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The GDP numbers for the Nigerian economy in the second quarter of 2021 are out. The data by the National Bureau of Statistics (NBS) was headlined by the real GDP growth rate of 5.0 percent. The inflation adjusted number is the highest for any quarter in the last six years. But whether or not this should be celebrated or bemoaned depends on contexts.

The first is that the number falls short of the benchmark average GDP growth rate of 6 percent, which the country achieved in the decade leading to 2014. Economic reforms introduced in the early to mid-2000s under the democratic government of President Olusegun Obasanjo, and the rising prices of crude oil in the international market, were the main drivers of the growth. The economy rebounded from the acute mismanagement under the civilian administration and military dictatorships in the 1980s and the 90s.

Second, the Q2 2021 GDP growth rate was achieved against the acute economic contraction a year earlier. The economy posted a GDP growth rate of -6.10 percent in Q2 2020, as oil prices collapsed in the international market as a result of the outbreak of the COVID-19 pandemic and due to the crippling effect of lockdown imposed to control the spread of infections. A year later, the economy has yet to fully recover the value of output lost in Q2 2020, compared to Q2 2019. This means the GDP was smaller at the end of last quarter, compared to the value of aggregate economic output two years earlier.

Third, Nigeria is lagging behind compared to many other countries that have rebounded from the negative economic impact of the COVID-19 pandemic. With the novel coronavirus outbreak first reported in China in December 2019, the economic impact of the disease hit fast in the world’s second-largest economy. China recorded a -6.80 percent GDP growth rate in Q1 2020. A year later, growth had rebounded to 18.3 percent. The US economy was also quickly impacted by the pandemic, with growth falling to -4.8 percent in Q1 2020. But the economy roared to 6.4 percent growth a year later. As the Delta variant is generating fresh concern about the impact of COVID-19 on public health, the world’s economy has generally moved past the stage of the heavy economic toll of the pandemic in the first half of last year.

Fourth, and by far the most important context to the Nigerian Q2 GDP growth rate, is the quality of life of the citizens. The national unemployment rate increased from 27.1 percent in Q2 2020 to 33.3 percent at the year’s end. A staggering 83 million Nigerians, or 40 percent of the population, were living below the poverty line at the end of Q3 2019, according to data by NBS. An additional seven million Nigerians became extremely poor in 2020, according to the projection by the World Bank, based not only on the impact of COVID-19 but also as a result of the country’s high population growth rate. With the economy still smaller at the end of June than it was two years ago, Nigerians would have to wait longer for the economic bounce that would improve their income and quality of life.

Bright spots

The data-rich, latest GDP report by NBS broadly shows the state of the economy at the end of June 2020. One of the more encouraging statistics was that the non-oil sector, which accounted for 92.56 percent of the economy, grew by 6.74 percent. This was across the Agriculture sector, which grew at a rather slow pace of 1.3 percent, Manufacturing (3.49 percent), Construction (3.7 percent), Information and Communication (5.5 percent), and Telecommunication (5.9 percent).

The Services sector grew by 9.27 percent, and Trade rebounded from the -14.95 percent trough a year ago to 22.49 percent in Q2 2021. It is also significant, in light of the need to strengthen the health system, which the COVID-19 pandemic showed to be too weak to respond to large-scale public health emergency, that the Human Health and Social Services sector grew by 4.92 percent.

Across the board, these growth numbers do not represent the potential of the economic sectors. They were achieved under serious and deepening structural constraints and insecurity that appears to be worsening, which suggests growth could have been much stronger. The statistics also show Nigeria’s economic diversification, indicating a lack of depth in the productive base, as opposed to a lack of breadth. When the country would finally begin to maximise its sustainable economic growth potential remains in anticipation.

The major cause of concern for the non-oil economy is the Finance and Insurance sector, which contracted by 4.54 percent. As the pandemic hit in 2020, the banks had to restructure their maturities to accommodate the disruption of the businesses of their credit customers. The banks also had to play a major role in strengthening the interventions to control the spread of infections and provide emergency treatment support facilities for COVID-19 cases.

The negative growth in the financial services sector now suggests that the institutions, especially the banks, need policy support to strengthen their balance sheets to be able to support a post-COVID-era growth of the Nigerian economy. Up till now, the government and the Central Bank of Nigeria (CBN) have, respectively, viewed the roles of the banks as that of supporting the financing of the fiscal deficits and providing support for business growth. While these activities impact banks’ interest and non-interest incomes, specific policy to bolster the industry should now be contemplated. This should go beyond the crisis financing provided by the CBN’s discount window. Perhaps this is an appropriate time to remind the CBN Governor, Godwin Emefiele, of his promise to have the banks recapitalised during his re-appointment for second term in June 2019.  

The oil economy

The Oil sector accounted for 7.42 percent of the Nigerian economy in Q2 2021. This would suggest that Nigeria has moved to the “post-oil” economy, for which the country is unarguably unprepared. In growth terms, the sector contracted by 12.65 percent in the last quarter.

Daily oil production in Q2 2021 averaged 1.61 million barrels per day (mbpd). Apart from Q4 2020 when daily oil production was lower, at 1.56 mbpd, the Q2 figure is the lowest since 2016, equalling the production figure of Q3 of that year.

According to the research analysis of CardinalStone Partners Limited, a Lagos-based full-service investment banking and financial services firm, the outlook of the Nigerian oil economy for the year’s end is brighter. The expanded cartel of the oil-producing countries, OPEC+, has agreed to start raising production by 0.4 mbpd every month from August 2021. For Nigeria, this development is likely to be supported by the completion of routine maintenance operations across key oil terminals as well as the resolution of industrial actions and power outages that have recently plagued the sector, according to CardinalStone Research.

President Muhammadu Buhari on August 16, 2020, signed the Petroleum Industry Bill into law after the National Assembly recorded a breakthrough by passing the bill that had been stuck there for more than a decade. The Petroleum Industry Act 2021 is expected to crowd-in investments and improve the management and regulation of the country’s oil sector.

The recent low revenue performance of the sector was caused by the downward pressure exerted on prices by the acute demand shock arising from the COVID-19 pandemic, its wider economic dislocation described by the IMF as “a crisis like no other.” The once-in-a-generation-type crisis still lingers, but countries are evolving their response strategies to be able to cope with the healthcare impact and “build back better” the economy.

Nigeria’s new oil legislation is expected to help the country maximise the productivity of the industry before the mid-century when the world’s major economies would have transitioned to carbon neutrality, or net zero, both being a euphemism for post-oil. But the Petroleum Industry Act may have come a little too late. After sharp annual increases in global investment in upstream oil and gas between 2011 and 2014, investment tumbled by 26 and 25 percent in the next two years and only marginally increased by annualised 5 percent between 2017 and 2019, according to the World Energy Report 2019. Investor risk aversion was pronounced, as investment in oil and gas exploration and production fell by 34 percent last year to $261 billion, the lowest since 2004, as per a December 2020 report by the International Energy Forum and the Boston Consulting Group.

Lingering underperformance

Although the economy could have performed much better in the last quarter, it could actually be the best performance that would be recorded until post-Buhari’s presidency. As the effect of the low base of the GDP in 2020 fizzles out in the remaining two quarters of 2021, real GDP growth will hover below 5 percent.

In addition, the security situation in the country is not showing convincing signs of improvement. Rather, insecurity, especially attacks on farming communities by criminal herdsmen, will likely not abate and would also continue to affect the agriculture sector, which accounted for 23.78 percent of the GDP in Q2 2021, and remains the highest employer of labour in the country. Unbelievable but true, insecurity in its various forms across the country has polarised Nigerians and the governments alike, along ethnic and religious fault lines.

As the 2023 general election cycle approaches, the President will become a lame duck. The economy will play second fiddle to politics, if not used as cannon fodder for it, as politicians contrive crisis as a means of securing electoral advantage. This now customary approach to electoral contest portends a grave danger to the already overheated polity and the political economy.

Any bright prospect?

Maintaining the current weak growth momentum till May 2023 is, unfortunately, the best-case scenario for the country. But this is not unambitious, given how the crises that should have been nipped in the bud have been allowed to continue to metastasize, and given the political calendar.

Nigerians may be forlorn of hope. But in a democracy, they wield the power of change through the ballot. Elections enable the otherwise impossibility of simultaneously rescuing oneself and others in a political quandary. In which case, there is a basis for renewed hope of changing the economic reality of our country.

Jide Akintunde is Managing Editor, Financial Nigeria, and Director, Nigeria Development and Finance Forum.