For Nigeria, simply exiting recession is no victory
Nigeria is widely tipped to exit its first recession in a quarter of a century this year, but it will be by the skin of its teeth and at a rate so underwhelming it may elude its people.
The government projects a 2.5 percent growth, while the International Monetary Fund (IMF) forecasts the economy will expand 0.8 percent, the slowest rate since 1998. Both projections offer no cheer when Nigeria is put in proper context.
Home to some 180 million people, Nigeria has averaged a 3 percent population growth in the past decade. GDP growth below the rate at which the country produces people is no meaningful recovery for the $415 billion economy.
The country’s GDP per capita will probably shrink 4 percent to $2,123 in 2017, marking the third straight year of a decline, according to data compiled by BusinessDay. This compares poorly with South-Africa’s $5,589 and Egypt’s $3,684.
After hitting a peak of $3,268 in 2014, average incomes in Nigeria have tanked since oil prices tumbled and the economy pared back on almost a decade of robust growth.
“That we will come out of recession this year is a given, it is if we will grow rapidly enough to ensure inclusiveness that now matters,” said Doyin Salami, a member of the Nigerian Monetary Policy Committee (MPC).
“If Nigeria grows at any rate below 3 percent, it will put further pressure on average incomes. So for us, simply coming out of recession is too little an ambition for us,” Salami said at the Nigerian Stock Exchange (NSE) Bloomberg CEO roundtable held recently in Lagos.
African peers, Ivory Coast, Ethiopia and Kenya, will probably grow an average of 7 percent this year, which is perhaps the kind of growth Nigeria should be gunning for.
But for the Nigerian economy to grow at a rate comparable to the aforementioned African countries, stimulating private capital is essential, according to Salami.
This, he said, will help stimulate the six primary drivers of the economy, which include Agriculture, Trade, Telecommunication, Oil and Gas, Manufacturing and Real estate.
“Yet if we don’t protect private capital, we won’t get private capital,” he said, “It is however not clear to what extent we can tolerate a price mechanism that will help us move away from last year’s opaqueness,” Salami added.
Recovering oil output and prices are the biggest factors tipped to lift Nigeria from recession this year.
The World Bank predicts an expansion of 1.2 percent in GDP, while Moody’s Investor Service sees 2.5 percent growth, buoyed by higher oil prices and the relative calm in the Niger-Delta, which could see production increase to the two million barrels daily mark.
Already, the country’s biggest export terminal, Forcados, is back on onstream and will add some 300,000 barrels to total output. Although in the last one week, oil prices have been sticky downwards, falling below $50 a barrel, after OPEC’s output cut extension was received in gloom.
“Oil is never going to provide the inclusive growth the economy thirsts for and our continued reliance on it will burn our fingers, especially as market dynamics change,” said Olutola Mobolurin, chairman of financial advisory firm, Capital Bancorp.
“What government should be focusing on is to see how to better stimulate savings and ignite the entrepreneurial spirit of the people that they can create jobs for themselves and others,” Mobolurin said by phone.
The oil sector accounts for only 10 percent of GDP, compared to Agriculture which accounts for 25 percent, but structural imbalances make the former the single largest contributor to Nigeria’s economy, which thrives on petrodollars.
SOURCE: IMF, WORLD BANK
In the first three months of 2017, the oil sector recorded a negative growth of 11.64 percent, according to the National Bureau of Statistics (NBS). Compared to Q4 2016, the oil sector grew by 14.86 percent, and a gradual recovery of the sector will help propel Africa’s largest economy back to positive growth.
Over the three months, output from the oil sector was affected by relatively lower domestic crude oil production, as the effect of militants’ attacks on crude oil & gas facilities in 2016 lingered.
The non-oil sector exited the negative growth region, growing by 0.72 percent y/y in Q1-2017 (compared to -0.33% y/y in Q4-2016 and -0.18% y/y in the corresponding quarter of 2016) supported by activities in agriculture, manufacturing, information and communication, transportation, and other services.
Given its teeming population, the economy needs to grow in the region of 7 percent, otherwise an economic rebound would elude the citizens, according to Andrew Nevin, chief economist at PriceWaterhouseCoopers (PWC).
“This is only possible with an investment led recovery,” Nevin says.
Nigeria requires between N25 trillion- N30 trillion of annual investment to reach a GDP growth rate of 5-7 percent, according to PWC’s estimates, but is getting less than 20 percent of its needs.
Government is providing around N2 trillion of this, indicating that required growth will only happen with significant inflows of private investment.
Getting the required investment to achieve robust and inclusive growth, will require clarity in exchange rate, sustained focus on fighting corruption and efforts to improve the ease of doing business, according to Nevin.
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