Nigerians spent a total of N46.99 trillion on household consumption expenditure in the first half of 2020 (January – June). This is contained in the Nigerian Gross Domestic Product report (Expenditure and Income approach), released by the National Bureau of Statistics (NBS).

According to the report, the final consumption expenditure of Nigerian households in nominal terms stood at N46.99 trillion in H1 2020, indicating a 4.2% decline compared to N49.06 trillion recorded in the corresponding period of 2019.

In terms of quarterly breakdown, household consumption expenditure grew by 8.62% in Q1 2020 to stand at N25.49 trillion, while it dipped by 15.96% at N21.5 trillion in the second quarter of the year.

What this means

Consumption expenditure is an important factor in determining economic growth for any country. Thus, as Nigerians suffered the effects of the Covid-19 lockdown in the second quarter of the year, consumption expenditure dropped meaning more Nigerians spent less as they stayed at home.

• A major driver of the lower spending was households with consumption falling to N21.5 trillion, the lowest in over 12 quarters. The data dates to the first quarter of 2018.
• Covid-19 meant more Nigerians stayed at home reducing the amount they spent on household consumption. Most Nigerians spent more on staple food items, and critical supplies required to stay safe.
• Spending on internet data also rose in the period as Nigerians relied on social media and streaming to stay informed.
• Nigeria needs consumption expenditure to rise if it is to exit the recession.

Highlights

• Consumption expenditure of non-profit institutions serving households grew by 56.8% from N267.7 billion recorded in H1 2019 to N419.7 billion in H1 2020.
• Compensation of employees also recorded a 1.9% increase to stand at N18.77 trillion between January and June 2020 as against N18.42 trillion recorded in the comparable period of 2019.
• Also, changes in inventories were estimated at N602.7 billion in H1 2020, a 2.76% increase compared to N586.6 billion recorded in the corresponding period of 2019.
• National disposable income for the first half of the year stood at N68.7 trillion in nominal terms. grew by 4.26% (year-on-year) from N65.87 trillion.

A cursory look at the data in real terms showed that household consumption expenditure in Q1 and Q2 2020 declined by 4.03% and 0.08% (year-on-year) respectively compared to 2.68% negative growth and 0.75% growth for the corresponding periods of 2019.

It is worth noting that household consumption accounted for 63.11% of the total real GDP at market prices in the second quarter, an increase of 3.7% points when compared to Q2 2019.

Government expenditure

In nominal terms, government expenditure grew by 9.61% in Q1 and 157.01% in Q2 2020. General government expenditure accounted for 6.23% of the gross domestic product in real terms in the first quarter and 14.58% in the second quarter of 2020.

• In Q1 and Q2 2020, real general government expenditure grew by 6.80% and 152.05% respectively, with the half-year growth rate recorded at 77.25%.

Compensation of employees

In nominal terms, compensation of employees rose by 9.5% in Q1 but recorded a decline of 4.64% in Q2 2020 compared with growth of 7.83% and 14.35% for the comparative periods in 2019.

• In real terms, however, compensation of employees recorded growth of 6.7% in Q1 and 6.47% decline in Q2 2020, year-on-year). For the first half of 2020, growth in this component was marginal at -0.34% year on year, or 7.74% points slower than 7.4% in 2019.

Net lending to rest of the World

Net lending grew by 348.25% in Q1 but declined by 51.11% in Q2 2020 compared with declines of 172.06% in Q1 and 242.85% in Q2 2019.

• While, for the first half of 2020, nominal Net lending grew by 52.43%, compared to a decline of 213.85% recorded in 2019.

What you should know

• The Nigerian economy contracted by 6.1% in the second quarter of 2020, and consequently slipped into recession after enduring a second contraction in Q3 2020.
• The decline in economic activities in the country can be attributed to the disruptions brought about by the lockdown as a result of covid-19 pandemic.
• Household disposable income, which measures the income of households after taking into account net interest, dividends received, payment of taxes, and social contributions grew by 2.55% and 0.66% in Q1  and Q2 2020 respectively.

Nigeria may be out of recession by the first quarter of 2021, as projected by the Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, but analysts in KPMG Nigeria have stated that there are 10 macro trends that will determine the fate of the nation’s economy next year.

The macros are Global dynamics, fiscal sustainability, uncertain forex environment, stringent policy posture, constrained productivity and accelerated credit penetration.

READ: Nigeria needs to spend $3 trillion in over 30 years to bridge infrastructural gap – Moody’s Report

Others are cautious private sector investment activities, emerging digital economy, socio-political threats, and consumer pressure points.

This was disclosed by Olusegun Zacchaeus, Associate Director, Strategy and Economics, KPMG, during the American Business Council webinar recently.

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Global dynamics

Zacchaeus explained that the modest recovery expected in 2021 is threatened by the second wave of COVID-19 pandemic. According to him, everyone should expect more pressure that will emanate from the global economy. For instance, the change of baton of the Democratic government in the United States is expected to impact several economies, including Nigeria. He said,

“The emergence of a new democrat president will have implications on the global economy. The bigger fiscal stimulus package totaling US$2.5 trillion from 2021 to 2024 is expected to drive recovery.

“On oil price dynamics, bilateralism with possible easing of trade tensions between the US and China. Possible catalyst for distortion in oil prices given strong advocacy for shift away from fossil fuel.”

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KPMG added that OPEC is considering deepening oil production cuts amidst rising Covid-19 cases, and fresh economic lockdown in Europe Outflows from SSA between February and March totaled $5 billion.

According to the firm, 47% of investors think emerging market economic activity will slow over the next 12 months, compared with 37% who think it will accelerate and borrowing costs are still high and financial conditions remain difficult.

“WTO expects a significant downturn in global trade in 2020 between 13% and 32%, and some recovery in 2021 at 8%. Risks to the outlook include a second wave of COVID-19 with the results being very sensitive to the length of time that the Covid-19 threat remains in place or trade restrictions,” he added.

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Fiscal sustainability

It stated that the proposed 2021 budget provides indications of tight spending and worsening debt. KPMG projected that the Budget implementation will likely underperform in line with historical trends.

According to the firm, Nigeria’s fiscal flexibility is constrained by a high interest bill as a percentage of general government revenue and by inefficient non-oil tax collection.

Noting that the impact of new tax policies could be watered down by overall low economic outputs, KPMG advised that the Integrated Revenue Monitoring System (IRMS) needed to ease revenue recognition.

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Uncertain FX environment

It stated, “The foreign exchange environment will remain under pressure exacerbated by lower FX earnings.

“Fair value estimation at N422/$1, reflecting a 9% overvaluation of real effective exchange rate. Fair value may improve but rates will still be misaligned in 2021.

“Liquidity is low due to the pressure on foreign reserves and sharp fall in capital importation by -78% in Q2 2020 (QoQ). Liquidity will remain challenged given oil price outlook and capital flows,” it added.

On the multiplicity of rates, KPMG stated that multiple exchange subsist, considering the spread of N80 between BDC, government intervention rate, and official rate. CBN may not likely close the multiple exchange rate window.

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Constrained productivity

KPMG stated that Volatile, Uncertain, Complex and Ambiguous (VUCA) policy environment has negative impact on the overall growth in the economy.

Following this, social wheel pressure is spinning and this has resulted in a growing flux of skilled talent to other climes like Canada, U.K, Australia, and the United States.

“The nature, speed, volume, and magnitude of change is not predictable e.g. rising Inflation and low aggregate demand. Lack of clarity resulting in multiple and conflicting interpretations.

“Lack of predictability in issues and events make it difficult to see future outcomes or make decisions. Focus will be more on social vs economic growth,” it added.

Accelerating credit penetration

The tax firm stated that Nigeria has been credit starved despite increased supply to the private sector. On what is expected in 2021, it added that deepened credit penetration is expected to continue in 2021. Albeit, there may be increased concentration

While concluding on this, it noted that LDR stipulated at 60%, now increased to 65% and that the OMO restrictions increasing overall liquidity in the banking sector.

“Increase in CRR from 22.5% to 27.5% to tame excess liquidity and inflation. The Reduction in MPR by 100bps from 12:5% to 11.5%. Development Finance Initiative as a policy tool will enhance credit penetration,” it recalled.

Cautious private sector investment activities

According to KPMG, the Private sector confidence remains low as FDI is expected to dim in 2021. The firm noted that the largest component of capital importation, contributing 58.8% of total capital importation.

It attributed this to the government aggressive policies toward enhancing other strategic investments e.g. technology development in the economy.

It also attributed the Portfolio investment, which declined by 91% (YoY) at $385.32million in Q2 2020 from $4,292.893million in Q2 2019, to the impact of Covid-19 on global activities, which dampened investors’ sentiments.

Emerging digital economy

The emerging digital economy is expected to witness growth in 2021, as Nigeria boasts of an industry driven by increased investment resulting in capital to drive growth.

On the influx of start ups in the segment, KPMG stated that the total funding in Nigerian startups in 2018 up to $178 Million. Entry of new players, 15 startups raised more than $1million in the fintech segment.

“Tech start-ups have begun to attract funding from venture capital firms, however, foreign investors provide over 80% of this funding,” it added.

Socio-political threats

The social wheel of pressure is spinning, as an additional 5million Nigerians are expected to be pushed into poverty in 2021 due to crisis. This will be driven largely by contraction of remittances and growth in population (2.6% annually) above the GDP growth rate.

Consumer pressure points

Even in 2021, the tax firm is optimistic that there are several macro forces pitched against the consumer. One of them is employment, which remains a major challenge in Nigeria, as inflationary pressures on the rise are expected to be sustained in 2021, driven by rising costs.

Despite the challenging environment, consumers’ confidence is expected to be positive, as consumer spending will remain under pressure.

In conclusion, unemployment and erosion of purchasing power, due to inflation, will form additional pressure points.

What you should know

Speaking at the same forum in 2019, as reported by Nairametrics, Zaccheaus explained that the the global developments in 2020 portends significant risks for the Sub-Saharan countries. Other factors are investment for growth, productivity, technology and digital disruption, socio-economic pressure and consumer pressure points.

While providing an update on the Nigerian economy, it was stated that it currently stands on a slippery slope of recovery. According to KPMG, the Nigerian economy which recorded a growth rate of 6.21% in the first quarter of 2014, has continued to witness very slippery growth recovery since the 2016 recession.

Gone are the days when an average Nigerian could purchase a meal with N100 and be filled to the brim. Even in Lagos, where foodstuffs are generally perceived to be expensive, a hungry Nigerian with just N100 could buy a loaf of ‘Agege’ bread for N60, beans for N30, and two sachets of pure water at N5 each; or White rice for N50, beans N30, spaghetti N10, and 2 pure water.

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Similarly, with N100, an average Nigerian could purchase 1 wrap of “amala” for N50 and 2 slices of meat at N20 each with 2 pure water, while some other person could prefer to buy “fufu” in place of “amala” and still be filled.

However, prices of food items are known to be downward sticky in Nigeria, as food items across diverse food classes have experienced price increases in recent times. Of all items, staple food items are the most affected, especially the prices of rice, garri, yam, potato, cassava, and yam flour, to the prices of relatively ostentatious items like semovita, semolina, or poundo yam.

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Even the market prices of spaghetti and indomie, which are considered close substitutes for rice, have experienced major spike in recent times. By taking an investigative stance, one would realize that Golden penny pasta (spaghetti) which sold for between N120 – N150 a year ago, ow sells for between N230 – N250 a piece, marking about a 66.67% increase in 12 months.

Similarly, egg, a pocket-friendly and close substitute for fish, meat, chicken, and turkey, is not so pocket-friendly anymore, with a price increase from N25 a year ago to N50 as of today – a 100% increase.

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In line with the recent development, coupled with the widespread economic vulnerabilities in the nation, it is obvious that the cost of cooking a meal in Nigeria today is twice as expensive as it was a year ago. As the price of cooking ingredients like tomato paste has increased by more than 200% this year alone. The price of onion, which is a widely eaten vegetable in the country, has also increased.

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Consequently, the cost of buying cooked food from ‘Mama Put’, food restaurants, and other outlets has also gone skyrocketed — it is impossible to get a satisfying meal without spending as much as N300 or more in the process, depending on the type of outlet you patronise. If a person were to spend on meals, an average of N300 twice a day for 31 days, it therefore indicates that an average Nigerian spends at least N18,600 on feeding in a month considering that many Nigerians still earn below the minimum wage of N30,000.

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What they are saying

A food vendor in Abule Egba, known by her street name, Iya Sodiq, said that the cost of items she uses in cooking has gone up recently, and the only option she had was to increase the price she charges her customers to compensate for the recent increase. She disclosed that most times when asked to sell a fixed amount of food by a customer, the quantity she sells now is considerably lower than what she would have sold at the same amount earlier this year.

She stressed that even the smallest bread she sells in her shop currently goes for nothing less than N100.

“The prices of everything in the market is now high. Even the customers are complaining that my food is now small, but they don’t understand that I am not even making many gains anymore because food items are now so expensive in the market,” Iya Sodiq said.

In a conversation with another food vendor at Ikeja, by the name Mrs. Tobiloba, she highlighted that the cost of preparing a pot of soup has spiked significantly, given that the price of tomato paste, onions, pepper, seasoning, fish, meat, and even rice has gone up relative to last year, which meant her customers have to spend above N100 to quench their hunger.

She said, “Onions, pepper, tomatoes, rice, fish, meat and everything you need to prepare soup or stew have increased in prices in the market. If I sell in the quantity I was selling before, I will definitely run at a loss.”

What this means

The persistent increase in the prices of food items has put downward pressures on the real value of money and also the real income of Nigerians. With food inflation rate moving towards the 2017 level of 17.38%, the purchasing power of Nigerians has never been this constrained, with nothing to compensate for the recent increase in the prices of food items, despite the increase in the national minimum wage.

What you should know

After a careful comparison of the composite food index between September 2015 and September 2020, Nairametrics reported last month that food inflation increased by 110.5%, this shows that the purchasing power of Nigerians is constrained, as real income has reduced significantly, despite the 66.7% increase in the National minimum wage from N18,000 to N30,000.

Article jointly written by Samuel Oyekanmi and Omokolade Ajayi