly real gross domestic product (inflation adjusted) and a decline in activity across the economy, lasting longer than three to four months. It is visible in industrial production, employment, real income and wholesale-retail trade.

NBS stated that Nigeria’s GDP decreased by minus six to 10 per cent, year-on-year, in real terms in the Q2 2020.

The bureau disclosed that the non-oil sector contributed 91.07 per cent to the nation’s GDP in Q2 2020 as opposed to the 8.93 per cent contributed to total real GDP by the oil sector.

According to the bureau, “Nigeria’s GDP decreased by –6.10 per cent (year-on-year) in real terms in the second quarter of 2020, ending the 3-year trend of low but positive real growth rates recorded since the 2016/17 recession.

“The decline was largely attributable to significantly lower levels of both domestic and international economic activity during the quarter, which resulted from nationwide shutdown efforts aimed at containing the COVID-19 pandemic.

“The domestic efforts ranged from initial restrictions of human and vehicular movement implemented in only a few states to a nationwide curfew, bans on domestic and international travel, closure of schools and markets etc., affecting both local and international trade.

“The efforts, led by both the Federal and State governments, evolved over the course of the quarter and persisted throughout.

“When compared with Q2 2019, which recorded a growth of 2.12 per cent, the Q2 2020 growth rate indicates a drop of –8.22 per cent points, and a fall of –7.97 per cent points when compared to the first quarter of 2020 (1.87 per cent).

“Consequently, for the first half of 2020, real GDP declined by –2.18 per cent year on year, compared with 2.11per centt recorded in the first half of 2019. Quarter on quarter, real GDP decreased by –5.04 per cent. Furthermore, only 13 activities recorded positive real growth compared to 30 in the preceding quarter.

“In the quarter under review, aggregate GDP stood at N34,023,197.60 million in nominal terms, or -2.8 per cent lower than the second quarter of 2019 which recorded an aggregate of N35,001,877.95 million.

“Overall, the nominal growth rate was –16.81 per cent points lower than recorded in the second quarter of 2019, and –14.81 per cent points lower than recorded in the first quarter of 2020. For better clarity, the Nigerian economy has been classified broadly into the oil and non-oil sectors.”

We’re delighted with ICT 17.83% contribution to GDP- Minister

The NBS in its report said Information Communication Technology (ICT) contributed 17.83 per cent to the nation’s GDP.

A statement signed by Dr. Femi Adeluyi, Technical Assistant, Information Technology, said the Minister of Communications and Digital Economy, Dr. Isa Pantami, expressed delight to hear of the growth of ICT’s contribution to Nigeria’s GDP.

In the statement, the Minister noted that the growing contribution of the ICT sector to the GDP was a direct result of the focused and committed effort of the administration of President Muhammadu Buhari.

He said that the strategic policy directions of the Federal Government included the inclusion of Digital Economy in the mandate of the Ministry, the unveiling and implementation of the National Digital Economy Policy and Strategy and the National Broadband Plan, among others.

“As at July 2020, the broadband penetration in the country was 42.02 per cent, translating to a percentage increase of almost double digits in less than one year. This is another remarkable achievement.

“The unprecedented contribution of ICT to Nigeria’s GDP can also be attributed to dynamic and results-oriented leadership which has been acknowledged and appreciated by a wide spectrum of the stakeholders in the sector.

“The support of President Buhari has contributed immensely to the impressive developments in the sector.

“Mr President is excited about the growth of the sector and commended the Minister when he heard of these achievements.

“The GDP Report has shown how critical the ICT sector is to the growth of our country’s digital economy and, by extension, the general economy,’’ the statement said.

It said that the Minister called on all sectors to take advantage of the government’s new focus on the digital economy to enable and improve their processes through the use of ICTs, which would enhance the output of all the sectors of the economy and boost Nigeria’s GDP.

Commenting also, President National Association of Telecommunications Subscribers of Nigeria (NATCOMS), Mr Deolu Ogunbanjo, urged the Federal Government to direct phone manufacturing companies to establish factories in Nigeria.

He also lauded the growth experienced in the ICT sector.

Speaking with our correspondent, Ogunbanjo, lauded the efforts of the current government.

According to him, “Honestly only about 2-3years ago the contribution of ICT sector to the Nigeria’s GDP was 10 per cent. Sincerely the increase to 17.83 per cent has shown the seriousness of this government towards actualization of its Digital Nigeria drive and its quest to place Nigeria at par with developed society in terms of ICT.”

He further noted that the telecommunication sector is booming because a lot of activities have gone online, stating that indeed COVID-19 is a mixed blessing.

He added that the FG’s 2020-2025 Broadband penetration plan is a good omen that the government is getting it right.

Also speaking with our correspondent, the President of the Association of the licensed telecom operators of Nigeria (ALTON), Gbenga Adebayo said the association is pleased about the contributory part of the sector to the country’s GDP.

Adebayo thanked all industry players for their resilience and consistency of purpose and highlighted some of the factors responsible for the growth.

He highlighted that the investor friendly policy and regulatory environment, commitment of all stakeholders, Consistent Investment on network maintenance and expansion and sacrifice by sector operators have contributed to the growth of the sector.

Speaking further, Adebayo said the growth can be sustained if stakeholders continue to invest in network expansion and maintenance operations.

He added that consistency in policy environment, cooperation between all the stakeholders, access to foreign exchange to procure network critical equipment and access to spectrum and friendly policies around spectrum allocation, assignment and reassignment will help the sector to sustain the growth.

14 sectors are in recession over GDP contraction on COVID-19 — LCCI

The Lagos Chamber of Commerce and  Industry (LCCI) has hinged the 6.1 per cent GDP contraction on the socio-economic disruptions of COVID-19 pandemic.

The Director-General LCCI, Dr Muda Yusuf made this known in an economic report released to newsmen on Monday in Lagos.

Yusuf noted that the 6.1 per cent contraction marked the steepest quarterly contraction in the nation’s recent economic history.

According to him, the contraction value, though not surprising, reflected the profound impact of the COVID-19 pandemic on the Nigerian economy.

“The containment measures imposed globally and domestically to slow the spread of the pandemic significantly disrupted global supply chains and destabilized commercial, business, investment, and trade activities.

“In addition to these, it was also in the second quarter that the country was confronted with weakening oil prices, low crude production, huge volume of unsold crude cargoes and foreign exchange scarcity.

“The quarter also encountered depleting external reserves, portfolio outflows in the financial markets, disruption and adjustment of the 2020 budget, revenue collapse from oil and non-oil sources, rising spate of job losses, high food prices, among others,” he said.

On sectoral performance, the LCCI DG said the Chamber noted weak performance among critical sectors with potential to facilitate economic diversification and development.

“While some sectors did expand in the second quarter, most of the sectors that reported positive growth in the first quarter plunged into sharp contraction, while others maintained their position in recessionary territory.

“In all 46 sectors, 19 sectors inclusive of crude petroleum and natural gas contracted; 14 sectors are in recession, 11 sectors expanded, and two sectors reported slowdown in growth,” Yusuf said.

He also noted that the oil and gas sector contracted by 6.65 per cent in Q2-2020 compared to 5.06 per cent expansion reported in the preceding quarter.

According to him, the huge contraction was driven by low crude production, which averaged 1.81 mbpd in the quarter; the lowest since Q4-2016.

“We attribute the low level of crude production in Q2-2020 to OPEC+ production cut agreement (which became effective in May 2020), aimed at rebalancing the oil market.

“We also note that the economy experienced stockpiles of unsold crude cargoes, particularly in April and early May, due to collapse in crude demand from Asia and Europe.

“In addition to these, the steep contraction was also fuelled by weakening oil prices witnessed in the quarter,” he said.

Also, Yusuf stated that the non-oil sector which contracted by 6.05 per cent was driven by the more pronounced impact of lockdown, movement restrictions, flight suspension, restricted international trade as well as subdued commercial and business activities.

“Trade is Nigeria’s second biggest sector by percentage contribution to output.

“We note that the sector has been in recession since Q3-2019 due to the closure of the land borders, port inefficiencies, and weak consumer spending among other structural challenges.

“These challenges coupled with the global pandemic magnified the magnitude of contraction to 16.59 per cent in Q2-2020 from -2.82 per cent reported in Q1-2020,” he said.

On agriculture which expanded by 1.58 per cent, the DG noted that the slow growth was driven by disruption to the food supply chains, difficulties experienced by farmers in conveying their products inter-state and insecurity in food producing areas.

The Industry expert noted with concern the performance of the manufacturing sector in spite of being one of the biggest beneficiaries of the Central Bank of Nigeria’s (CBN) loan-to-deposit policy.

“We note with concerns that the manufacturing sector has been struggling with growth before the outbreak of the novel coronavirus.

“Manufacturing sector contracted by 8.78 per cent in Q2-2020 compared with a marginal 0.43 per cent growth in the previous sector.

“We note that of the 13 sub-sectors in the manufacturing space, only two sectors – chemical & pharmaceutical products and motor vehicles & assembly reported positive growths, while the other 11 sub-sectors had negative growth.

“In our view, we believe the weakness of manufacturing sector was due to global & domestic supply chain disruptions, foreign exchange illiquidity, weak consumer spending and high operating costs,” he said.

On aviation, Yusuf said the suspension of domestic and international flights to curtail the spread of COVID-19 significantly destabilized air transport industry as evidenced by the 57 per cent contraction reported in the second quarter.

On real estate, the DG noted that both lockdown and social distancing rules made it difficult for real estate players to interact and transact with clients, and this led to suspension of most real estate projects.

“The shutdown of hotels, bars, event centres and relaxation centres equally weighed on the arts, entertainment, and recreation industry.

“This explains the 8.93 per cent contraction reported in Q2-2020 compared to 1.53 per cent growth recorded in the first quarter.

“The Information and Communications Technology (ICT) sector sustained its position as the country’s fastest growing economy as its growth expanded faster by 15.99 per cent in Q2- 2020.

“We believe the faster growth pace of ICT was largely driven by increased data consumption due to the social distancing and remote working from home operation policies,” he said.

Yusuf urged policy makers to tackle the twin challenge of rising inflation and unemployment rate to reflate the economy.

“The Nigerian economy is currently in dire straits with inflation and unemployment at record high of 12.82 per cent and 27.1 per cent respectively.

“Given the protraction of the COVID-19 pandemic and lack of a vaccine, there is high possibility that the economy would contract, though marginally, in the third quarter.

“This would mark the second recession under the watch of the current administration.

“It is imperative to ensure effective synchronization of fiscal and monetary policies and proper implementation of the sustainability plan among other measures.

“The structural bottlenecks to productivity in the economy needs to be urgently removed through a mix of fiscal, monetary and regulatory measures.

“It is imperative to reduce policy uncertainties in order to inspire the confidence of investors, both domestic and foreign.

“This would give the economy a boost in the near term.

“However, growth will continue to remain weak and fragile till the first quarter of 2021,” he said.

Nigeria may not escape recession – Analysts

Experts have expressed concern that Nigeria may not escape recession given the contraction in GDP.

Financial analyst, Mr. Eze Igweobi in a chat with Nigerian NewsDirect said Nigeria was not for once out of recession, stressing that recent growth in GDP had less impact on local production.

According to him, “Nigeria is not earning enough effect and when you are not earning enough effect the naira will ordinarily lost value”

He advised that the best monetary policy the country should consider to keep the economy in motion is to allow naira and dollar rate determined by forces of demands and supply.

An Economist, Mr. Johnson Chukwu, said he doubts if the country can escape recession, stressing that GDP growth and slide in Q2 is a serious indication the country may not escape.

According to him, “The Economy should be opened for direct foreign investment giving the paucity of funding within the local environment. Government must adopt more enhanced monetary policy.”