The National Bureau of Statistics reported on Thursday that Nigeria posted a real GDP growth rate of 0.11% for the 4th quarter of 2020, which means the country just about slipped out of recession. This is Nigeria’s first positive GDP growth rate following two consecutive quarters of contraction.
Whilst this is a welcome development, this is historically the slimmest GDP Growth rate Nigeria has recorded since 2011 when the country’s GDP composition was rebased. However, the growth was just about enough to help Nigeria achieve a much sought-after V-shaped recovery. A slim GDP growth rate will always be more appreciated than any form of contraction.
A further breakdown of the GDP growth rate in terms of contribution to GDP reveals Agriculture grew by 3.4%, Industries contracted 7.3%, and Services grew by 1.31% respectively. In terms of contribution to GDP, Agriculture, Industries, and Services comprised 26.95%, 18.77%, and 54.28% respectively. From here we can deduce how Nigeria got out of recession.
Digging into the data
Digging into the data reveals the major drivers of Nigeria’s exit out of recession. The largest sub-sectors in the economy as of the 4th quarter of 2020 were Crop Production at 3.68%, Crude Petroleum and Natural Gas at 8.2%, Trade at 14.9%, Telecommunications & Information Services at 12.2%, and Real Estate at 5.7%.
All 5 sub-sectors recorded significant improvement in their Real GDP Growth numbers including those that are still in contraction.
- For example, Crop Production’s GDP grew in the 4th quarter by 3.42% compared to 1.39% in the previous quarter, nearly double quarter on quarter. Crop Production constitutes a significant portion of Nigeria’s GDP and most of all.
- Trade GDP, which constitutes 15.5% of the total GDP, contracted by 3.2% compared to a 12.12% contraction in the prior quarter. This is an example of a sector that improved hugely despite still being in a contraction.
- The Telecommunication sector grew by 17.64% in the 4th quarter of the year compared to 17.36% in the prior quarter. At 12.2%, the Telecommunication sector is now one of the largest in the economy. We believe this sector is a major reason why Nigeria got out of the recession.
- Finally, the Real Estate sector, which had been in contraction since the second quarter of 2019, finally snapped out of recession in the 4th quarter, when it grew by 2.81%.
- Thus, Trade, Telecommunications, Real Estate, and Crop Production GDP performances are the reasons why we are out of recession.
Are we out of the woods?
The result of the latest round of GDP figures does not in any way suggest the Nigerian economy is out of the woods. The economy is in a critical condition and most sectors are still in contraction, even those growing could easily fall back into a recession. However, we do know which sectors will drive economic growth in the country.
For Nigeria to record faster economic growth than the slim 0.1%, we will need the telecoms, Trade, and Real Estate sectors to grow rapidly. So much focus has been placed on oil and gas for years, but there is no better time to move away from oil than now. Logistics, transportation, and ease of doing business challenges inhibiting trade must be resolved if this sector is to drive growth.
A lot has been said about border closure and import substitution as being a zero-sum game for trade. However, a lot of intrastate trades still take place in Nigeria that involve strictly made in Nigeria goods. Yet, the issues listed above remain huge challenges.
Real Estate, being a major job-creating sector, is also pivotal to putting money in the pockets of unskilled workers who feed off the indirect jobs it creates. For the sector to thrive, the government will need to solve the high-interest rate regime which has been the bane of progress for this sector for decades.