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Analysts React as Nigeria Unexpectedly Exits Recession

Analysts on Thursday called on the federal government to implement the 2021 budget to boost infrastructural development, ensure policy consistency and proper management of the Covid-19 pandemic in order to

Analysts on Thursday called on the federal government to implement the 2021 budget to boost infrastructural development, ensure policy consistency and proper management of the Covid-19 pandemic in order to sustain the gradual recovery of the economy.

The advice came on a day the National Bureau of Statistics (NBS) in its ‘Nigerian Gross Domestic Product Report – Q4 & Full Year 2020,’ released yesterday, showed that the country’s Gross Domestic Product (GDP) recorded a positive growth rate of 0.11 per cent (year-on-year) in real terms in the fourth quarter of 2020 (Q4 2020), successfully lifting the economy out of recession.

The economy had slumped into recession last year, the second in five years, after two consecutive quarters of contraction.

The economy entered into a recession last year when growth contracted by 3.62 per cent in Q3 and grew by -6.10 per cent in Q2.

According to the NBS, Nigeria’s GDP grew by 0.11 per cent (year-on-year) in real terms in the fourth quarter of 2020 (Q4 2020), representing the first positive quarterly growth in the last three quarters.

However, the full year 2020 GDP report showed that the economy contracted by 1.92 per cent compared to positive growth of 2.27 per cent in 2019.

The positive growth recorded in Q4 was a reflection of the gradual return of economic activities following the easing of restriction of movements and limited local and international commercial activities in the preceding quarters, the NBS stated.

According to the agency, on a quarter-on-quarter basis, real GDP growth is 9.68 per cent, indicating a second positive consecutive quarter-on-quarter real growth rate in 2020 after two negative quarters.

In Q4, however, aggregate GDP stood at N43.56 trillion in nominal terms, compared to N39.09 trillion in the preceding quarter.

Real GDP stood at N19.55 trillion compared to N17.82 trillion in the preceding quarter.

The performance was also higher when compared to the N39.57 trillion recorded in Q4 2019, representing a year-on-year nominal growth rate of 10.07 per cent.

The NBS added that the current growth rate was lower relative to the growth recorded in Q4 2019 by –2.26 percentage points but higher than the preceding quarter by 6.68 percentage points with growth rates recorded at 12.34 per cent and 3.39 per cent respectively.

In the quarter under review, average daily oil production dropped to 1.56 million barrels per day (mbpd) from 1.67mbpd in Q3.

This was also lower than the daily average production of 2.00mbpd recorded in Q4, 2019 by -0.44mbpd and Q3 2020 by –0.11mbpd.

Growth was largely aided by the non-oil sector that accounted for 94.13 per cent of GDP while the oil sector contributed 5.87 per cent to growth in Q4.

Also, at the full year, the non-oil sector recorded 91.84 per cent contribution to GDP while the oil sector accounted for 8.16 per cent.

The agricultural sector grew by 3.42 per cent in Q4 compared to 1.39 per cent in Q3.

But the sector’s contribution to growth in real terms dropped to 26.95 per cent in Q4 from 30.77 per cent in the preceding quarter. Its contribution in 2020 stood at 26.21 per cent.

Manufacturing, which grew by –2.75 per cent in the period under review contributed 8.60 per cent to GDP compared to 8.93 per cent in Q3 and 8.74 per cent in Q4 2019.

Its annual contribution stood at 8.99 per cent in 2020.

But despite the positive performance, analysts warned that the economy is not completely out of the woods, urging the federal government to further stimulate output growth, among others.

They cautioned that though the growth estimates were a welcome development as it has further proved the resilience of the economy, more work needed to be done to sustain economic recovery.

In separate interviews with THISDAY, the analysts stated that the federal government’s intervention may be needed in key areas to drive growth, especially in agriculture and IT which are currently the growth drivers that should be supported.

Senior Economist/Head, Investment Research & Strategy, Greenwich Merchant Bank, Mr. Ayodeji Ebo, welcomed the development, saying exiting recession will boost investor’s confidence.

He said: “The next step is for the government to see how they can achieve a growth rate that is above population growth rate so that it can be an inclusive growth and more people in terms of welfare are positively impacted.”

On his part, Managing Director, Kairos Capital, Mr. Sam Chidoka, said key sectors responsible for the exit from recession should be supported to achieve a higher growth rate.

“If you look at the numbers published by NBS, two sectors helped pull us out of recession. One would be agriculture with about 3.4 per cent growth and the second would be ICT with about 14 per cent growth.

“So, it is clear and we can see what contributed to our GDP growth and it is for us to pay more attention to this sector of the economy if we want to see growth continue.

“In the last quarter, ICT actually grew by 16 per cent and this quarter grew by 14 per cent, meaning that there is a capacity for the ICT sector to grow maybe by 20 per cent. So, we need to try and do all we can to make that sector grow,” he added.

He, however, noted that insecurity was affecting the agricultural sector.

He said: “Now that NAFDAC has approved one of the vaccines for Nigeria, we need to do our best and try to begin to vaccinate people so that we can open the economy fully.

“We also need policy consistency that makes it possible for people to look at sectors of the economy and seek to make long term investments and not just portfolio investments.

“So, if we are able to deal with the COVID-19 issues better, security and reduce policy somersault in certain sectors, we would begin to see the kind of growth we should have as a country.”

In his contribution, Managing Director/Chief Executive, Credent Investment Managers Limited, Mr. Ibrahim Shelleng, said with food prices soaring, there was a need for the government to boost the increase in local supply.

But he added that this cannot be achieved until insecurity issues are adequately addressed.

He said: “With positive GDP figures it could be said that the economy is technically climbing out of recession but in reality, we would need to see figures for Q1, 2021 to determine if truly we are on the growth path.

“The slight uptick in GDP figures in Q4, 2020 could be largely attributed to the ending of lockdown and increased growth in sectors that have benefited due to lockdown such as information technology and communications.”

Also, speaking with THISDAY, Managing Director/Chief Executive, SD&D Capital Management Limited, Mr. Idakolo Gbolade, warned that policy missteps such as wrong handling of the impending petrol price increase, unrest in various states and wrong information management could erode the gains already recorded.

He stated: “What this growth implies is that we are gradually coming out of recession and we are witnessing increased activity in the economy, majorly from increased importation activities, increased inflow through the I & E FX window and activities have started picking up after lockdown necessitated by the COVID-19 pandemic.”

He said the Nigerian economy had demonstrated its ruggedness by the positive outcome in Q4, coming out stronger, particularly against economic predictions.

Gbolade attributed the performance to consistency in policy implementation to drive growth.

James Emejo, Nume Ekeghe