Days ago, the Nigerian Bureau of Statistics announced that Nigeria has officially exited recession this quarter. According to the NBS, the country’s Gross Domestic Product (GDP) grew 0.55 percent in the second quarter of 2017. This was the first recorded positive growth after five consecutive quarters of contraction since the first quarter of 2016. Nigeria’s exit from its longest economic slump since 1991 followed major growth in the oil and financial services sectors. This is cheering news.
However, despite the positive news, we must be aware that we are not out of the woods yet. With a population growth rate of 2.7 percent, the economy needs to grow above 3 percent to take care of the increasing population. Besides, the recovery falls far short of the output gap, suggesting it is more of a statistical blip than the beginning of a sustained upward swing. With a high population growth, low income per capita, acute unemployment, high inflation and uncertainty in the oil markets, the economy could easily tip back into recession. What is more, some analysts have denied that Nigeria is out of recession arguing that entering and exiting recession follow basically the same process – two consecutive declines and growths in GDP. Therefore, proclaiming Nigeria to be out of recession following just one quarter growth in GDP is erroneous.
Be that it may, the government must buckle down to real work and not be carried away by petty celebrations. It must work to create more jobs so as to increase economic activities and spur growth in various sectors aside the oil and gas sector. Although the growth is below the country’s potentials, it can be seized upon to inspire more actions towards liberalising the economy and creating the conditions for more growth. Clearly, the actions taken last quarter to improve foreign currency liquidity by introducing a trading window for portfolio investors at market-determined rates, and later by allowing commercial banks to quote the Nafex rate that is now close to pricing on the black market has gone a long way to improve the business environment. Another area the government needs to do more to empower businesses is in the area of interest rates.
One unmistaken reality we must confront is that the recovery was driven by the oil sector, which recovered significantly by 17.04 percentage points from the -15.40 percent recorded in the first quarter of 2017 to 1.64 percent in the second quarter of 2017. This recovery was made possible by the relative peace in the Niger Delta that has seen Nigeria’s oil output grew from a low of 1.3 million barrels per day in 2016 to almost 2 million per barrels now. Expectedly, the growth in the oil sector robbed off favourably on the electricity and gas sector, which also grew significantly by 35.5 percent compared to a contraction of 3.04 percent in the first quarter of 2017. In comparison, non-oil GDP only grew marginally by 0.45 percent, down from 0.72 percent in the preceding quarter. This should worry the government that had repeatedly talked about diversifying the economy and ending its reliance on oil.