Dawn after darkest: Nigeria exits recession
The National bureau of Statistics (NBS) revealed today that Nigeria’s economy exited recession in the second quarter of 2017 as the economy expanded by 0.55 percent in real terms (year-on-year) in Q2 2017, 1.46 percent points higher than -0.91 percent GDP contraction recorded in the preceding quarter in 2017. This is the highest quarterly growth recorded since Q4-2015 and eventually pushed the economy back on the path of growth after 5 consecutive quarters of contractionary growth. The positive but fragile growth recorded in Q2 2017 was largely driven by growth in oil sector which recorded a growth of 1.64 percent (y-o-y)
Oil Sector: Out of The Woods
The oil sector exited the negative territory for the first time in six consecutive quarters with growth rate inching northward at 1.64 percent. A 17.24perent increase in growth from -15.60 percent contraction in the preceding Q1-2017 and 13.26 percent higher than corresponding Q2-2016 contraction rate of -11.63 percent. As share of GDP, the sector contributed 8.89 percent, an increase from preceding quarter’s contribution of 8.53 percent and Q2-2016’s contribution of 8.35 percent.
The improvement in growth in the sector is not unconnected with the yearlong increase in global crude oil prices and improvement in the country’s crude oil production. Crude oil production rose by 0.15 million barrels per day to 1.84 million barrels per day from 1.68 million barrels per day production in the preceding quarter. This perhaps is a testimony to the efforts of the Federal Government as led by the Vice president at finding a lasting solution to the unrest in the Nigeria Delta region of the country.
Decline in Non-Oil Sector Growth
Unlike the Oil Sector, the Non-Oil sector however experienced a decline in growth, slipping down by 0.28 percent points to 0.45 percent in Q2-2017 from the preceding quarter’s 0.72 percent growth. The sector however rose 0.83 percent higher than -0.38 percent recorded in corresponding period in 2016. Contribution to GDP declined as well to 91.11 percent in second quarter 2017, lower than the 91.47% recorded in Q1-2017 and the 91.21 percent recorded in the corresponding period in 2016.
The decline in non-oil sector was largely driven by notable decline in growth in key sectors. Agriculture with a growth rate of 3.01 percent in real terms declined by 0.37 percent from the preceding quarter, manufacturing declined by 0.72 percent points from 2017 Q1 to 0.64 percent, transportation sector contracted by 16.73 percent points to -6.18 percent from the preceding quarter. Others include real estate, construction, trade, education and health.
The Green Spots
The bright spots in the economy over the last quarter were Mining and Quarrying, Electricity and the Finance sector.
The Electricity sector with a real growth rate of 35.50 percent was the brightest spot in the economy. The sector grew 5.04 percent points higher than the preceding 2017 first quarter and 10.46 percent points higher than the corresponding quarter of 2016 second quarter. The sector contributed 0.44 percent to the GDP in the period under review. The high growth of the electricity sector in the period under review is attributable to recent activity in both the generation and distribution aspects of the sector. Over 3000mw of solar power is currently at different phases of development in the country as a testament to the massive investment the sector has attracted in the last six quarters. Gas supply to the sector has significantly increased even at cheaper costs while hike in electricity tariff has remained on the front burner.
Mining and Quarrying sector grew by 17.05 percent points from the preceding quarter to 1.65 percent in Q2 2017, and 13.07 percent points higher than the corresponding quarter in 2016. The sector contributed 9.04 percent to GDP, 8.59 percent higher than Q1- 2017. The growth recorded in the sector is attributable to improvement recorded in Crude oil, Natural gas as well as the Coal mining sub-sector, the two sub-sectors recorded growth rates of 1.64 percent and 4.92 percent from the previous quarter rate of -15.60 percent and 2.03 percent respectively.
Finance and Insurance sector contributed 3.33 percent to GDP in the quarter under review, a step above the 3.19 percent recorded in the preceding quarter and the 3.03 percent recorded in the corresponding quarter of 2016. The growth recorded was on account of the activities of financial institutions, which recorded growth rate of 11.78 percent, a significant improvement from the 0.60 percent growth rate recorded in Q1-2017. The Insurance sub sector also recorded a 3.79 percent growth (from 2017 Q1 1.12 percent).
Against expectations, Agriculture recorded decline in growth
A number of key sectors such as: Agriculture, Manufacturing, Trade, Transportation and ICT amongst others recorded decline in growth in the quarter.
The Agriculture sector, which has been a dominant driver of the economy over the last four quarters continued on this path however at a reduced pace It grew by (state the actual growth rate) by 0.37 percent points from the previous quarter and 1.52 percent point decline from the corresponding period in 2016 (4.53 percent growth rate). The decline is attributable to a fall in output in the crop production sub-sector (which is the main driver of the agricultural sector) and fishery sub-sector. Crop production output declined to 3.21 percent in second quarter of 2017 from first quarter’s 3.50 growth, it is also 1.51 per cent points lower than 2016 second quarter rate of 4.72 percent. The fishery sub-sector nosedived into the negative region shrinking by -2.72 percent, 2.77 percent lower than 2017 first quarter’s 5.49 percent.
Despite an 11.28 percent growth rate (8.27 percent point higher than the 3.01 percent recorded in Q1-2017) in the Oil refining sub-sector, the Manufacturing sector experienced a slowed growth at 0.64 percent (0.72 percent points lower than the 3.01 percent recorded in Q1-2017). The decline is mainly due to slow growth in the Cement and Wood sub-sectors which declined by 4.16 percent and 2.09 percent respectively.
Transportation sector contracted by 6.18 percent in comparison to the preceding quarter’s 10.55 percent growth. This is mainly due to contractions in the road transport and transport services sub-sector which contracted by -7.20 percent and -0.65 percent respectively.
The economy’s exit from recession in second quarter of 2017 with a 0.55 percent growth is a fragile growth as the economic expansion is mainly due to improvement in crude oil prices which stabilised above $45 per barrel in the global market. Crude oil production in the Niger Delta region also improved considerably to stabilise within the region of 1.6 to 2 million barrels per day due to reduced tension and militancy in the region. Other variables which contributed to this growth include improved foreign exchange access for manufacturers and traders and increased foreign capital importation aided by the CBN’s NAFEX window, capital spending and improved foreign currency reserves boosted by increased oil export earnings.
However continued weakness in the macroeconomy is still visible with productivity in the industrial and service sectors still particularly poor as evidenced by sector by sector growth numbers which showed that the key economic drivers like Agriculture, Manufacturing, ICT, Real Estate and Transportation either recorded slower growth or contracted in the quarter,, hence we maintain that while these sectors still remain in the woods, the economy is still susceptible to volatility in the global oil market
To ensure sustainable growth, the Federal Government and the CBN needs to create policy environments that stimulates business, improves consumer and investor confidence to encourage investments and sustain the government’s long-term diversification plan so as to shield the economy from volatility in commodity prices. We Project that oil will continue to trade between $45 - $55 dollar per barrel till the end of the year. We also expect the government to continue its peace moves in the Niger Delta area to sustain the current production trend. The CBN’s near success at bringing both the parallel market and the official market rates has also been positive as evidenced by the improved in foreign capital. We thus expect the trend of modest growth to continue through Q3- and Q4-2017 as year expect a full year growth of 1.36%.