Some financial and economic experts on Monday warned that weak fundamentals currently being exhibited by the Nigerian economy are putting the country’s exit from recession under threat.
Nigeria’s economy exited recession in 2017 after suffering contraction for five consecutive quarters.
But the National Bureau of Statistics, in its Gross Domestic Product report released on Monday, said the economy recorded a decline in output in real terms in the first quarter of 2019.
The NBS said the nation’s GDP growth rate fell to 2.01 per cent in the first quarter of 2019 from 2.38 per cent in the fourth quarter of last year.
It said when compared to the first quarter of 2018, which recorded real GDP growth rate of 1.89 per cent, the first-quarter 2019 growth rate represented an increase of 0.12 percentage points.
The NBS said, “It is worth noting that general elections were held across the country during the first quarter of 2019 and this may have reflected in the strongest first-quarter performance observed since 2015.
“Aggregate GDP stood at N31.79tn in nominal terms. This aggregate [GDP] was higher than in the first quarter of 2018 which recorded N28.44tn, representing a year-on-year nominal growth rate of 11.80 per cent. The aggregate [GDP] was, however, lower than in the preceding quarter of N35.23tn, by -9.75 per cent.”
The NBS put the oil sector’s GDP growth in the first quarter at -2.40 per cent, indicating a decrease of 16.43 percentage points relative to the rate recorded in the corresponding quarter of 2018.
It said the non-oil sector grew by 2.47 per cent in real terms during the first quarter.
This was 1.72 percentage points higher when compared to the rate recorded in the same quarter of 2018 but 0.23 percentage points lower than the fourth quarter 2018 figure.
The bureau said, “During the quarter, the sector was driven mainly by Information and Communication Technology.
“Other drivers were agriculture, transportation and storage, trade and construction. In real terms, the non-oil sector contributed 90.86 per cent to the nation’s GDP, higher than 90.45 per cent recorded in the first quarter of 2018 but lower than the 92.94 per cent for fourth quarter of 2018.”
But reacting to the report, economists, who spoke to our correspondents in separate telephone interviews, warned that the economy had started showing signs of weakness.
The Registrar, Institute of Finance and Control of Nigeria, Mr Godwin Eohoi, noted that the economic slowdown in the first quarter emanated from the oil sector with strong linkages to employment and growth.
He argued that the late passage of the 2019 budget, weakening demand and consumer spending, rising contractor debt, and low minimum wage were some of the risks to output growth.
Others, according to him, are the continued security challenges in the North-East and North-Central zones and growing level of sovereign debt.
According to him, except the Federal Government comes up with innovative measures to stimulate aggregate demand, the economy may slip into another recession by next year.
Eohoi said, “We have just increased minimum wage now and what will follow is an upward adjustment in the prices of goods and services.
“Once this happens, the purchasing power of the people will drop. If nothing innovative is done to stimulate the economy, then you will see that the level of economic productivity will start declining.
“So, what I will suggest is that the government should increase the minimum wage and then implement policies that would stimulate output, particularly in the area of agriculture.”
Eohoi said the planned increase in Value Added Tax should be suspended while banks should be encouraged to lend to small businesses in employment-creating and growth-stimulating sectors of the economy.
A developmental economist, Odilim Enwangbara, said the economy might return to recession as a result of unproductive spending.
He said, “The economy will eventually return to recession because of massive unproductive general spending.
“Many foreign investors have quietly left Nigeria, relocating to Ghana where necessary, while many local investors are on the sidelines out of fear of the prolonged political instability and the growing high level of insecurity, particularly kidnapping, causing harsh business environment.”
According to him, there is a continuous liquidity crunch because of the Central Bank of Nigeria’s efforts to artificially keep the naira strong.
Enwangbara said, “Because it is extremely expensive to artificially keep any economy’s currency strong, especially import-dependent economies like ours, the CBN has to remove the life support machine.
“As a result of all these assaults on the real economy, it is obvious that we are beginning a journey on the road to another recession.
“But it is extremely difficult for any economy to witness two recessions within five years and still survive it.”
The Director-General, Chartered Insurance Institute of Nigeria, Mr Richard Borokini, said the decline in GDP growth could be attributed to the elections that took place in the first quarter.
He said, “So, it is expected that things should pick up in the second quarter, expecting that government would stabilise soon, and key appointments would be done on time so we will know what they want to do.
“If there is relative stability this time round, things would pick up. But if it is still the same thing that happened about four years ago when the appointment of ministers was delayed, then it will affect the growth of the economy.”
The Director-General, Lagos Chamber of Commerce and Industry, Mr Muda Yusuf, noted that the GDP decline was not significant to warrant any fear of recession.
He, however, said the government still had a lot of work to do in terms of fixing infrastructure, reducing cost of doing business and making the environment conducive for business.
He said that given the insecurity situation in the country, it was a “pleasant shock that the growth did not decline more than the figure given.”
According to Yusuf, no business can thrive in an environment where there is insecurity.
He said, “We need increased production in the various states, especially in the non-oil sector, because sadly our major source of foreign exchange earnings still remains oil.
“The welfare of the people should also be considered, in terms of employment and provision of jobs and other things. The young ones in the country need to grow.”
Meanwhile, the Federal Government said on Monday that the country’s economy remained stable, despite the anticipated stress from the 2019 general elections.
The Minister of Budget and National Planning, Senator Udoma Udo-Udoma, said compared to the real GDP growth rate of 1.89 per cent in Q1 of 2018, the 2019 Q1 growth showed 0.12 per cent point increase.
The minster spoke with State House Correspondents after a meeting of the Federal Executive Council presided over by Vice-President Yemi Osinbajo.
It was the last FEC meeting to round off the first tenure of President Muhammadu Buhari’s administration ahead of his inauguration for a second term on May 29.
He said council noted that despite the expected impact of election costs such as inflation on the economy, it remained stable
Udoma said, “The council is also pleased to note that there are improvements in other economic indicators such as the inflation rate, which tend to have high inflation during an election period, but it has been stable.
“Our external reserves and our trade balance have also remained healthy over the period, while our exchange rate to the dollar has also been stable. So, notwithstanding the elections, there has been stability. The council believes that the dividends arising from the peaceful elections and the re-election of President Muhammadu Buhari will lead to a further boost in economic growth.
“The nation should, therefore, expect faster growth rate as the incoming cabinet continues to intensify work on the implementation of the Economic Recovery and Growth Plan (of the government).”
The minister argued that the 2019 first quarter performance was the strongest in four years since 2015.
He added, “This growth reflects the strongest first quarter performance in GDP since 2015. The first quarter is always the weakest in terms of growth. The FEC is most encouraged by the fact that growth continues to be driven by the non-oil sector, which affects most of our population.
“Also, agriculture grew by 3.17 per cent and this represents the strongest growth in agriculture since the fourth quarter in 2017.”