Recession Worsens On N’Delta Crisis, Despite Agric Rebound

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—Analysts: Nigeria in need of fiscal stimulus, reforms
      —FG allays concern over worrying economic data
          —Moody’s: Country to expand by 2.5% next year

There seems to be no end in sight to Nigeria’s economic woes, as the third quarter real gross domestic product (GDP) growth data released monday by the National Bureau of Statistics (NBS) showed that the country sank deeper into recession, contracting by 2.26 per cent from -2.06 per cent in the second quarter of this year, and -0.36 per cent in the first quarter.

This represented a 0.18 per cent drop from the growth recorded in the preceding quarter and lower by 5.08 per cent relative to the corresponding quarter in 2015.

The contraction in GDP was largely driven by the militancy in the Niger Delta, which resulted in a drop in oil output during the third quarter to 1.63 million barrels per day (mbpd) and the oil sector’s contribution to GDP, notwithstanding the rebound recorded in the agriculture sector.

Nigeria depends on oil exports for 90 per cent of its foreign exchange earnings, reflecting the impact of a depressed oil sector on the economy.

The latest GDP growth data further confirmed the level of weakness in the economy, which has been hobbled by rising unemployment and job losses, declining capacity utilisation, and acute foreign exchange shortage.
According to the NBS, quarter-on-quarter (unadjusted for seasonality), real GDP, however, increased by 8.99 per cent.

During the quarter under review, aggregate GDP stood at N26.55 trillion (in nominal terms) at basic prices compared to N17.8 trillion in Q2 2016 and N24.31 trillion in Q3 2015.

FarmersNominal GDP grew by 9.23 per cent relative to the growth recorded in Q3 2015 by 3.22 per cent.

Daily oil production averaged 1.63 million barrels per day (mbpd), lower than the 2.11mbpd in Q2 and also lower relative to the corresponding quarter of 2015 by 0.54 mbpd when output was recorded at 2.17mbpd.

As a result, real growth of the oil sector slowed by 22.01 per cent (year-on-year) in Q3 2016, representing a decline of 1.06 per cent from Q3 2015. Quarter-on-quarter, oil sector growth was 8.07 per cent.

The oil sector contributed 8.19 per cent of total real GDP in Q3, down from 8.26 per cent and 10.27 per cent in Q2 and Q3 2015 respectively.

On the other hand, the non-oil sector contributed 91.81 per cent to GDP in real terms, up from 91.74 per cent in Q2, which was largely driven by activities in agriculture (crop production), information and communications and other services.

The non-oil sector grew by 0.03 per cent in real terms in the period under review, reversing two previous quarters of negative growth in Q1 and Q2 2016.
In the non-oil sector, agriculture contributed 24.09 per cent to nominal GDP during the quarter, higher than 19.71 per cent and 24.51 per cent recorded in both Q2 2016 and Q3 2015, respectively.

The manufacturing sector contributed 8.59 per cent to nominal GDP, lower than 8.95 per cent in Q2 2016 and 9.67 per cent in Q3 2015.

But real GDP growth of the manufacturing sector slowed by 2.63 per cent to -4.38 per cent (year-on-year) from –1.75 per cent growth recorded in third quarter of 2015 and 1.02 per cent in the previous quarter. On a quarter-on-quarter (seasonally unadjusted) basis, the sector increased by 6.28 per cent.
Nevertheless, nominal GDP growth of manufacturing was put at –2.93 per cent (year-on-year), reflecting a drop of 1.91 per cent from the 1.02 per cent recorded in the previous quarter as well as 7.73 per cent lower than the 4.80 per cent recorded in Q3 2015. On a quarter-on-quarter basis, the sector grew by 8.49 per cent.

The NBS said the drop in manufacturing in the period under review was “partly due to the continued fall in the exchange rate, which made imported inputs more expensive, thereby increasing business costs”.

It said: “This was greatly as a result of the continued fall in the naira to dollar rate which translates to much higher cost of business operations.”
The electricity, gas, steam and air conditioning supply segment contributed 0.33 per cent to real GDP and grew 8.65 per cent in Q3.

The construction sector contributed 2.96 per cent to nominal GDP, lower than 4.22 per cent in Q2 2016 and 3.15 per cent in Q3 2015.

Trade grew by 15.36 per cent and contributed 19.83 per cent to GDP in the third quarter, down from 21.16 per cent in the previous quarter.

The accommodation and food services sector grew by 2.73 per cent year-on-year, representing an increase of 1.75 per cent relative to 0.98 per cent in Q3 2015. It contributed 0.87 per cent to GDP from 0.67 per cent in Q2.

The transport and storage segment contributed 1.20 per cent to real GDP while the telecommunications and information services and broadcasting contributed 10.14 per cent to GDP in Q3 compared to 12.68 per cent in Q2 2016.

The finance and insurance sector contributed 2.90 per cent to real GDP in the period under review, lower than 3.05 per cent in Q2 and higher than 2.76 per cent in Q3 2015.

The real estate services sector contributed 7.17 per cent to real GDP, lower than the 7.57 per cent in the corresponding quarter of 2015 and the preceding quarter.

Also, the arts, entertainment and recreation sector contributed 0.19 per cent to real GDP, from 0.23 per cent in Q2 2016 and 0.18 per cent in Q3 2015.

Economic Stimulus

Reacting to the worrying GDP growth data for the third quarter of the year, economists yesterday harped on the need for the federal government to resort to fiscal stimulus to revive growth and reset the economy.

The Head of Africa Research, Standard Chartered Bank, Razia Khan, said Q3 GDP contraction in Nigeria did not come as a surprise largely because of the extent of the downturn in oil sector GDP.

According to Khan, the resumption of payments to Niger Delta militants was not sufficient to trigger a meaningful improvement in production, saying that further attacks, reported in recent weeks, pose new risks to the outlook, as does the very real risk that there may not be any resolution to Niger Delta issues soon.

“However, flat growth does not in itself hold enough promise. The urgent adoption of reforms is now required in order to de-bottleneck Nigerian growth.

“Not least, real attention needs to be given to the problems of FX liquidity which continue to hold back growth in manufacturing. It is clear that the measures instituted so far are not sufficient to bring about a real improvement in FX inflows. New, and different thinking is required,” Khan said in response to enquiries by THISDAY.

The Chief Executive Officer, Financial Derivatives Company Limited, Mr. Bismarck Rewane, said the latest NBS report showed that “some things are definitely not working right”.
“This is a bad news. We are in real trouble. With three consecutive quarters of increasing negative growth, that means we are getting deeper into recession.

“The stimulus package has to be increased and intensified and the interest rate has to come down and they have to make forex available. The forex market arrangement now is not working and something has to be done and very quickly.
“There is no easy answer to it, but we must face the reality and find our way out of this situation,” the FDC boss stated.

Also, the Global Chief Economist at Renaissance Capital, Mr. Charlie Robertson, in a note yesterday, held the view that “in an ideal world, Nigeria will let its currency float too in 2017. No investor we spoke to will put money into Nigeria, unless it copies the currency reform story that Egypt and Russia have both done”.

Similarly, the Director General of the West African Institute for Financial and Economic Management, Prof. Akpan Ekpo, said the delay in approving the federal government’s $30 billion borrowing plan may continue to hurt the economy.

“To be honest, the government need resources to spend and the delay in approving the borrowing is a problem. The lawmakers need to approve it for government to borrow quickly and put the money into capital project. That is very important.

“Secondly, a lot of the states are still not paying salaries. The federal government has to find a way of supporting the states to pay salaries,” the former vice-chancellor of the University of Uyo said.

FG Downplays NBS Data

But in its reaction to the worrying data released by the NBS, the federal government said yesterday that it would announce an ‎Economic Recovery and Growth Plan (ERGP) before the end of the year, even as recession continues to bite harder.

In an attempt to downplay the discouraging economic data, the Office of the Vice-President said efforts to rejuvenate the economy yielded positive results in the third quarter.

It also blamed the dismal performance of the economy on the vandalism of oil and gas infrastructure in the Niger Delta, resulting in production shut-ins and lower oil output.

A statement by the Senior Special Assistant to the Vice-President on Media and Publicity, Mr. Laolu Akande, said: “Third quarter GDP growth figures released by the National Bureau of Statistics revealed a consistent growth in the agriculture and solid mineral sectors, indicating the success of the Buhari administration’s economic policies, even though overall the economy is still in recession.

“The over-riding impact of the oil and gas sector, where vandalism and sabotage of critical installations negatively affected production output, explains the persistence of the recession, as the non-oil economy posted a very slight growth.

“Efforts to resolve the Niger Delta situation are however continuing as the federal government has opened several channels of communication with all relevant groups in the Niger Delta.

“Also, urgent fiscal and monetary measures to spur the economy back to overall positive territory are certainly in the offing, including those targeting manufacturing.”

In another statement from the federal government’s Economic Management Team, the Special Adviser to the President on Economic Matters, Dr. Adeyemi Dipeolu, added that the third quarter data released by the NBS showed that the Nigerian economy is still in recession.

According to him, the slight deterioration in national economic performance was largely due to the continued poor performance of the oil and gas sector, which worsened to -22.01% in the third quarter, compared to -17.48% in the second quarter of 2016.

He said the immediate cause of this was the steep decline in oil and gas production in the third quarter of 2016 due to acts of vandalism and sabotage of oil export facilities.

He also said the decline was also caused by the continued outsized influence of the oil and gas sector on the rest of the economy, as typified by its contribution to government revenue and foreign exchange earnings, which he said continued to be important motors of economic activity.

“Moreover, due to time lags, it is still too early for policy interventions of the federal government to begin to impact fully on economic activity,” he added.
There are however some “green shoots” of economic recovery beginning to emerge, Dipeolu said.

He said that on-going consultations to bring lasting peace to the Niger Delta had led to an increase in oil and gas production which if sustained at current prices, would bring a measure of relief to the economy.

He also said other key sectors of the economy showed encouraging signs of improvement.

“The growth in the non-oil economy, although still weak at 0.03 per cent, showed a return to positive territory after two consecutive quarters of negative growth. This was partly due to the continued good performance of agriculture and the solid minerals, two sectors prioritised by the federal government.

“Agriculture grew by 4.54 per cent in the quarter under consideration, of which growth in crop production at nearly 5 per cent was at its highest since the first quarter of 2014. Growth in the solid minerals sector averaged about 7 per cent.

muhammadu-buhari
President Muhammadu Buhari

“The financial services sector also experienced a rebound quite strongly in the period under review, growing by 2.85 per cent from a negative growth of -13.24% in the second quarter.

“The recently approved first tranche of $600m to be borrowed from the African Development Bank will also provide some relief in budgetary terms and supplement capital inflows.

“Indeed, there was a slight uptick of capital inflows into the economy in the third quarter of 2016. Overall capital inflows in the third quarter of 2016 increased by 74.84 per cent over the second quarter,” he added.

Dipeolu, however, noted that the performance of the manufacturing sector continued to be of concern given its key role in value addition and job creation in the economy.

Nonetheless, he was optimistic that the real sector would soon experience sustained improvement in its contribution to the national economy because of greater local sourcing of raw materials, expected improvements in infrastructure, especially in power supply and reductions in the cost of doing business.

He also stated that though inflation was still high at 18.3 per cent on a year-on-year basis, it had begun to level out on a month-on-month basis and should enable the deployment of more policy tools to support growth and employment.

Moody’s 2.5% Growth Forecast

Some encouraging news also came from international ratings agency, Moody’s, which forecast that the Nigerian economy could expand by 2.5 per cent next year as long as it can keep oil output at 2.2 million barrels per day.
Moody’s senior analytical adviser for Africa, Aurelien Mali, told Reuters that the country’s fourth quarter growth could be close to flat.
Mali said increases in oil output would help Africa’s top oil exporter generate more dollars.

“With resumption of oil production and the dollars that should come, we expect that Nigeria would be able to accelerate the implementation of the budget,” Mali said.

“With an acceleration, we expect that (growth) could reach 2.5 per cent next year,” he said.

Moody’s downgraded Nigeria to B1, with stable outlook in April from Ba3. Mali said government’s inability to ensure increase in oil production in the medium term could exert negative pressure on its balance sheet and trigger another rating action.

However, he said the currency depreciation in June had compensated for government revenues because the country took action before it had a much bigger gap in its income. However, the currency weakness has not led to foreign inflows, Mali said.

Oil accounts for almost 10 per cent of Nigeria’s GDP. Mali said reforms aimed at increasing the share of non-oil taxes as a percentage of government revenues would be positive for ratings.