Nigeria’s economy on steady growth as agric leads

Nigeria, Africa’s largest economy, exited its second recession since 2016. Regrettably, another round of year long contraction descended on the country in 2020.

Nigeria had been grappling with low growth before the coronavirus pandemic triggered a recession and created large financing gaps, including dollar shortages and inflation.

“The Q1 2021 growth rate was slower than the 1.87% growth rate recorded in Q1 2020 but higher than 0.11% recorded in Q4 2020, indicative of a slow but continuous recovery”, the National Bureau of Statistics, NBS, has said.

However, Nigeria’s economy grew 0.5% in the first quarter of 2021 lifted by higher crude production and oil prices as activities slowly gain momentum after the gradual easing of coronavirus lockdowns.

The NBS said the non-oil sector, which the government is trying to make the main growth sector, rose 0.79% in the first quarter. Telecoms, crop production, real estate, food manufacturing and construction lifted growth in the quarter.

Crude prices rose above $70 per barrel recently but fell shortly on renewed demand concerns as COVID-19 cases in Asia rose and fears that rising inflation might lead the U.S. Federal Reserve to raise rates, which could limit growth.

Oil, which accounts for around two-thirds of Nigerian government’s revenue and 90% of foreign exchange, contracted 2.21% in the first quarter as crude production rose to 1.72 million barrels per day from the fourth quarter.

Nigeria’s economy again entered a recession in 2020, reversing three years of recovery, due to the Covid-19 pandemic, fall in crude oil prices on account of falling global demand and containment measures to fight the spread of COVID-19.

Such containment measures majorly affected aviation, tourism, hospitality, restaurants, manufacturing, and trade sectors. Contraction in these sectors offset demand-driven expansion in financial, information and communications technology.
The good news for all Nigerians is that the country’s economy is projected to grow by 1.5% in 2021 and 2.9% in 2022 based on an expected recovery in crude oil prices and production.
Stimulus measures outlined in the PMB administration’s economic sustainability plan, ESP and the Finance Act of 2020 have the potentials to boost non oil revenues.

It is hoped that Improved revenues have the capacity to narrow the country’s fiscal deficit to 4.6% and the current account deficit to 2.3% of GDP in 2021 as global economic conditions improve.
On the other hand, the reopening of the country’s borders will increase access to inputs, easing pressure on domestic prices and inflation, projected at 11.4% in 2021.

However, downside risks include reduced fiscal space should oil prices remain depressed. In addition, flooding and rising insecurity could hamper agricultural production.

A Further depletion in foreign reserves from $35 billion could lead to sharp exchange rate depreciation and inflationary pressures while potential relapse in COVID-19 cases could exacerbate these risks. High unemployment which is today put at 27%; poverty at 40% and growing inequality remain a major challenge in Nigeria.

Nigeria’s public debt is relatively sustainable at 25% of GDP. But debt service payments are high, and the country’s ability to attract external private financial flows is hurt by macroeconomic imbalances.

During the first half of 2020, Nigeria received $7.1 billion in foreign direct investment, FDI. This was half the amount it received in the corresponding period of 2019.

Nigeria’s financing requirements require improved domestic revenue collection. Currently, nonoil revenue collections are equivalent to 4% of GDP. The revenue yield in 2020 from an increase in the value-added tax rate to 7.5% from 5% was less than projected because of subdued economic activity.

Financial experts have also predicted that broadening the tax base of the country could strengthen Nigeria’s fiscal buffers, if structural reforms to enhance compliance are supported and illicit financial flows are tackled.

Remittances and sharia-compliant Sukuk bonds also offer potential financing options. In 2019, remittances totaled $23.8 billion which is 5.3% of GDP but the effect of the COVID– 19 pandemic in key source markets could reduce this figure.

The third issuance of Sukuk bonds of N150 billion in June 2020 attracted N669.1 billion targeted at financing 44 critical road projects.

It is therefore not in doubt that Nigeria’s economy has been transformed from one mainly based on Agriculture to manufacturing and services. Around 52% of Nigeria’s GDP now comes from manufacturing and services. As a result of this, oil and gas only contribute around 9% to Nigeria’s GDP. The fastest-growing sector in Nigeria today is manufacturing closely followed by Agriculture.

There are debates on what is the economic outlook for Nigeria in 2021 and beyond? Nigeria’s recovery is expected to be weak and gradual under current policies. Real GDP growth in 2021 is expected to turn positive at 1.5 percent. Real GDP is expected to recover to its pre-pandemic level only in 2022.

Another question Nigerians keep asking is, is Nigeria’s economy good enough?
The answer is that the economy of Nigeria is a middle-income, mixed economy and emerging market, with expanding manufacturing, financial, service, communications, technology and entertainment sectors. It is ranked as the 27th-largest economy in the world in terms of nominal GDP, and the 24th-largest in terms of purchasing power parity.

In 2018, Nigeria was declared as the top 7 fastest growing economy in Africa in 2018.

It is hoped that the future of Nigeria’s economy is very glamorous considering the various policy measures put in place to improve the fortunes of the country and it’s citizens. Mention must be made of government’s policy measures like the Anchor borrowers programme, ABP; the economic sustainability plan, ESP; Presidential Fertiliser initiative, PFI among others that have enhanced Agriculture as a dependable source of revenue for government and income and jobs for citizens.

All predictions and reliable projections have painted the picture of prosperity, growth and development this year and beyond for the country and its citizens due to deliberate emphasis on agriculture as the saviour if the nation’s economy.

Ilallah writes from Abuja.