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Govt. policies push non-oil sector into triple dip recession



CBN, Gov Godiwn Emefiele, subsidy removal

The National Bureau of Statistics reported on Monday that Nigeria recorded a Real GDP Growth rate of 1.4% for the 3rd quarter of 2017, solidifying Nigeria’s exit from recession.

The report also revises Nigeria’s second quarter GDP to 0.72% from 0.55% previously reported. By all account, things seem to be moving in the right direction, until you dive into the details.

Oil and Non-Oil GDP

The Bureau of Statistics typically divides Nigeria’s GDP into Oil and non-Oil in line with the sectorial representation of the Nigerian Economy. In terms of Oil GDP Nigeria recorded a growth rate of about 25% in line with most expectations as Nigeria’s crude oil production continued to ramp up after the massive declines recorded in 2016. However, the non-Oil sector, which constitutes about 90% of GDP is where the problem lies. According to the report, Nigeria recorded a real GDP contraction of 0.76% which is lower by -0.79% point compared to the rate recorded same quarter, 2016 and -1.20% point lower than in the second quarter of 2017.

Tripple Dip Recession

Based on the latest contraction of the non-Oil sector, it is now obvious that Nigeria has recorded a triple dip recession in a sector that constitutes about 90% of its GDP. Economists define a triple dip recession as a third slide back into negative growth rate after one or two quarters of growth. As the chart above depicts, Nigeria’s non-oil sector was in a recession in the first and second quarter of 2016 before recording growth in the third quarter. It recorded a double dip recession, when it contracted to -0.3% in the fourth quarter of 2016. The first and second quarter of 2017 experienced two consecutive quarters of growth of 0.7% and 0.45% respectively before sliding back into negative GDP growth rate in the third quarter.

What is causing this contraction

The reason for the contraction being recorded in the non-oil sector point to the following sectors; Trade, Telecommunications and Information, Construction and manufacturing.


The Manufacturing sector which includes Oil Refining; Cement; Food, Beverages and
Tobacco; Textile, Apparel, and Footwear; Wood and Wood products; Pulp Paper and Paper products; Chemical and Pharmaceutical products; Non-metallic Products, Plastic and Rubber products; Electrical and Electronic, Basic Metal and Iron and Steel; Motor Vehicles and Assembly; and Other Manufacturing, recorded a negative GDP Growth rate of -2.85%.

A key component of this sub-sector is oil refining which recorded a massive drop of 45% in the third quarter of 2017. The sub-sector recorded three previous quarters of growth. The contraction recorded in the third quarter of 2017 is attributed to the drop in production of Nigeria`s refineries. For example, capacity utilization for Nigeria’s refineries dropped to just 9.5% in August 2017, compared to 11.9% in July 2017. Of the three major refineries in the country, only the Warri refinery was functional in the August, and even so at a paltry 1.87%.

Construction Sector

This sector also recorded a negative GDP of about 0.46% partly attributed to the lack of implementation of the capital expenditure included in the 2017 budget. Nigeria’s construction sector is largely dominated by government activity and relies heavily on capital expenditure to grow.



This sector contributes as much as 17.96% to Nigeria’s nominal GDP in the third quarter of 2017. However, it has been in recession since the third quarter of 2016 making it one of the worst performing sectors in the economy in the last two years.

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Growth in the trade sector has been largely marred by government policies which has favoured local production of goods and services as against importation. Traders in Nigeria are largely import dependent for their inventory and have been hampered by government policies towards foreign exchange and duties. Traders have also found it difficult to secure lending from commercial banks worsening an already bad situation.

Information & Communication

This sector contributed about 8.7% to Nigeria’s nominal GDP in the third quarter of 2017 and is one of the largest in the economy. However, it slid back into recession after recording a negative growth rate of 4.48% in the third quarter of 2017. GDP for this sector contracted by 1.15% in the second quarter of 2017. The data reveals the main reasons for this is the 5.68% contraction recorded in the telecommunications and information services sub sectors. This is largely dominated by GSM Companies and Internet service Providers. Analysts opine that the recent clamp down on unregistered SIM Cards by the NCC, which has dropped active subscriber numbers to about 140 million from about 153 million last September. It is believed that this has impacted negatively on sector growth.

Self Inflicted government policies pushes non-oil sector into triple dip recession

A look at some of the reasons above reveal a worrying pattern. The contraction observed in these sectors are not due to market forces but mostly influenced by government policies. For example, the contraction in the construction sector is due to the slow implementation of the 2017 budget. The contraction in the telecoms sector is due to government insistence on SIM card registration.

The contraction in the trade sector is due to higher import tariffs, ban on 41 items and restriction of access to foreign exchange, all due to government policies. The Manufacturing sector is also reeling from higher cost of borrowing, largely influenced by government borrowing which has pushed borrowing cost beyond the means of the private sector.

The culmination of all of this is that, Nigeria’s services sector which is about 48% of GDP this quarter, has now contracted to -2.66%, representing 7th straight quarter of contraction.


Nairametrics is Nigeria's top business news and financial analysis website. We focus on providing resources that help small businesses and retail investors make better investing decisions. Nairametrics is updated daily by a team of professionals. Post updated as "Nairametrics" are published by our Editorial Board.

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CBN “Naira 4 Dollar Scheme” Explained

What the CBN’s Naira 4 Dollar scheme means for your money.




In what appears to be an attempt to incentivize dollar remittances by all means possible, the Central Bank of Nigeria (CBN) released a circular to Deposit Money Banks (DMBs), International Money Transfer Operators (IMTO), and the General Public, advising that remittances paid into a bank account will attract an additional credit alert for every USD$1 received!

Yes, you read that correctly. The CBN will facilitate a special additional credit alert of N5 for every USD$1 received. In other words,

  • if someone sends you $10,000, you get an additional special credit alert for N50,000.
  • If someone sends you $100,000, you get an additional special credit alert for N500,000.

Who is eligible?

To be eligible, the diaspora remittances need to be processed and received from one of the registered IMTOs and funds received into a Bank account operated by the DMBs. (So, if you are receiving funds via Crypto sorry you are not eligible).

Additionally, the circular says this “incentive runs from Monday 8th March 2021 to Saturday 8th May 2021″. So, if you have plans to receive dollars, you can plan accordingly.

The circular is not clear how exactly the commercial banks will know which account to pay the extra special credits into. Although, that may be a question diaspora funds recipients will need to ask their DMB accounts officers to clarify for them.

How will this be funded?

The circular notes that the “CBN shall through commercial banks, pay to recipients the N5 incentive for every USD$1”. In other words, it is the CBN funding the cost of this special extra credit.

  • One would argue that given the costs of alternative incentives to attract dollars such as the special OMO window for FPI, this may be a cheaper alternative for the CBN.
  • But we will need to see the volume of expected remittance to be certain of that. Nigeria attracts about $5billion per quarter in remittances and only trails oil in terms of foreign earnings.

Why this matter to Nigerians?

Following the collapse of US Dollar inflows into the country, the CBN initially tried to balance its current account deficits and avoid an official devaluation by tackling FOREX demand (Think ban of 41 items, etc).

Finally, this short-term Naira-4-Dollar scheme will not be called an official Naira Devaluation. But a question is what do we call the new short-term price of N412.50 + N5.00? Maybe we can call it Naira Modulation.


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Nigerian Breweries leveraging, but stacking cash through rising input costs

The marathon continues for Nigerian Breweries with its 2020 financials.



Humanity might need more booze to survive the increasingly daunting intricacies of life, but Nigerian Breweries 2020 financial statement is proof that even the best can get caught up in the reality of changing business lifecycles.

Nigerian Breweries Plc had floored the market providing both alcoholic and non-alcoholic premium quality beverages across the nation. But with brands like Star lager beer launched as far back as 1949, Gulder lager beer launched in 1970, and even the family-friendly Maltina introduced as far back as 1976, it is only natural that both the old and new generation competition gives them a run for their market share.

Much like other old money companies, Nigerian Breweries has done its bit to remain relevant in the industry from creating new variants of existing favoured brands to paying dividends consistently annually for the past few years. Yet within the same period, the company’s financial statements have been a testament to its streamlined market share and reducing profits. The marathon continues with its 2020 financials. The industry giant may as well be setting itself up for a debt quagmire peradventure its projections do not match the true reality of events.

READ: How COVID-19 has changed Nigeria’s consumer goods & industrial markets –KPMG

2020 financials: A tale of higher costs & larger debts

2020’s unfavourable financial/ business environment led to the increase in the prices of raw materials and disruptions in logistics for many Nigerian-domiciled businesses including Nigerian Breweries. Raw materials and consumables witnessed a 17% increase despite the marginal growth in revenue.

While the group’s 2020 results revealed a 4.35% increase in revenue from N323 billion in the prior year to around N337 billion, these gains were curtailed by a higher-than-par increase in cost of sales which had risen by 13.9%, from the N191.8 billion expended in 2019 to N218.4 billion as its 2020 financials reveal and interest rates going way up.

READ: Flour Mills and its diverse challenges

The company’s lower operating expenses were not enough to salvage the disruption caused by the raging interest expense following increased charges paid on bank loans and overdraft facilities as well as the significant increase in overall debt. Between 2019 and 2020 alone, long term loans and borrowings increased by 974% from N4.8 billion to as much as N51.8 billion. Even trade and other long term payables increased by 35%.

In its financials, the company noted that it has revolving credit facilities with five Nigerian banks to finance its working capital. The approved limit of the loan with each of the banks range from ₦6 billion to ₦15 billion (total of ₦66 billion) and each of the agreements had been signed in 2016 with a tenor of five years. The Company had also obtained Capital and Working capital finance from the BoI in 2019.

READ: Manufacturing sector in Nigeria and the reality of a “new normal”

It is no news that the company is involved in diversified lease arrangements. Following reclassifications made in 2019 to some of its lease assets, the 2020 asset base also witnessed significant increase in Right of Use Assets which increased by 288%% from N11.1 billion to N42.9 billion. Yet, the fact that in one year, interest expense on Lease Liabilities rose from N19.7 million in 2019 and to a whopping N4.171 billion shows that the company is taking way more debt than its books require.

But what’s it using all the cash for?

Beyond rising material costs, borrowing costs have been huge and the annual interest payment by virtue of these loans make the possibility of higher profits for the company a mirage. That said, the overall increase in total liabilities might not have been such a bad idea if the funds were being used to increase revenue and profits. But having a huge chunk of all that money in cash creates a different kind of challenge. Cash and bank values in its statement of financial position significantly increased by 377% from N6.4 billion in 2019 to N30.4 billion in 2020.

Is the cash being held to mitigate possible challenges of the volatile economy or are they being used to pay dividends? Even at a share price of N52 per share, the company’s price-to-book value sits at 2.5816, testament of its dire overvaluation. Consequently, there is an ardent need for the company to come up with newer ways to attract the wider market and keep its book in the green with a little less external funding.

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