Is Nigeria’s Recession Really Over?

Proshare

Sunday, December 10, 2017  12.34PM / by Opeyemi Agbaje, originally published in BusinessDay, Dec 6, 2017

When Nigeria’s second quarter GDP data was released, I wrote an article in this column (“A very fragile exit from recession”-September 13, 2017) warning that our exit from recession was very fragile and urging policy to focus on the implications of the data, rather than a celebration of the end of recession, as we were wont to do. Policy makers obviously did not take my counsel and the negative trends I observed in relation to the underlying structure of our economic “recovery” have worsened rather than improved, as Q3 GDP data will show! 

Economists define a recession as “…a sharp slowdown in the rate of economic growth or a modest decline in economic activity, as distinct from a slump or depression which is a more severe and prolonged downturn. Recessions are a feature of the business cycle. Two successive declines in seasonally adjusted, quarterly, real gross domestic product would constitute a recession…” (Dictionary of Economics published by The Economist) so I do not dispute that based on the technical definition of recessions, our Nigerian recession of 2016-2017 is over. In spite of that however, I suggest…indeed insist that a careful reading of the GDP data would reveal that in substance rather than form or technicality, the recession in Nigeria is far from over! 

In the second quarter (April to June 2017), adjusted Nigerian Bureau of Statistics (NBS) data reveals that the Nigerian economy as a whole grew by only 0.72% which marked our exit from recession. The data however showed that that happened solely because of the oil sector where prices had risen by over 10% that quarter and production also increased by 3.31%; and indeed in that same quarter, the growth of Nigeria’s combined non-oil economy declined from a marginal 0.72% in the first quarter to an even more marginal 0.45% in the second. 

So in effect for the vast majority of Nigerians who were engaged in employment of business in the non-oil economy, they were justified in feeling that they couldn’t feel the exit from recession! The data confirmed as I highlighted in the article earlier referred to that most of our economic sectors remained in recession in spite of the “headline news” that we had exited recession in Q2 2017. It is important to note that the oil sector accounted for only 8% of Nigeria’s economy in Q2 2017. 

The state of most sectors and the sole attribution of GDP growth to oil sector dynamics worsened in Q3 according to recently-released NBS data. While overall GDP growth rose to 1.4%, the non-oil economy returned into recession contracting by -0.76%! Oil sector growth however soared to 25.89% thus resulting in the larger headline growth recorded, especially because of base effects from lower 2016 oil price and production due to Niger-Delta disruptions and lower global oil prices. 

The data reveals that oil prices rose by 12% in Q3 while production increased by 26% in the same period over the equivalent period in 2016. Indeed the disparity between the oil and non-oil economy worsened rather than lessened in Q3 2017!

The scale of this disparity and the real state of our economy as at September 2017 is fully revealed however when you look at specific sectors. Analysis will show that there are three categories into which Nigerian economic sectors can be grouped as at the end of Q3-those which are growing; those with marginal and insignificant growth rates; and those that remain in recession. It is evident that the first category-those growing are a severe minority! 

The sectors which recorded growth in Q3 were only three-oil and gas (25.89%), utilities (7.84%) and agriculture (3.06%). 

We have already explained developments in the oil and gas sector; utilities growth is explained by growth in electricity output in Q2 and Q3, while agriculture growth while positive at 3.06% also reveals a worrying trend as the growth rate of agricultural output has reduced from 4.5% in Q2 and Q3 2016, to just 3% by Q2 and Q3 2017, revealing a significant variance between the hype of diversification and the reality of reducing growth rate of agricultural production and (if you look at inflation figures), the rising cost of domestic food! 

My hypothesis which I also referred to in my September article is that conflicts in the vast North Central Nigeria between herdsmen and farmers are already impacting agricultural output, as commonsense might suggest! 

The second category of sectors record, as I mentioned earlier, marginal or insignificant growth in GDP-solid minerals (0.92%), accommodation and food services aka hotels and restaurants (0.18%), administrative and support services (0.68%) and arts, entertainment and recreation (0.44%). In addition to their marginal growth rates, these sectors are also tiny, with insignificant impact on overall GDP! 

The third category, which unfortunately is the vast majority of Nigerian economic sectors, are those that remain in recession in spite of the misleading headline news of our exiting recession in Q2 or recording 1.4% growth in Q3-manufacturing (-2.85%), construction (-0.46%), trade (-1.74%), transport (-6.25%), information and communication i.e. mostly telecommunications (-4.48%), finance and insurance (-5.96%), real estate (-4.12%), professional, scientific and technical services (-1.38%), public administration i.e. government (-0.72%), education (-1.22%) and health (-0.85%). 

These data confirm the parlous state of the Nigerian economy, and suggest that policy is not yet impacting Nigeria’s economic performance (with the exceptions of our improved Doing Business ranking and improved liquidity in foreign currency markets) and that we cannot celebrate the exit from recession or improved GDP growth that are essentially due to factors outside our control! Indeed we would be repeating the tragic policy errors of our past if we do not correct an unbalanced economic growth that does not impact poverty and unemployment in our wider economy.

Related News
1.       Nigerian Economy Exits Recession – Implications and ... - Proshare Sep 5, 2017
2.      Nigeria out of recession-Implications – Tope Babalola, Proshare
3.      Nigerian Economy Emerges from Recession; GDP Grows ... - Proshare Sep 5, 2017
4.      Q2'17 GDP: Nigeria Creeps out of Recession - Proshare Sep 6, 2017
5.      Nigerian Economy Exiting Recession - Proshare May 31, 2017
6.      Nigeria Strategy Report H1 2017 (10) - Feeble Steps Out Of Recession Jan 20, 2017
7.      Fitch Cuts Nigeria's 2017 GDP Growth Forecast to 1pct from 1.50pct
8.     Inflation Rate to Decelerate Further to 15.84% in November
9.      ICAN Economic forum: Stakeholders explore Nigeria’s growth prospects in 2018 Budget
10.  The 2018 Budget and the Fear of Secular Stagnation
11.   Budget 2018: Still a Long Stretch
12.  2018 Budget Passes 2nd Reading
13.  Budget 2018: Nigeria Targets Consolidation but Revenues May Fall Short
14.  Federal Republic of Nigeria''s Proposed Eurobonds Assigned ''B'' Issue Ratings
15.   Fitch Rates Nigeria's Upcoming USD Notes ''B (EXP)''
16.  Moody''s Downgrades Eight Nigerian Banks Following Downgrade of Nigeria''s Government Bond Rating
17.   DMO Responds to Moody’s Sovereign Downgrade Rating on Nigeria
18.  A Sovereign Downgrade from Moody’s
19.  Moody's Downgrades Nigeria's Sovereign Issuer Rating to B2 With a Stable Outlook

READ MORE:
Related News
SCROLL TO TOP