Nigeria’s Economy In Poor Shape

Nigeria’s Economy Dips into Second Recession in 5 Years primarily as a result of COVID-19 pandemic


All is still not well with the nation’s economy. The Nigerian economy, Africa’s largest, officially plunged into recession recently as the country’s Gross Domestic Product (GDP) in real terms declined by 3.62% in the third quarter of 2020. This represents the second contraction in 2020.

The latest figures from the National Bureau of Statistics (NBS) showed that the Nigerian economy has officially slid into recession after enduring contractions for two consecutive quarters. The country’s economic quagmire is largely attributed to the lockdown procedure implemented across the country as a measure to curb the spread of the COVID-19 pandemic. The lockdown was effected in the nation’s economic capital, Lagos, its administrative capital, Abuja as well as in a number of states. The country will hope to bounce back from the recession as fast as possible so as to stimulate economic growth in the coming quarters.

The third quarter recession marked a full-blown recession and second consecutive contraction from 6.10% recorded in the previous quarter (Q2 2020). This is according to the third quarter (Q3) GDP report, released by the National Bureau of Statistics (NBS) recently. According to the report, the performance of the economy in the Third Quarter 2020 reflected residual effects of the restrictions to movement and economic activity implemented across the country in the early Second Quarter in response to the COVID-19 pandemic. Another factor for the decline was the fall in the price of Nigeria’s main export commodity, oil, in the Third Quarter of 2020. The oil sector contracted by 13.89%, indicating a sharp contraction of 20.38% points relative to the rate recorded in the corresponding quarter of 2019.

Furthermore, oil sector decreased by 7.26% points when compared with growth recorded in Q2 2020 (6.63%). The sector contributed 8.73% to total real GDP in Q3 2020, down from 9.77% and 8.93% respectively recorded in the corresponding period of 2019 and the preceding quarter, Q2 2020. The average daily oil production recorded in the third quarter of 2020 stood at 1.67 million barrels per day (mbpd), or 0.37mbpd lower than the average production recorded in the same quarter of 2019 and 0.14mbpd lower than production volume recorded in the second quarter of 2020 (1.81mbpd). The non-oil sector did not help matter as it performed below expectations. The non-oil sector contracted for the second time as the economy continues to reflect the impacts of Covid-19 pandemic. In the Third Quarter of 2020, the non-oil sector grew by 2.51% in real terms during the reference quarter, which is 4.36% points lower than the rate recorded in the same quarter in 2019 but 3.54% points higher than in the second quarter of 2020.

Key sectors that contracted in the Third Quarter of 2020 in the non-oil segment were manufacturing, trade (wholesale and retail) accommodation and food services, real estate, among others. On the other hand, the growth of non-oil sector was driven mainly by Information and Communication (Telecommunications), with other drivers being Agriculture (Crop Production), Construction, Financial and Insurance (Financial Institutions). In real terms, the non-oil sector contributed 91.27% to the nation’s GDP in the third quarter of 2020, higher than its share in the third quarter of 2019 (90.23%) and the second quarter of 2020 (91.07%). Agriculture Sector: Crop Production remained the major driver of the sector, accounting for 92.93% of overall nominal growth of the sector in third quarter 2020.

In the third quarter of 2020, the Agricultural sector grew by 1.39% (year-on-year) in real terms, a drop of 0.89% points from the corresponding period of 2019 (2.28%), and a decrease of 0.19% points from Q2 2020 (1.58%). In terms of contribution, the sector contributed 30.77% to overall GDP in real terms in the Third Quarter of 2020, higher than the contribution in the third quarter of 2019 and the second quarter of 2020 which stood at 29.25% and 24.65% respectively. The Information and Communication, one of the resilient sectors in the Nigerian economy amidst Covid-19, was composed of four activities: Telecommunications and Information Services; Publishing; Motion Picture, Sound Recording and Music Production; and Broadcasting.

In this period, Information and Communication sector grew by 14.56% in Q3 2020 from 16.52% in Q2 2020 and 9.88% in Q3 2019, largely driven by Telecommunications & Information Services. On the other hand, manufacturing sector contracted by 1.51% in Q3 2020 from 8.78% in Q2 2020 and 1.1% in Q3 2019. The contribution of Manufacturing to nominal GDP in Q3 2020 was 13.56%, higher than in the corresponding period of 2019 (12.34%) and the second quarter of 2020 (11.79%).

In real terms, trade’s year on year growth stood at 12.12%, which was 10.67% points lower than the rate recorded the previous year (Q3 2019), but 4.46% points higher than in the preceding quarter at 16.59% growth rate. Trade’s contribution to GDP was 13.88%, lower than the 15.23% it represented in the previous year, and the 14.28% recorded in 2020. Finance and Insurance: The Finance and Insurance Sector consist of the two subsectors, Financial Institutions and Insurance, which accounted for 88.89% and 11.11% of the sector in real terms in Q3 2020. Financial Institutions sector grew by 6.8% in Q3 2020 from 28.41% in Q2 2020 and 0.61% in Q3 2019. However, Insurance sector contracted by 18.67% in Q3 2020 from 29.53% in Q2 2020 and 3.96% in Q3 2019. Analysts continue to dimension the recovery pattern for the Nigerian economy in 2021, with reputable outlets forecasting a slow recovery pattern on the back of possible second wave of Covid-19 pandemic currently distorting economic landscape in the advanced economies.

On the other hand, IMF has forecast the Nigerian economy will contract 4.3% in 2020, as the Central Bank continues to drive aggressive intervention to stimulate the economy on the path of recovery. The non-oil sector contributed a huge chunk of the real GDP in Q3 2020 with 91.27%, higher than its share of 90.23% in Q3 2019 and 91.07% in Q2 2020, while the oil sector contributed 8.73%, though a decrease in its contribution of 9.97% in Q3 2019 and 8.93% in Q2 2020.

Nevertheless there is big hope for county as the Central Bank of Nigeria (CBN) has assured that the nation’s economy will grow by 2% in 2021. The apex bank is optimistic that its various interventions will make Nigeria emerge out of recession in the first quarter of 2021. CBN Governor, Godwin Emefiele disclosed this while delivering his keynote address at the 55th Annual Bankers Dinner of the Chartered Institute of Bankers of Nigeria (CIBN) in Lagos recently. According to Emefiele, “We expect that growth in 2021 would attain 2.0 percent. It is important to insulate the economy from shocks that may undermine the attainment of the projected 2.0 percent economic growth.” According to the apex bank governor: “However, downside risks remain, as restoration of full economic activities, particularly in service-related sectors, remains uncertain until a COVID vaccine is produced and made available to millions of people across the world.”

“Second, with the significant rise in cases in advanced markets and the imposition of lockdowns in parts of Europe, concerns remain on the impact this could have on growth in advanced economies, commodity prices and the financial markets.” He emphasised on the need to find ways to insulate the economy from the impact of these shocks through diversification efforts, while also working to ensure that the nation adheres to safety protocols in order to prevent a surge in COVID-19 related cases, as this could further cripple economic activities. Emefiele appealed to economic analysts to stay clear from analysis that can create panic and thus hamper the economic recovery process. “When you overdramatized you create panic in the system and that slows down the process of recovery.

“Our actions in 2021 would be guided by the considerations that emerged from the Monetary Policy Committee meeting of November 23 & 24, 2020, which sought to address the major headwinds exerting downward pressure on output growth and upward pressure on domestic prices,” he added. Mr. Emefiele has often accused “armchair” economists of making exaggerated comments when expressing their views on the economy.

In a related development, the Minister for Finance, Budget and National Planning, Mrs. Zainab Ahmed, said the country will exit recession by the first quarter of 2021 as the government was working towards reversing the declining economic trend in the country. The Finance Minister said the COVID-19-induced recession followed the pattern across the world, where many countries had entered an economic recession. The Finance Minister disclosed that Nigeria has fulfilled the conditions and was in the last stages of securing a World Bank loan. Nigeria is set to achieve its plans of getting the $1.5 billion World Bank loan package as it is in the closing stages of the deal following its fulfillment of the conditions set by the international multilateral organization. This disclosure was made by the Minister for Finance, Budget and National Planning, Zainab Ahmed, during an interview on Friday, November 27, 2020, with Bloomberg Television. While pointing out that Nigeria’s senate approved the borrowing plan from the World Bank in June, Ahmed said the board of the multilateral institution will discuss the loan package at their next meeting. It will be recalled that the World Bank loan which had been sought by Nigeria in the wake of the devastating impact of the coronavirus pandemic, was being delayed by the Brettonwood institution due to concerns over reforms as it feels that Nigeria has not shown enough commitment towards achieving them.

Some of the reforms include the unification and flexibility of the exchange rate, removal of fuel subsidy, increase in electricity tariffs, amongst others. However, it seems that with the recent deregulation of the downstream sector of the oil industry with the attendant removal of fuel subsidy and increase in electricity tariff, some of those concerns of the World Bank are gradually being sorted out. Ahmed also said that Nigeria was considering joining the G-20 debt-relief initiative and is talking to commercial lenders to secure their backing. She said, “We will consider joining, as long as it is safe for us to do so. Nigeria couldn’t participate initially because some of the conditions were unfavourable for existing loan commitments with bilateral lenders and other international borrowings.” On the increased gap between the official rate and parallel market rate, the minister said the government is concerned about the widening gap in the naira’s exchange rate on the official and parallel markets. She said, “We have been taking measures to close the gap. We hope to get to an even level very soon so the impact of the exchange rate will become moderated.” One of the measures to revitalize the economy is the plan of the Federal Government to reopen the nation’s land borders. Minister of Finance, Budget and National Planning, Zainab Ahmed, during a media chat with State House correspondents on Wednesday, November 25, 2020, in Abuja revealed that the presidential committee set up to look into the matter had completed its assignment and had recommended the reopening of the borders. She also said there was need to deliberate on the hike in food prices in the country, saying, “the most humorous being the high cost of onions.”