When National Bureau of Statistics (NBS) released the second quarter GDP report, it recorded a growth of 1.94 per cent, less than what was recorded in first quarter. Analysts have said that it is a reminder that the economy was not out of the woods yet; BENJAMIN UMUTEME writes.
The National Bureau of Statistics (NBS), last week, released the Nigerian Gross Domestic Product Report for Q2 2019, which caused discomfort in the financial circles. According to financial analysts and experts alike, the GDP growth of 1.94 per cent (year-on-year) in real terms in the second quarter of 2019, was not good news at all considering where the country was coming from.
Compared to the second quarter of 2018, which recorded a growth of 1.50 per cent, the growth observed in Q2 2019 indicates an increase of 0.44 percentage points.
When compared to 2.10 per cent (revised from 2.01 per cent due to oil output revisions) recorded in the first quarter of 2019 however, the Q2 2019 real growth rate indicates a decline of –0.16 percentage points.
During the quarter, aggregate GDP stood at N34,944,151.61 million in nominal terms, an increase of 13.83 per cent over the performance in the second quarter of 2018 and 9.8 per cent over the preceding quarter.
The performance observed in Q2 2019 follows an equally strong first quarter performance, and was likely aided by stability in oil output as well as the successful political transition. Overall, a total of 15 activities grew faster in Q2 2019 relative to last year, while 13 activities had higher growth rates relative to the preceding quarter.
On a half year basis, real growth in the first half of 2019 stood at 2.02 per cent, higher than in 2018 which was 1.69 per cent. Quarter on quarter, real GDP increased by 2.85 per cent compared to a decline of –13.69 per cent in the preceding period.
A breakdown of the report revealed that key sectors of the economy recorded a decline in growth.
Oil and non oil sector
The oil sector contributed 8.82 per cent to total real GDP in Q2 2019, up from levels recorded in Q2 2018 but down compared to Q1 2019.
In Q2 2019, Nigeria recorded average daily oil production of 1.98 million barrels per day (mbpd) which is 7.6 per cent higher than the daily average production of 1.84mbpd recorded in Q2 2018 but slightly less than output recorded in Q1 2019.
“The oil sector posted a real growth rate of 5.15 per cent (year-on-year) in Q2 2019, representing a 9.10 per cent points increase relative to the rate recorded in the corresponding quarter of 2018.
“It also indicates an increase of 6.61 per cent points when compared to Q1 2019 (revised). Quarter-on-Quarter, the oil sector recorded a growth rate of -1.55 per cent in Q2 2019,” NBS said.
The non-oil sector contributed 91.18 per cent to the nation’s GDP, lower than the share recorded in Q2 2018 (91.45 per cent), but higher than in Q1 2019 (90.78 per cent).
The sector grew by 1.64 per cent in real terms during the reference quarter, and was driven mainly by information and communication, mining and quarrying, agriculture, transportation and storage, as well as other services.
The agricultural sector, in the second quarter of 2019, grew by 1.79 per cent (year-on-year) in real terms, an increase of 0.60 per cent points from the corresponding period of 2018, but a decrease of –1.38 per cent points from the preceding quarter which recorded a growth rate of 3.17 per cent.
However, the sector contributed 22.82 per cent to total GDP in real terms, lower than the contribution in the second quarter of 2018 but higher than the first quarter of 2019 which stood at 22.8 per cent and 21.89 per cent respectively.
In Q2 2019, real GDP growth in the manufacturing sector was –0.13 per cent (year on year), lower than the corresponding quarter of 2018 and Q1 2019. The growth rate of the sector, on a quarter-on-quarter basis, stood at –4.41 per cent. The contribution to real GDP in Q2 2019 was 9.10 per cent, which is lower than 9.29 per cent recorded in the previous year and 9.79 per cent recorded in first quarter 2019.
Condition for growth missing
While acknowledging that the report does not brood well for the economy, analysts say it is an indication that drastic measures need to be taken to address the gradual decline.
A look at the macro-economic indicators revealed that several factors continue to pose serious challenge to economic growth.
The security challenges in the country which has manifested itself in kidnapping, and banditry. Also, farmers are afraid to go to their farms for fear of being killed by herdsmen.
The implication is that people can no longer carry out economic activities freely.
In addition, the perennial challenge of power has made it difficult for businesses to thrive to their optimum as a large chunk of their overhead cost goes into providing power.
In a telephone conversation with Blueprint weekend, an economist Friday Efih said the conditions that make for development and growth of any economy were missing in the country.
According to him, the lynchpin of economic growth-power and infrastructure-is nothing to write home about.
He added that it continues to pose serious drawback to investments and investors.
He said: “The GDP report did not come as a surprise to people who have been following the economy keenly. Over the years, there have been clamour for the government to fix the country’s infrastructure but it seems that the long years of neglect has caught up with us. And except this is address, Nigeria might continue to slide back or remain stagnant.”
As it is at the moment the country needs all the funds it can lay its hands on to bridge its huge infrastructure gap. It is estimated that Nigeria needs about $30 million annually over the decade to fix the rot.
Challenge meeting revenue targets
However, due to economic challenges, the chairman Federal Inland Revennue Service (FIRS) Mr. Babatunde Fowler did admit that meeting revenue targets have been a challenge.
And this was further laid bare by the Minister of Finance Budget and National Planning Mrs. Zainab Ahmed at the public presentation of the Medium Term Expenditure Framework (MTEF) 2020-2022 in Abuja earlier this week, when she admitted that the country was experiencing serious revenue constraints.
According to her, the government was working out ways to improve its revenue steam to enable it provide the much needed services to its citizens.
To march its words with action the Federal Executive Council (FEC) on Wednesday approval the increment of Value Added Tax (VAT) from 5 per cent to 7 per cent from 2020 pending the amendment of the VAT act.
Will trend reverse?
Analysts say increasing VAT may just further burden small and medium enterprises (SMEs) who form about 70 per cent of business concerns in the country.
According to them further increasing taxes in any form will shrink the ability of MSMEs to expand with its multiplier effect on the economy.
In a WhatsApp chat with our correspondent, development consultant Joseph Afolayan expressed optimism that addressing the issue of multiple-taxation would go a long way to spur investment in the country.
“Government at all levels should encourage tax harmonization while doing their very best to broaden the tax net.
“By broadening the tax net, more people and businesses will pay tax; while businesses are not overtaxed thereby enabling more sustainable economic activities, job creation and avoidance of recession,” he said.
Will the government take this sound advice in its quest to increase revenue stream at the expense of economic growth? Only time will tell.