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Published On: Sun, May 27th, 2018

Delayed budget, election anxieties hamper growth



The late signing of the 2018 budget five months into the year has spurred apprehension amongst local economists and foreign investors about the shape of the economy by the coming year-end. Analysts believe that a combination of tight money supply and weak domestic demand will condemn the economy to poor growth.

Gross Domestic Production (GDP) ( a measure of the worth of goods and services produced in a country over a specific time period) shows that the Nigerian economy grew at a slower pace of 1.95 per cent in the first quarter of 2018 compared to 2.11 per cent recorded at the end of last year.

Though the GDP data indicates that the country’s economy was 2.87 percentage points better than Q1 2017, a lull in activities in the non-oil sector caused the GDP to decline 0.16 percent when contrasted with the 2.11 percent growth achieved in the last quarter of 2017, which in nominal terms, brought aggregate GDP to N28.46 billion at the end of March 2018.

The slower pace of economic growth was traced to -50 per cent moderation year-on-year in the non-oil sector to 0.7 per cent   in Q1 2018 on the back of substantial weakness in the agriculture, construction, trade and real estate sectors, which made 48.3 per cent of total real GDP, despite oil sector expanding at a faster pace of 14.7 per cent y/y, supported by an increase of 50,000 barrels per day (bpd) in oil production.

The delay in the passage and signing of the 2018 budget, which President Muhammadu Buhari presented the National Assembly in November 2017 and usual lull in economic activities in the first three months of the year, adversely impacted the performance of the economy in Q1 2018, argued Johnson Chukwu, Managing Director, Cowry Assets Management Company Ltd, in a telephone chat with Business Hallmark.

He also identified fear by investors over the forthcoming elections for another reason the Nigerian expanded at a slower rate in the first three months of 2018.

The Nigerian Stock Market’s All-Share Index, which closed last week at 39218.7, has declined 6.69 per cent in the last three months as foreign investors gradually pulled the funds from the market.

The National Assembly passed a N9.1 trillion budget for 2018 fiscal year on May 16 after the president submitted a N8.6 trillion budget to them on November 7, 2017. And a week after the passage of the 2018 budget, the president has not signed it into law.

The huge petroleum product subsidies that government has been paying, running into over a trillion naira, has also squeezed the country’s revenue. And as oil prices continue to rise, the gains the country is supposed to enjoy as increased revenue are being eroded by increased subsidy payment by the subsidy.

Strong weakness in the trade and real estate sectors stunted services growth, which contracted to -0.4 per cent in Q1 2018 instead of 0.1 per cent growth recorded in the prior period in 2017.

“The economy is being hurt by the unnecessary high-interest rate. For almost two years, the monetary policy rate has been pegged at 14 per cent.

“The government thinks it can achieve much with the sectoral targeted approach it is using to grow the economy. But from all indications, it is not working,” posited Professor Adi Bongo, faculty member, Lagos Business School.

The government has released N1.2 trillion for capital expenditure in the 2017 budget as at March 2018, but its impact has been minimal in the economy because many contractors spent they got to offset their obligations to their creditors.

“Nigeria’s first quarter real GDP growth came in at 2.0 per cent y/y, well below our expectation of 3.4 per cent y/y. Although the oil sector performed well and grew at 15 per cent, growth in the non-oil sector was very weak, registering at 0.8 per cent as the service surprisely slipped back to into negative growth territory.

Whilst the overall positive growth is welcome, the under-performance of the non-oil sector showed Nigerian economy is not out of the woods,” noted Michael Famoroti, Chief Economist, Vetiva, an investment bank.

The manufacturing sector maintained its growth momentum in the first three months of 2018, accelerating to its highest levels in 3 years at 3.3 per cent from 0.1 per cent at the end of 2017. This growth was spurred by improved FX liquidity and sustained exchange rate stability, which has been supportive of manufacturing output. Food, beverage, and tobacco was the outperformer, with the sector expanding at a faster pace of 5.4% y/y (Q4’17: 2.1% y/y). Similarly, fast-paced growth was recorded in the cement sub-sector (5.2% y/y).

Meanwhile, PwC, a financial advisory firm, restated its forecast that the Nigerian economy will grow 2 per cent in 2018, strongly supported by continued stability in the oil sector due to stable oil production and high prices. “Similarly, we believe a recovery in the non-oil sector is crucial to achieving our growth target, particularly in agriculture and services. We are optimistic of a strong performance in agriculture in H2’18, driven by increased crop production activities tied to the harvest season. However, we note that weakness in the livestock sub-sector could linger for longer due to the poor management of climate change impacts in the short-term. In the services sector, we expect that the broad improvements in the macro environment will eventually filter through to the consumer, with an upside potential from a meaningful boost in pre-election spending,” Dr. Andrew Nevin, Chief Economist, PwC led -team of economists said in the firm’s Q1 2018 GDP report. 

More so, the International Monetary Fund (IMF) has predicted that Nigerians’ real income per head will continue to drop every year until at least 2023, adding that this will have a serious hit of the people. Nigeria’s population is projected to reach 400 million by 2050 with an annual growth of 3 per cent, which will make it the third most populous country, only behind India and China. But of concern to many is the fact the economy is currently growing below 2 per cent.

Something needs to be urgently done to address the challenge rising population poses to the country in the facing of bulging unemployment rate in Nigeria, said Mrs. FolakemiFatogbe, Director, Risk Management, Central Bank of Nigeria.

The optimism that the government would upscale fiscal spending on infrastructural development once the budget is signed into law as part of its efforts to win the goodwill of the people was the country approaches 2019 general elections.

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