From Economic Crisis to Economic Emergency


Tuesday, November 22, 2016 8:35/ AM /fdc

Nigeria’s gross domestic product (GDP) contracted by 2.24% in the third quarter of 2016, making it the 3rd consecutive quarter of increasing negative growth. The FGN had earlier made pronouncements and policy decisions to reflate the economy by way of stimulus packages.

There had been several disbursements to sec-tors such as the civil works and construction sector, which likely caused the slight growth improvement in the sector in Q3’16. The settlement of forward contracts on September 29th caused an in-crease in inventories propping up the PMI towards the end of Q3’16.

The oil sector recorded a contraction in real growth to -22.01% while the negative growth in the manufacturing and trading sec-tors more than doubled due to forex illiquidity and high cost of borrowing.

These developments have tapered optimism about a bottoming out of economic decline in 2016. The manufacturing sector contracted to -4.38% in Q3’16 from -1.75% in the previous quarter, while the trading sector slowed to -1.38% in Q3’16 from - 0.03% in Q2’16.

Oil and Non-Oil Sectors

The oil sector contracted further to -22.01% from -17.47% in Q2, driven by the decline of 60,000bpd in Nigeria’s oil production. Militant activities in the Niger Delta shaved off oil output as well as the delayed repairs of ruptured oil and gas infrastructure.

The non-oil sector however, showed some resilience, with a reversal in the negative growth recorded in Q1 and Q2 2016. This sector grew by 0.03% in Q3’16 spurred by improved output from agriculture, ICT and other services.

Major Economic Sectors
An in-depth look at major economic sectors shows growth improvements in sectors such as construction, agriculture, ICT, Transport. However, sectors such as trading, manufacturing and real estate recorded declines in real growth terms.

The Trading and manufacturing sectors were badly hit because of their high dependence on forex supply for raw materials and finished goods.

In addition to this, manufacturing firms had to borrow at prohibitive interest rates, thus squeezing already thin margins and dampening activity.

The construction sector recorded a slight improvement of 0.15 percentage points to -6.13% in Q3’16. This accompanies a simultaneous decline of 0.78% in cement (under manufacturing) to -6.26% in Q3’16.

The construction sector is a lagging sector and as such, the disbursement of funds to construction companies in Q3’16 by the FGN, are to materialise in Q4’16 and beyond.

Policy Implications
Policymakers are faced with several policy options, and dilemma to some extent, to jump-start Nigeria’s ailing economy. These prescriptions include but are not limited to

·         An increased stimulus package elevated from previous levels

– Budget expenditure growth of about 25%

·         An accelerated borrowing plan ($6-7bn in 2017)

·         Efficiently priced forex market with no segmentation and mini-mum spread between the IFEM and black market rates

– This is achieved through regular supply of whatever limited forex is available as opposed to spasmodic supply creating hiccups, panic and speculation

·         A more accommodative monetary policy stance,

– MPR and CRR cuts need to be actively considered

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