Though Africa’s largest economy has recorded unabated growth for the fourteenth consecutive year after a recession in the third quarter of 2020, the welfare of the citizens has not improved as inflation bites harder. Rather than flourish with the economy, more Nigerians have descended into the poverty threshold. BAMIDELE FAMOOFO reports
According to the latest GDP data from the National Bureau of Statistics, Nigeria’s economy posted robust gross domestic output growth of 2.98% to N18.28 trillion in real terms in the first quarter of 2024, slightly lower than the 3.46% growth reported in the fourth quarter of 2023, but higher than the 2.31% recorded in the corresponding quarter of 2023.
This growth marks the fourteenth consecutive quarter of economic expansion and at a solid pace since exiting the recession in 2020 following the effect of the pandemic.
However, this has not translated into a better living condition for the people as the cost of living has risen significantly with food inflation among others hovering over 30 percent as of April, according to data from the NBS.
Nigeria’s inflation rate rose to 33.69 percent in April 2024 compared to March 2024 headline inflation rate which was 33.20 percent
Despite economic growth as shown in Gross Domestic Product, the poverty rate of the country is estimated to have reached 38.9 percent in 2023 according to data supplied by the World Bank.
“Despite economic growth as shown in Gross Domestic Product, the poverty rate of the country is estimated to have reached 38.9 percent in 2023 according to data supplied by the World Bank”
The Bretton Woods institution noted that with an estimated 87 million Nigerians living below the poverty line in 2023, the most populous black nation on earth ranked the world’s second-largest poor population after India.
Information made available by the Nigerian Economic Summit Group supported the position of the World Bank, showing that the nation’s Misery Index (the sum of unemployment and inflation rates) stood at 26.5 percent as of the third quarter in 2023.
According to NESG, Nigeria has one of the world’s highest misery indexes, with many Nigerians leading a miserable life as purchasing power weakens due to high inflation, pushing many people into poverty.
Though GDP has recorded a plausible growth in the last four years, data from the United Nations Development Programme showed that the impact of economic growth is not so much felt by Nigerians as the Human Development Index remains a far cry. “For Nigeria, the HDI has shown a 22% increase in 19 years but remains low at 0.548, categorizing the country as having low human development,” UNDP noted in a report published in March 2024.
EXPERTS’ COMMENTS
Commenting on economic growth on the African continent as shown in the African Development Bank’s economic outlook report at the Bank’s AGM in Nairobi, Akinwumi Adesina, says an increase in the Gross Domestic Product must translate to job creation for youths to ensure growth on the continent.
“It does not matter how that GDP is. We have to make sure that it is creating quality jobs for our people,’’ he said.
Adesina identified youth unemployment as a critical issue, pointing out that Africa could not afford to have 477 million young people under the age of 35 without opportunities.
“I have said it: Migration to Europe is not Europe’s problem. It is our problem. We cannot have 477 million young people under the age of 35 and have nothing for them.
“We must invest in our young people, in their skills, talents, and entrepreneurship, and give them tools.”
He expressed enthusiasm for initiatives like the Youth Entrepreneurship Investment Banks and the Special Agricultural Processing Zones, designed to transform agriculture structurally.
Adesina also emphasized the potential of the African Continental Free Trade Area to boost industrial manufacturing and trade within Africa, reducing dependency on exports outside the continent.
“Trading among ourselves in a free trade zone must be backed by industrial manufacturing to avoid being competitively poor.
“We need consolidated infrastructure for export-oriented industrial manufacturing to increase our manufacturing share of GDP,” Adesina said.
Addressing financial strategies, Adesina called for increased domestic resource mobilisation, a stronger private sector, and a shift from reliance on commercial creditors to concessional finance.
He urged for more blended funds to accelerate the continent’s development and expressed gratitude for governments’ robust support for the AfDB’s capital increase.
According to him, this is crucial for maintaining the bank’s triple-A rating and securing long-term, low-interest financing for Africa.
A report published by Commercio Partners, a leading investment company in Nigeria noted that the agricultural sector, crucial to Nigeria’s economy, struggled in the first quarter of 2024, thus fuelling food inflation and increasing the misery index of Nigerians.
The firm noted that although the agriculture sector avoided the negative growth of Q1 2023 (-0.90%), it only achieved a modest 0.18 percent expansion.
Q1’24 GDP performance review
The positive output growth in GDP in the review period was underpinned by the non-oil sector which grew by 2.80 percent in real terms during the reference quarter (Q1 2024).
This rate was higher by 0.02 percent points compared to the rate recorded in the same quarter of 2023 and 0.28 percent points lower than the fourth quarter of 2023.
This sector was driven in the first quarter of 2024 mainly by Financial and Insurance (Financial Institutions); Information and Communication (Telecommunications); Agriculture (Crop production); Trade; and Manufacturing (Food, Beverage, and Tobacco), accounting for positive GDP growth.
Consequently, the Services sector, which recorded a growth of 4.32 percent and contributed 58.04 percent to the aggregate GDP led the growth momentum. Performance of the service sector comes from strong activities in the finance and insurance sector, information and communication as was driven by improvement in financial services offerings, development in the technology space as well as investments into finance and technology companies (Fintechs) to drive services offerings.
In terms of share of the GDP, the services sector contributed more to the aggregate GDP in the first quarter of 2024 compared to the corresponding quarter of 2023.
Elsewhere, the agriculture sector grew by 0.18 percent, from the growth of -0.90 percent recorded in the first quarter of 2023 as a result of the breather experienced in the insecurity level which has bedeviled agricultural activities in the country. However, the sector contributed 21.07 percent to overall GDP in real terms in Q1 2024, lower than the contribution in the first quarter of 2023 and lower than the fourth quarter of 2023 which stood at 21.66 percent and 26.11 percent respectively.
The growth of the industry sector was 2.19 percent, an improvement from 0.31 percent recorded in the first quarter of 2023.
This sector’s growth was propelled by growth in manufacturing, water supply, construction, trade, arts and entertainment, and other complimenting sectors during the review period.
The pivotal oil sector continued to grow robustly, albeit at a slower pace, reaching 5.70 percent year on year in the first quarter when compared to 12.11 percent in Q4 of 2023.
Growth decreased by 6.41 percent points when compared to Q4 2023 which was 12.11 percent.
On a quarter-on-quarter basis, the oil sector recorded a growth rate of 13.77 percent in Q1 2024. The Oil sector contributed 6.38 percent to the total real GDP in Q1 2024, up from the figure recorded in the corresponding period of 2023 and up from the preceding quarter, where it contributed 6.2 percent and 4.70 percent respectively.
Consequently, Nigeria in the first quarter of 2024 recorded an average daily oil production of 1.57 million barrels per day (mbpd), higher than the daily average production of 1.51mbpd recorded in the same quarter of 2023 by 0.06mbpd and higher than the fourth quarter of 2023 production volume of 1.55 mbpd by 0.02mbpd.
Commenting on the performance of the GDP in Q1, 2024, Johnson Chukwu, Chief Executive Officer, Cowry Assets Management Limited, said, “In our view, Nigeria’s economic growth remains robust with positive upsides despite several headwinds which come on the back of insecurity challenges, high inflation rate and sluggish pace of economic activities. Nigeria’s economic growth has been forecast to remain subdued in the near term as current performance paints a nuance that the actual performance will depend on a complex of domestic and global economic factors. The intricacies of this outlook are shaped by a complex interplay of domestic and global economic factors. Pertinently, aggressive rate hikes by the central bank in response to escalating inflation, concurrently with fluctuating but upward-trending employment figures, dwindling daily crude oil production, and escalating debt levels, collectively contribute to Nigeria’s economic challenges.”
As noted in Cowry’s 2024 outlook, it anticipates a higher real GDP growth than in 2023, with expectations of accelerated growth in the oil sector, aligned with the recovery in crude oil production. Additionally, the normalisation and permeation of new government reforms and policies are expected to propel growth in the non-oil sector, particularly supported by the Services sector.
Overall, it projects a 3.25 percent year-on-year real GDP growth in 2024.
Also analysing the GDP’s performance in the review period, Analysts at Commercio Partners noted, “In summary, Nigeria’s Q1 2024 GDP growth is a mixed bag. The service sector is carrying the day, and nominal GDP is up, but the agricultural sector is limping along, and growth has slowed from the previous quarter. While the year-on-year growth points to a strengthening economy, the uneven performance across sectors calls for a closer watch.”
Speaking about the odds, the firm noted that the hike in lending rates by the monetary policy and hikes in PMS and electricity tariffs by the Federal Government have further aggravated the suffering of Nigerians and as well dampened economic growth.
“The Central Bank of Nigeria had hiked the Monetary Policy Rate by a hefty 600 basis points to 24.75% to curb inflation in March.
Despite these efforts, inflation has been stubbornly high, hitting a record 33.69% in April, eroding consumer purchasing power. The increased interest rate has also raised the cost of borrowing for real sectors, stifling economic growth.
“Moreover, recent hikes in PMS (Premium Motor Spirit) prices and electricity tariffs have further dampened economic activity, leading to business contraction and minimal expansion,” it noted.
Bongo Adi, Professor of Economics at Lagos Business School, highlighted the challenges and opportunities facing Nigeria’s economy and shed light on sectoral sensitivities affecting growth prospects.
His analysis touched on the impact of budgetary support, exchange rate stability, inflation drivers, and the manufacturing sector’s performance.
Adi acknowledged Nigeria’s gradual economic growth momentum, emphasizing that the country has managed to steer clear of recession despite facing global headwinds.
He attributed this resilience to the Central Bank of Nigeria’s efforts in stabilizing the exchange rate and restoring confidence in the economy.
Adi noted that external factors, such as diaspora remittances, trade, and capital flows, play a significant role in driving Nigeria’s economic performance.
He expressed cautious optimism regarding the IMF’s growth forecast, citing ongoing policy measures aimed at addressing inflation and exchange rate challenges.
“While recent measures have attracted increased FPI flows, challenges related to insecurity and social welfare persist”
Secondly, the discussion turned to sectoral sensitivities, particularly focusing on inflation dynamics and the manufacturing sector.
Adi highlighted that food inflation remains a key driver of overall inflation, stemming from logistical disruptions, insecurity, and environmental factors. The reliance on food imports due to domestic production challenges has exacerbated inflationary pressures, affecting household welfare.
He suggested that inflation may moderate as exchange rate stability improves, signaling potential relief for consumers.
However, he acknowledged the need for sustained government interventions to support the manufacturing sector and enhance productivity. Lastly, Adi addressed lingering concerns such as foreign portfolio investments (FPIs), insecurity, and social welfare issues.
While recent measures have attracted increased FPI flows, challenges related to insecurity and social welfare persist.
Adi emphasized the importance of addressing multidimensional poverty and bolstering security to foster a conducive business environment.
Recommending the way out, he said, “In conclusion, navigating Nigeria’s economic landscape in 2024 requires a multifaceted approach that addresses macroeconomic fundamentals, sectoral challenges, and socio-economic considerations. As the country strives to achieve sustainable growth and mitigate existing vulnerabilities, stakeholders must collaborate to implement targeted interventions and policy reforms. With proactive measures and a conducive policy environment, Nigeria can harness its economic potential and chart a path towards inclusive and resilient growth. The IMF’s revised GDP growth forecast serves as a guidepost for policymakers and investors, signalling the need for strategic decision-making and adaptive strategies in a dynamic global economic landscape.”
Outlook
PricewaterhouseCoopers Nigeria projects that Nigeria’s GDP may grow marginally by 3.1 percent in 2024 on the back of sustained policy reforms.
It said inflation is expected to decline marginally, balancing the effects of reforms, policy actions, external pressures, and food prices while fiscal sustainability concerns may remain slightly elevated given debt servicing costs.
