Nigeria’s Gross Domestic Product (GDP) in real terms declined by 6.10% (year-on-year) in Q2 2020, thereby ending the 3-year trend of low but positive real growth rates recorded since the 2016/17 recession.
This is according to the second quarter (Q2) GDP report, released by the National Bureau of Statistics (NBS) on Monday.
According to the numbers contained in the GDP report, the performance recorded in Q2 2020 represents a drop of 8.22% points when compared to Q2 2019 (2.12%), and 7.97% points decline when compared to Q1 2020 (1.87%). Apparently, the significant drop reflects the negative impacts of the disruption caused by COVID-19 pandemic and crash in oil price on the Nigerian economy.
Nigeria’s Oil sector nosedives
The latest GDP number shows that Nigeria’s biggest revenue earner, oil sector, recorded 6.63% (year-on-year) contraction in Q2 2020, indicating a decrease of –13.80% points relative to the rate recorded in the corresponding quarter of 2019.
- Quarter-on-Quarter, the oil sector recorded a growth rate of –10.82% in Q2 2020.
- The Oil sector contributed a meagre 8.93% to total real GDP in Q2 2020, down from figures recorded in the corresponding period of 2019 (8.98%) and the preceding quarter (9.50%)
- In the second quarter of 2020, an average daily oil production of 1.81 million barrels per day (mbpd) was recorded. This was -0.21mbpd lower than the daily average production of 2.02mbpd recorded in the same quarter of 2019, and –0.26mbpd lower than the first quarter 2020 production volume of 2.07mbpd
Non-Oil Sector shrinks, as accommodation, construction, others contract
The non-oil sector declined by –6.05% in real terms during the reference quarter (Q2 2020). It was the first decline in real non-oil GDP growth rate since Q3 2017.
- According to the report, non-oil sector grew at –7.70% points lower compared to the rate recorded during the same quarter of 2019, and –7.60% points compared to the first quarter of 2020.
- Sectors which recorded the highest negative growth in Q2 2020 include Transport and Storage, Accommodation and Food Services, Construction, Education, Real estate and Trade among others.
- In real terms, the Non-Oil sector accounted for 91.07% of aggregate GDP in the second quarter of 2020, slightly higher than the share recorded in the second quarter of 2019 (91.02%) as well as the first quarter of 2020 (90.50%).
- Nevertheless, growth in non-oil sector output was driven by Financial and Insurance (Financial Institutions), Information and Communication (Telecommunications), Agriculture (Crop Production), and Public Administration, moderating the economy-wide decline.
The Bottom line: Nigeria’s economy may enter worst recession in 4-decade
GDP is Nigeria’s biggest economic data and it measures the monetary value of everything produced in the country. It depicts the nation’s total economic activity. A decline in GDP means major economic activities are slow or sluggish, which may be a result of several factors.
The latest GDP number somewhat surpassed both the IMF and World bank forecast for year 2020, which implies the nation’s economy may witness yet the biggest contraction in four decade. The International Monetary Fund (IMF) disclosed in its June outlook that the Nigerian economy would witness a deeper contraction of 5.4% as against the 3.4% it projected in April 2020.
According to the NBS, the 6.10% decline in GDP was largely attributable to significantly lower levels of both domestic and international economic activity during the quarter, which resulted from nationwide shutdown efforts aimed at containing the COVID-19 pandemic.
The recent labour statistics report released showed that unemployment rate in Nigeria rose to 27.1% at the end of Q2 2020, as the impact Covid-19 pandemic is significantly being felt across critical sectors. While Nigeria has embarked on gradual easing of lockdown since Q2 2020 with a N2.3 trillion stimulus intervention, economic activities are yet fully peak, indicating a muted outlook in the remaining quarters of the year
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Despite billions on agriculture, food inflation up by 108% since 2015
About N2 trillion spent in the last 5 years to achieve food self-sufficiency.
Nigeria’s food inflation has more than doubled since August 2015, exactly 5 years after the Buhari Administration took charge of the Nigerian economy.
This was determined by comparing the composite index for food inflation rate in August 2020 versus same period in 2015. The difference is a whopping 108% increase in inflation rate, in just 5 years. Within this period, Nigeria’s exchange rate has been devalued by 49%.
Whilst the Nigerian economy has been ravaged by a very low oil price environment, since it fell from over $100 per barrel in 2014, most of the reasons for the increase in cost of living are partly attributed to some of the policies of the government.
Since 2015, the government has focused on a ‘grow-what-you-can-eat’ policy, pouring billions of naira into the agricultural sector. Since its inception in 2015, the Anchor Borrowers Programme (ABP), has received about N190billion disbursement from the CBN.
Another N622billion was lent through banks under the Commercial Agriculture Credit Scheme. Add the various grants, tax incentives, and concessions, that’s almost N2 trillion spent in the last 5 years on helping Nigeria to achieve food self-sufficiency.
Whilst modest successes have been recorded, the cost of staple food items remain high – galloping in each passing month. Since the border closure was announced in August 2019, the food inflation rate has risen every month, from 13.17% in August of 2019 to 16% last month. It is projected to hit 20% by the first quarter of 2021, when the effects of the increase in petrol and electricity prices are accounted for.
Nigerians have never had it this bad. Despite the good intentions of the government, things have not particularly turned out well. A common challenge in trying to solve a problem is not being able to manage what is outside of your control. In agriculture, a lot seem to be outside of the control of this government.
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Yield per hectare for most farming is well below global standards, driving up the cost of whatever is left to be sold to Nigerians. Farmers also face insecurity, flooding, and sometimes famine affecting their ability to plant and harvest. Even after harvesting, supply chain challenges still persist, leaving farmers to contend with middlemen, transportation, and storage. The result is far less farm produce reaching the final consumer.
For items under its control, it still cannot determine the outcomes, and the causes and effects. Just last week, it announced the banning of maize, only to flip-flop after learning that poultry farmers lacked maize feeds to grow their chickens. It quickly granted licenses to four companies to import maize.
Thus, while the government attempts to manage what it can control such as banning of imports, denying access to forex, and of course border closure, it cannot solve all these problems with CBN funding and banning. They are structural, and require a better approach that is private sector driven, yet pragmatic. The government also needs to tell itself the truth; Nigeria cannot be self-sufficient by banning.
So long as we continue to avoid relying on data and objective reasoning, to balance the need for local agro-processing and imports to meet demand, food inflation will remain high and galloping. Who knows, by the time this administration’s tenure is up, we could be looking at a state of emergency driven by a full blown food crisis.
Nigeria’s inflation rate hits 13.22% in August 2020, highest in 29 months
Highest increases were recorded in prices of Passenger transport by air, Hospital services, Medical services, Pharmaceutical products and others.
Nigeria’s inflation rate rose to 13.22% in August 2020, highest recorded in 29 months, since March 2018 (13.24%). This was contained in the recent Consumer Price Index (CPI) report, released by the National Bureau of Statistics (NBS).
The latest figure is 0.40% points higher than the rate recorded in July 2020 (12.82%). while on a month-on-month basis, the Headline index increased by 1.34% in August 2020.
Food inflation: A closely watched component of the inflation index, stood at 16% in August compared to 15.48% recorded in July 2020. On month-on-month basis, the food sub-index increased by 1.67% in August 2020, up by 0.15% points from 1.52% recorded in July 2020.
This rise in the food index was attributed to increases in prices of Bread and cereals, Potatoes, Yam and other tubers, Meat, Fish, Fruits, Oils and fats, and Vegetables.
Core inflation: This excludes the prices of volatile agricultural produce, also rose to 10.52% in August 2020. It is up by 0.42% points when compared with 10.1% recorded in July 2020. On month-on-month basis, the core sub-index increased by 1.05% in August 2020. This was up by 0.30% points when compared with 0.75% recorded in July 2020.
What drove inflation: Inflation for the month of August was driven by recorded increase in prices of Passenger transport by air, Hospital services, Medical services, Pharmaceutical products, Maintenance, and Repair of personal transport equipment.
Others are Vehicle spare parts, Motor cars, Passenger transport by road, Repair of furniture, and Paramedical services.
Upshot: As Nigerians continue to grapple with the effects of the COVID-19 pandemic, and the reopening of the economy, prices of commodities such as air transport, and medical services seems to have been affected due to policies implemented, with the aim of curbing the spread of COVID-19 in the country.
It is therefore evident that Nigerians are spending more, despite fixed income, contraction of economic activities, and dwindling rate of investment returns.
Demand for credit by household increases in Q2 2020 – CBN
For Q2 2020, households’ demand for all lending types increased.
The request for secured lending of credit by households for House purchase have increased from 0.0 to 3.0 by second quarter of 2020 (Q2). Lenders expect demand for such lending to decrease in Q3 2020.
This was disclosed in the recently published Central Bank of Nigeria’s Credit Conditions Survey Report for Q2. The proportion of secured loan applications approved decreased as lenders tightened the credit scoring criteria.
For Q2 2020, households’ demand for all lending types increased, but in Q3 2020, only prime and other lendings to households were expected to increase while buy to let lending would decrease. Household demand for consumer loans rose in Q2 2020 and it is expected to rise in Q3 2020. However, demand for mortgage/remortgaging from households fell in Q2 2020 and expected to further decline in Q3 2020.
Demand for Unsecured Credit
Demand for unsecured credit card lending from households increased in Q2 2020 from 4.9 recorded in Q1, 2020 to 7.6 in Q2, 2020, and a further increase is expected in Q3 2020. Similarly, demand for unsecured overdraft/personal loans from households increased in Q2 2020 and is expected to further increase in Q3 2020.
Demand for total unsecured lending from households increased in Q2 2020 and is expected to increase in the Q3 2020. Lenders’ resolve to tighten the credit scoring criterion decreased the proportion of approved unsecured loan applications in Q2 2020.
Demand for Corporate Credit
Lenders reported increased demand for corporate credit from all firm sizes in Q2 2020 and expect demand to rise further in Q3 2020.
Demand for corporate lending increased for all business sizes in Q2 2020 and would further increase in Q3 2020. The increase in the demand for corporate credit in Q2, 2020 is attributable to increase in inventory finance. Similarly, inventory finance and capital investment were expected to drive demand in Q3 2020.
READ: What is Credit Rating?
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