Nigeria Economy | |
Nigeria Economy | |
1994 VIEWS | |
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Monday, August 24, 2020 01:30 PM /by
TheAnalyst / Header Image Credit: NBS
COVID-19 brought about more than a
health pandemic it raised a contagion of negative economic forecasts for 2020
globally, Nigeria not exempted. Local economists had predicted that despite the
seemingly promising Q1 2020 GDP growth rate of +1.87%, Q2 2020 would show up with less flattering numbers.
The recent Q2 2020 GDP growth rate of -6.10% released by the National Bureau of Statistics (NBS)
confirmed analyst's fears.
Unlike the 2016-2017 economic recession
that was bolstered by tumbling international oil prices, the decline in GDP in
Q2 2020 was a combination of production and supply chain disruptions caused by a
ravaging coronavirus pandemic and the tit-for-tat conflict between Russia and
Saudi Arabia in the global oil market in Q1 2020 with both countries determined
to retain market share even at the cost of lower prices. The battle between
both oil giants has ended but global economic scars remain.
The Ides of A Lockdown
The domestic economic contraction in Q2
2020 has been attributed to the physical lockdown of two major states in
Nigeria and the federal capital territory: Lagos state, Ogun state, and the FCT,
Abuja which suffered blanket shutdowns in Q2 2020 with other containment
measures adopted in different parts of the country. As analysts had earlier predicted
the lockdown of states led to the shuttering of factories and other commercial
activities which in turn dealt severe body-blows to the nation's GDP (see Chart 1 below).
Chart 1: Nigeria's Quarterly GDP Growth Rate (%)
Source: NBS, Proshare
Research
The virus exposed and compounded
Nigeria's weak economic underbelly characterized by over-reliance on oil export
revenues, weak infrastructure, and large import dependence. The transportation
and storage sectors recorded the largest contraction of -49.23% while other notable sectors that recorded contraction were
accommodation & food services -40.19%, education -24.17% construction sector -31.77%, real estate -21.99%, trade -16.59%. The two sectors with the highest recorded growth in Q2
2020 were financial & insurance +18.49%, and Information & communication sector +15.09%. Other sectors that recorded positive growth in Q2
2020 include agriculture +1.58%, human health, and
social services +1.89% and public administration +2.02% (see
Chart 2).
Chart 2: Largest Contraction and Growth Sectors (%)
Source: NBS, Proshare
Research
Restrictions induced by COVID-19 adversely
affected inter and intra-state surface transport movement and the broader transportation
sector. There was little or no economic activity in the sector during the
lockdown as airline companies, road transporters and shippers recorded a
decline in activities and revenues. Also, the manufacturing sector was badly mangled
as manufacturers had to rely on declining input inventories and ad hoc
substitutes, where available, as imported inputs were off-limits over the
second quarter. Activities in the construction and the real estate sector were also
thumped by the restrictions.
The telecommunication sector, however,
had a different experience as revenues rose with more citizens either working
from home or staying at home without jobs. The enforcement of the lockdown made
businesses and individuals gravitate towards remote working as business
meetings were conducted through the internet, therefore, raising the revenues of
telcos.
Headwinds in The Savannah
Analysts hold out the view that the
economy would record a second consecutive contraction in GDP growth rate by Q3
2020, but the next contraction would milder than the Q2 2020 number due to the
easing of the economic lockdown and the resumption of business activities in
the quarter. Nigeria's rising inflation rate (12.82% in Q2 2020), escalating unemployment
rate (27.1% in Q2 2020), and dwindling foreign reserves have dampened hope of a
full economic recovery by Q2 2021 as earlier estimated. Nigerian citizens will have to tighten their fiscal
belts between Q2 2020 and Q2 2021 as a tougher economic outlook lies ahead. Policymakers
may need to grapple with the best policy combinations needed to tackle a
burgeoning economic crisis (see
Table 1).
Table 1: Nigeria's Economic Scorecard
Economic Parameters |
Previous |
Current |
Inflation (%) |
12.56 |
12.82 |
Unemployment (%) |
23.1 |
27.1 |
GDP Growth rate (%) |
1.87 |
-6.10 |
Foreign Reserves ($'bn) |
35.87 |
35.59 |
Source: NBS, CBN,
Proshare Research
Due to the integration of the Nigerian and
global economy, Nigeria's full economic recovery is hinged on the development of
a vaccine for the COVID-19, stability in global oil prices, and a rise in
global manufacturing production and commerce. Persistence in the spread of the
global virus would further disrupt international supply chains as some
countries may need to re-impose a lockdown that would adversely affect
Nigeria's import-dependent manufacturing sector. Slow recovery of global
economic growth would worsen Nigeria's balance of trade position.
Although there have been recent moves
by the government to diversify its export earnings such as the grant of
licenses to mine bitumen and gold, there are no quick fixes to Nigeria's
economic problems. Policy-makers may need to painstakingly address fundamental
issues such as the ballooning domestic budget deficit, worsening local infrastructure
gaps, rampant corruption, and low and globally-noncompetitive productivity.
If there is anything worse than
nightmares analysts, policymakers and indeed citizens will need to find the
appropriate therapy as the economy wobbles gingerly through Q3 2020.
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