…only 12 sectors expanded
Nigeria’s Gross Domestic Product (GDP) manifested the effects of the naira and fuel scarcity that bedeviled the nation early this year as its growth rate slowed to 2.31 percent at the end of first quarter of 2023, the National Bureau of Statistics (NBS), the nation’s data agency, announced Wednesday.
The release of the quarterly GDP performance came as the President Muhammadu Buhari-led federal government gets set to hand over to his successor in the next few days in Abuja, the Federal Capital Territory.
“Gross Domestic Product (GDP) grew by 2.31% (year-on-year) in real terms in the first quarter of 2023. This growth rate declined from 3.11% recorded in the first quarter of 2022, and 3.52% in the fourth quarter of 2022. The reduction in growth is attributed to the adverse effects of the cash crunch experienced during the quarter,” said the NBS.
On a quarter to quarter basis, the Q1 2023 GDP growth rate of 2.31 percent was much lower than the real growth rate of 3.52 percent recorded at the end of the fourth quarter of 2022. And on a year-on-year basis, the current economic performance was also lower than the 3.11 percent real growth rate recorded at the end of first quarter of 2022.
The latest Q1 2023 GDP growth rate brings to 31, the number of quarters the outgoing federal government administration was in charge of the Nigerian economy from Q3 2015 to Q1 2023. Based on the quarterly GDP growth rates, the average growth rate for the 8-year period of the President Muhammadu Buhari-led federal government is 1.46 percent.
Further analysis of the sectoral values of the components of the current Q1 2023 GDP showed that 12 sectors expanded, 22 sectors slowed, while 12 sectors contracted.
The unimpressive quarterly Q1 2023 GDP performance did not come as a surprise to many who had envisaged that the naira and fuel scarcity which crippled the nation’s economy between the last quarter of 2022 and first quarter of 2023 would have negative impact on the economic performance.
“A breakdown of the data showed that almost all the employment elastic sectors were severely affected by the naira cash crunch. The agriculture sector for instance, contracted for the first time in over a decade (-0.9%) while manufacturing and trade sectors slowed to 1.61% and 1.31% respectively. This is not surprising, as most business transactions especially in the informal sector are settled with cash,” Financial Derivatives Company (FDC), a think tank cum an investment firm, stated in a post mortem analysis.
Early this year, Africa’s biggest economy experienced severe cash crunch on account of the naira redesign policy introduced by the apex bank simultaneously with fuel scarcity, during which a litre of the premium motor spirit otherwise known as petrol, cost as much as N330 per litre.
According to FDC, “only 26.09% (twelve) of the 46 activities tracked by the NBS expanded in Q1’23 compared to 36.96% (Seventeen) in Q4’22 and 54.35% (twenty-five) in Q1’22. Notably, the expanding activities are mostly the services sector, which is relatively job inelastic.”
The sectors that expanded in Q1 2023 include metal ore, financial institutions, transportation and storage, information and communication, financial institutions, and road transport, among others.
According to FDC, the growth in the metal ore sub sector was attributed to increased demand from the Dangote Refinery, while the financial services was bolstered by the upsurge in the usage of e-payment platforms during the period.
Additionally, “Increased usage of digital platforms boosted demand for data” and “heightened insecurity increasing demand for air transport services,” FDC postulated.
The sub sectors whose economic activities slowed include quarrying, trade, cement, crop production, and education among others. With respect to trade, naira scarcity was attributed as the major cause because most of information transactions are settled in cash.
The sub sectors that contracted during the first quarter of this year include rail transport, oil refining, livestock and insurance, just to mention a few.
In terms of contribution to GDP, agriculture contributed 21.66 percent; industries contributed 21.05 percent, while services contributed 57.29 percent.
Further, the non-oil contributed 93.79 percent, while the oil and gas sector contributed 6.21 percent.
“Real GDP growth is likely to slow in Q2 as political activities cloud economic events. This would be compounded by the CBN’s hawkish stance, which would increase borrowing costs. The MPC raised the benchmark interest rate by 50bps to 18.5%p.a. at its recently concluded meeting,” FDC stated.