Analysis of Nigeria’s recent GDP report
Hello people, I hope your week is going well. Thank God it’s just one more day till the weekend “whoop whoop”, can’t wait for it to be here. So on Tuesday, the National bureau of labour statistics “NBS” issued their quarterly report (for Q2 2017) on the country’s GDP (Gross domestic product and advised that Nigeria is currently out of the worst recessionary period to have hit the country in a decade. Prior to this, the GDP had contracted for 5 consecutive quarters (beginning from the first quarter of 2016), but for this quarter, it grew by 0.55 per cent.
Is it really worth celebrating argued analysts? Well maybe not. The reason being that we basically did nothing new or special to grow the GDP, it was just by sheer luck the price of crude oil rose during the period under review, and increased crude oil production from an average of 1.69mbpd to 1.84mbpd owing to the government’s effort to curb pipeline vandalism.
Again, another point from the critics as to why the reported growth rate is irrelevant is that the growth in GDP is not felt by the common Nigerian. The Nigerian population is growing at an average rate of about 3% yearly and growth in GDP should be more than the population growth rate to translate to better per capita income and improved standard of living. Unemployment rate is at 14.2% (as at Q4 2016) and food inflation rate is still at a high of 20.28% as at July 2017 (according to the NBS). This implies that things are still tough for the common Nigerian man, he finds it difficult to put food on the table and young graduates are also finding it increasingly difficult to get jobs.
The above is no surprise as the CBN still maintains the MPR rate at 14% and the liquidity ratio unchanged at 30% with cash reserve ratio stable at 22.50%. Argument for maintaining the rates at the current percentage points is that easing the monetary policy at a period where the inflation rate is at a high of 16.05% (a lot higher than the CBN’s target of 6 – 9%), might worsen inflation and also destabilize the foreign exchange market as the government has to some extent managed to keep the foreign exchange market relatively stable.
On the other hand, the argument against maintaining the rates is that it makes it difficult for businesses to access cheap funding for expansion or even startups. Apart from agriculture’s lending rates which have been slightly reduced in a bid to spur growth in the sector, other sectors get quotes of 17% – 30% to access funds. This makes it very expensive for businesses to expand or for people with ideas to startup their companies. So they say, yes inflation would rise at the short term and people might suffer, but reducing interest rates would also stimulate the economy, businesses would grow and unemployment will be reduced.
For now, I think it might be too premature to start celebrating, we need to watch the economy and consciously put in reforms to shift the country’s focus from oil to other sustainable sectors. It is worthy of note that the GDP growth was driven by the oil sector at a 17.04 percentage point as a result of the rise in oil price and uptake of Nigeria’s production quantity during the period. The Agricultural sector which is meant to be the main focus and growth driver of the government’s bid to diversify the economy grew by a mere 3.01 per cent, down from 3.39 percent in Q1 2017 and 4.53 percent in Q2 2016. The poor performance of the Agricultural sector was as a result of the relatively high interest rates. Other sectors that were affected by high interest rates include the Manufacturing, Construction and Real Estate.
So my people, until reforms are made and the effect of the growth in GDP is trickled down to the common Nigerian, it would be a little premature to celebrate our exit from recession.