As Nigeria celebrates her 60 years of independence, it is important to examine how the economy has fared in these past decades.
A cursory look at data (spanning 40 years) obtained from both the CBN and the National Bureau of Statistics (NBS) showed that despite the huge growth potential in Nigeria, the nation’s economy only grew at an average rate of 3.33% between 1982 and 2020 (Year to date).
Oil exploration and price fluctuations
Since Nigeria switched to oil exploration as the mainstay of the economy, export earnings from the commodity have risen to over 90%. Meanwhile, the dependency on oil may be doing more harm than good, as growth remains on the ebb.
For instance, the collapse of world oil prices from an average of $117 per barrel in 1980, to an average of US$23.57 per barrel in March 2020, has highlighted the precarious nature of the country’s economic and financial positions.
In 1983, Nigeria’s economy plunged into recession, contracting at -10.93%. The contraction recorded in 1983 remains one of the biggest in our history; this was on the back of oil supply glut following the 1970s energy crisis, causing oil prices to tank.
In order to rescue the Nigerian economy in 1986, Nigeria adopted the IMF’s Structural Adjustment Programme (SAP), under the regime of General Babangida (Rtd), which signaled a radical departure from the previous austerity measures of General Buhari.
Among two other objectives, SAP was specifically introduced to restructure and diversify the productive base of the economy, in order to reduce dependency on the oil sector and imports, with a US$450 million trade policy and export diversification loan support from the World Bank.
Forty years later, despite other development plans introduced by several administrations, effective diversification to other productive sectors remains elusive to the Nigerian economy. Scholars have often posited that Nigeria is a ‘resource-cursed’ economy. Basically, this refers to the paradox that countries with an abundance of natural resources tend to have less economic growth and worse development outcomes.
Analysis of data showed that in the last 40 years, Nigeria’s economic growth has largely depended on changes in oil prices (Fig 1.). This implies that despite the diversification policy drive that has been mooted by several regimes and administrations, the Nigerian economy has remained a largely mono-cultural economy, undermined by distortions in global oil prices.
Low purchasing power amidst double-digit inflation & falling naira
The Nigerian economy continues to battle with the rising Inflation rate, with persisting structural issues undermining the purchasing powers of consumers. Nigeria remains an import-dependent economy, and import remains a pass-through for rising domestic inflation, as manufacturers depend on the importation of input materials to produce final goods.
In the last four decades, Nigeria’s exchange rate plunged from a yearly average of N0.67/$1 to N379/$1, further stressing the fragility of the economy. On the other hand, rising inflation is partly driven by inherent structural issues, which continue to raise the cost of doing business in the country.
Despite moves by the Central Bank in recent years to manage the country’s currency, a sustained decline in oil prices may further stoke pressure on the nation’s currency.
It was an ambitious plan by the administration of former President Yar’Adua, to make Nigeria one of the top 20 economies in the world by 2020. Nigerians welcomed this Vision 2020, which also aimed to increase the average life expectancy to 70 years, and boost GDP to $900 billion.
A cursory look at World Bank data in 2007 shows that the Nigerian economy ranked 31st globally, estimated at $236 billion. However, fast forward to 2019, despite the Nigerian economy growing to $488.1 billion, it only moved up four places to rank 27th in the world.
Similarly, according to the United Nation Development Programme (UNDP), Life expectancy in Nigeria dropped to 54.3 years in 2018, one of the lowest in the world. This further validates that the Nigerian economy failed to achieve goals set out in the Vision 2020 development plan.
On the back of the outbreak of the COVID-19 pandemic, fresh development plans and frameworks are currently being introduced to abate the impact on the Nigerian economy. Whilst this is laudable, Nigeria needs more than just developing plans to achieve inclusive growth.
Nigerians spent N13.9 trillion on household consumption in Q4 2020, an increase of 16.6%
Household consumption expenditure of Nigerians rose by 16.59% in Q4 2020 to stand at N13.92 trillion.
The final consumption expenditure of households in Nigeria hit N13.92 trillion in the fourth quarter of 2020. This is according to the recently published Nigerian Gross Domestic Product report (Expenditure and Income Approach), by the National Bureau of Statistics (NBS).
According to the report, Nigeria’s household consumption rose by 16.59% in Q4 2020 to stand at N13.92 trillion, compared to N11.94 trillion recorded in the corresponding quarter of 2019. It also represents a 20.76% increase compared to N11.52 trillion recorded in the preceding quarter.
- Household consumption expenditure in Q3 and Q4 2020 grew by 6.1% and 16.59% year-on-year in real terms.
- The annual growth rate in real household consumption expenditure stood at 0.81% as against a decline of 1.06% recorded in 2019.
- Government consumption expenditure recorded growth rates of 99.18% and 12.13% in Q3 and Q4 2020 respectively, while the annual growth rate stood at 61.58% in 2020 compared to 8.78% recorded in 2019.
- Although Net Exports recorded positive growth rates in the first two quarters of 2020 but turned negative in the third and fourth quarters of 2020. It dipped by 52.39% and 72.61% in Q3 and Q4 2020 respectively.
- By annual consideration, net export declined by 29.55% in 2020 as against a growth of 7.64% recorded in the previous year.
However, national disposable income grew by 4.44% in the third quarter of 2020 and 3.13% in the fourth quarter of the year, while a 3.34% growth was recorded as the annual growth compared to 0.35% growth recorded in 2019.
Compensation of employees, dipped by 2.32% in Q3 2020, before recording an increase of 6.36% in the fourth quarter of the year. The decline in the third quarter could be largely attributed to the downturn caused by the covid-19 pandemic, forcing many organisations in the country to either downsize their staff strength or embark on a pay cut.
What this means
- Consumption expenditure is an important factor in determining economic growth for any country. Nigeria recorded its worst quarterly consumption expenditure in the second quarter of 2020.
- This was due to the effect of the covid-19 pandemic on the Nigerian economy, which eventually led to a second recession in 5 years as Nigeria’s real GDP contracted by 6.1% and 3.62% in Q2 and Q3 2020 respectively.
- It is, however, important to note that Nigeria recovered from the covid-induced recession in the fourth quarter of the year as the real GDP expanded by 0.11% in Q4 2020.
In the third and fourth quarters of 2020, real exports declined by 42.05% and 57.79%, year on year, resulting in an annual growth rate of -26.96% in 2020. However, on a quarter on quarter basis, real exports remained negative from Q1 2020 to Q4 2020.
Due to declining rates of growth in exports and imports in 2020, the growth in the net balance of trade (or net exports) was negative in Q3 and Q4 2020. On a year-on-year basis, the net trade balance declined by 52.39% in real terms in Q3 and also dipped by 72.61% in Q4.
What you should know
- The Nigerian economy expanded marginally by 0.11% in Q4 2020. It, however, contracted by 1.92% in 2020 to stand at N70.14 trillion in real terms.
- The final consumption expenditure of households in Nigeria stood at N42.81 trillion in 2020.
- Individual consumption expenditure for general government stood at N1.68 trillion while collective consumption stood at N4.98 trillion in the same period.
Foreign trade: Nigeria – French trade drops to $2.3 billion in 2020
The volume of trade between France and Nigeria dropped to $2.3 billion in 2020 compared to $4.5 billion in 2019.
The French Government has disclosed that the volume of trade between France and Nigeria dropped to $2.3 billion in 2020 compared to $4.5 billion in 2019, due to the effects of the COVID-19 pandemic.
This was disclosed by the French Minister in charge of Foreign Trade and Attractiveness, Mr Frank Riester, at a meeting with the Nigeria Governors’ Forum (NGF), in Abuja.
“We are optimistic of the future, when the crisis will be ending because we have many companies that have settled here. We want a win-win partnership between our two countries.
We have 100 companies that are settled in Nigeria, representing 10,000 people working in these companies and we want to increase our investments in Nigeria,” he said.
The Minister added that France wants to cushion processes that will enable more Nigerian companies do business in France.
“Tomorrow, I will meet some Nigerian companies that have already invested in France, as others are willing to invest in the country.
“These companies will be invited to a specific meeting in Paris in June, where President Emmanuel Macron will welcome many companies all over the world, and some of the companies will be from Nigeria because we want more Nigerian investments in France,” he added.
What you should know
Nigeria’s total foreign trade for the fourth quarter (Q4) of 2020 rose to N9.12 trillion, representing an increase of 8.88% compared to N8.38 trillion recorded in the previous quarter. Total imports stood at N5.93 trillion, while total export rose by 6.72% from N2.99 trillion to N3.19 trillion.
Export to Europe was N1.07 trillion representing 33.5% of export volume, while import was N2.16 trillion valued at 36.5% of imports volume.
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