Business, Featured
Nigeria’s oil-driven economy is shrinking despite the growth in the non-oil sector
By Anayo Ezugwu
The latest Gross Domestic Product, GDP, report by the National Bureau of Statistics, NBS, which shows that the Nigerian economy recorded a decline in performance from 1.95 percent in the first quarter to 1.5 percent in second quarter is contrary to World Bank projections for the country. The bank had in January this year projected that Nigeria’s economy would grow by at least 2.5 percent in 2018, but the latest report from the NBS indicates that this projection might not be met.
The NBS, in its second quarter GDP report released on Monday, August 27, stated that growth rate was constrained by contractions in oil GDP. Oil GDP contracted by -3.95 percent in the second quarter as against 14.77 percent in the first quarter of this year and 3.53 percent in the second quarter of 2017. The report said, for the first time since Nigeria’s exit from recession, growth was driven by the non-oil sector, which grew by 2.05 percent, representing the strongest growth in non-oil GDP since the fourth quarter of 2015.
The 2.05 percent growth rate is higher than the 0.76 percent growth which the sector recorded in the first quarter of this year. It added that non-oil GDP growth which was 0.72 percent in the first quarter of 2017, 0.45 percent, -0.76 percent, 1.45 percent in the second, third and fourth quarters of 2017 grew by 2.05 percent in the second quarter of this year.
“Non-oil growth was driven by transportation which grew by 21.76 percent supported by growth in construction which grew by 7.66 percent and electricity which grew by 7.59 percent. Other non-oil sectors that drove growth in second quarter of 2018 include telecommunication which grew by 11.51 percent, water supply and sewage which grew by 11.98 percent and broadcasting which grew by 21.92 percent.
“The non oil sector performance was, however, constrained by agriculture that grew by 1.3 percent compared to three percent in first quarter of 2018 and 3.01 percent in second quarter of 2017.”
Commenting on the GDP report, Bayo Rotimi, financial consultant, said there are several things that would cause one to have some concern about the economy. According to him, the report shows that the economy clearly is still over dependent on oil. He noted that between the first and the second quarter, GDP growth in the oil sector actually declined by 18.71 percent. And crude oil production dropped from 2 million barrels per day in the first quarter to 1.84 million barrels per day in the second quarter.
To him, this means that essentially the country lost 160,000 barrels per day on the average over a 90 day period and . If monetised, it will translate to $1.1 billion worth of revenue loses. “So you could see why the GDP numbers were seen declining because the principal driver of the economy is struggling.
“And you wonder why it will struggle in an era of significantly high oil prices. So it means that our challenge is that we are not sorting out the production elements. In Nigeria, we always like to play the game, when our production is high oil prices are low, now oil prices are high and our production is inconsistent.
“The low oil production is surprising but if you interrogate it further you will find out why. The 2018 budget has a target of 2.2 million barrels per day, first quarter as I said earlier we did 2 million, second quarter averaging 1.84 million. So why are we seeing that decline in production? It is because legal and regulatory framework that needs to be lockdown has still not being lockdown.
“The Petroleum Industry Governance Bill, PIGB, is still hanging somewhere. There are three other bills that have not been passed by the National Assembly. Shell recently was saying that there cannot be increase in new investment in this sector until they lockdown this very critical piece of legislation that will unbundle the NNPC,” he said.
Apart from these, Rotimi believes that there are a few positives from the report mostly in the non-oil sector, which recorded marginal growth rate.
On his part, Nazifi Darma, associate professor of development economist, University of Abuja, said the growth pattern in the second quarter oil production shows that there are problems. He said a significant proportion of the growth in the GDP was accounted for by the non-oil sector especially the services sector.
He regretted that while the economy is growing, a significant proportion of Nigeria’s population is still living below the poverty line particularly urban orientated poverty. According to him, based on the serious interventions made in the agriculture, there is improvement in livelihood and income in the rural areas particularly farming communities.
“The question is what do we need to do differently in order to move the economy out of serious gross decline? What are the specific sectors or sub-sectors that we need to push towards accelerating this growth? How can we be able to energise the informal sector of the economy? I think this is where the ingenuity and practicality of any government comes in. We need to energise the economy. The public sector in Nigeria in the years to come should be the leader in terms of projecting the economy towards growth and sustainability. But the model we are using now is wrong.
“The ideal model we should have used is to develope a very cohesive public private partnership, PPP, in such a way that private individuals can invest massively in this economy to be able to complement the little resource we have. It is unacceptable that an economy of almost 200 million people is budgeting approximately $30 billion. While a country like Mexico recently awarded a contract for a brand new airport at the cost of $30 billion.
“India is budgeting around $460 billion for the federal budget. This 2018, Brazil budgeted $1 trillion; Indonesia is budgeting over $1 trillion. And if you look at the analysis of the components that make up this federal government budget, significant proportion of it is coming from funding provided by PPP. So the question is why can’t we reactivate our PPP model?” he questioned.
Despite the seemingly shrinking of the economy, Senator Udoma Udo Udoma, minister of budget and national planning, sees the latest GDP figures as positive. He said the figures indicated that the Economic Recovery and Growth Plan, ERGP, his ministry was driving was yielding positive results. He described the 2.05 percent growth in the non-oil sector as the strongest growth in the non-oil GDP since the fourth quarter of 2015.
The minister, however, regretted that there was a slight drop in real GDP growth rate for the second quarter principally as a result of the contraction in the oil sector. According to him, the contraction in the oil and gas sectors is attributable to some production issues which are being addressed by the Nigerian National Petroleum Corporation, NNPC.
He pointed out, for instance, that the average crude oil production was only 1.84 million barrels a day in second quarter of 2018 as opposed to an average production of 2 million barrels a day in first quarter of 2018. But he is optimistic that once the issues are addressed the nation should be able to achieve positive growth in the oil and gas sector.
– Aug. 31, 2018 @ 17:39 GMT |
Tags: Nigeria's Shrinking Economy
