GDP Growth fails to inspire hope

BY EMEKA EJERE

The 5.01percent Gross Domestic Product, GDP, growth reported Thursday by the National Bureau of Statistics (NBS) has continued to generate reactions, with most economic experts arguing that though a sign of positive developments in the economy, it will not mean anything to ordinary Nigerians until they begin to feel the impact.

The NBS had in its second-quarter Gross Domestic Product (GDP) report disclosed that Nigeria’s GDP increased by 5.01 percent in the second quarter of 2021, the strongest growth since fourth quarter 2014. This also marks three consecutive quarters of growth following the negative growth rates recorded in the second and third quarters of 2020.
“Nigeria’s Gross Domestic Product (GDP) grew by 5.01%(year-on-year) in real terms in the second quarter of 2021, marking three consecutive quarters of growth following the negative growth rates recorded in the second and third quarters of 2020,” the report reads.

“The Q2 2021 growth rate was higher than the -6.10% growth rate recorded in Q2 2020 and the 0.51% recorded in Q1 2021 year on year, indicating the return of business and economic activity near levels seen prior to the nationwide implementation of COVID-19 related restrictions.

“The steady recovery observed since the end of 2020, with the gradual return of commercial activity as well as local and international travel, accounted for the significant increase in growth performance relative to the second quarter of 2020 when nationwide restrictions took effect.”

Reacting to the NBS report, an economist and former Director General, Lagos Chamber of Commerce and Industry (LCCI), Dr. Muda Yusuf, described the growth as an indication of some positive developments in the economy, recalling that the economy recorded just 0.5 percent GDP growth last quarter.

Speaking in a live interview on Channels Television monitored by our correspondent, Yusuf noted that this is a quantum leap and a significant difference from what the nation had in Q1.

He said, “You’re talking about 5.01growth in GDP. And what this reflects is the fact that the economy is gradually recovering from the shocks of the pandemic. That is what it is pointing to.

“Secondly, there is also a base effect dimension to it. Because the 5.01 percent growth is not so much that there has been any significant change in what we are doing in terms of managing the economy. There is what we call the base effect, because this figure is a year-on-year figure. You’re comparing Q2 2021 to Q2 2020.

“Q2 2020 perhaps we had the worst contraction in recent history, which was a contraction of about 6 percent. So when you compare what you have now with that kind of very serious contraction, it is very easy to understand why we have this kind of quantum growth in GDP.

He urged the managers of the economy to look for ways of aligning the positive development in GDP numbers to the realities of unemployment, poverty, high inflation, insecurity, among others that the citizens are facing, as that is the only way the figures can make some sense to the average Nigerian.

“But having said this; let me also say that it is very difficult for the man on the street to relate to that. From a macroeconomic analysis point of view, it is good news. But from a practical point of view (I’m talking of the man on the street now, the common man; I’m talking of those who’re investors), this may still not mean much for them.

“What is important for them is how the government is addressing some of the “key concerns: concerns around issues of poverty, concerns around issues of spiraling inflation, cost of food, the cost of basic items, the growing unemployment, the weakening purchasing power, the issues of security. These are things that matter the most for now.

“So, we need to see how we align this positive development in GDP numbers to some of these realities that the citizens are facing. That is only when these things can make some sense to the average Nigerian. Otherwise, this is just purely an academic thing.”

Similarly, former president, Chattered Institute of Bankers of Nigeria (CIBN), Mr. OkechukwuUnegbu, argued that for the Nigerian economy to record real growth, there is need for government to restrategise in order to bring the indices of growth to the right levels.

In an interview with our correspondent, Unegbu said: “The only way they can go is to come back, restrategise, look at the various indices of growth in an economy. Unemployment is very high; the tax rate is high and I keep advocating that for us to grow, they should reduce the tax rate. And I’ll tell you why.

“I remember I made that presentation at the National Assembly and they were laughing and said how are you going to do it? And I said if you reduce the tax rate, you are going to follow what is called volume transaction.

“In other words, I’m an employer, if you increase the tax rate, there will be no incentive for me to produce more. Because I will say after producing more the tax will drop it. I will do the barest minimum just to stay afloat.

“But if you reduce the tax rate, I will be encouraged to produce more and more, so that the volume transaction will result in my paying minimum tax and then employing more people. The more people you employ, the more tax government gets from those people’s remunerations.

“So, the tax rate is high, interest rate is high, foreign exchange rate is high, there is unemployment, there is high infrastructure deficit, roads are not there, insecurity is there. I’m not talking of corruption because corruption is now inborn in us. It is only when all these dislocations are addressed that we can expect any serious growth in the economy.

On his part, a senior lecturer in economics at the Pan Atlantic University, OlalekanAworinde, said the report was doubtful as the growth did not reflect the economic conditions in the country.
He said, “On paper, the growth might exist but in reality it doesn’t. This is what I mean by saying that in paper, it might exist; in the computation of GDP, is just the price of a particular commodity multiplied by the quantity of goods produced or the unit of services produced over time.

“Knowing fully well that the prices of goods and services are on the increase, if we do the multiplication, on paper, it might exist but in reality, that is not the case. This is because even in the productive sector of economy, we have a situation whereby a lot of people are losing their jobs. It is worrisome.”

For a professor of Economics, SheriffdeenTella, the fact that the key sectors of the economy did not record significant improvement, makes it improbable for the GDP to witness a five per cent growth. He recalled that within the second quarter, the country continued to battle the challenges that were present in the first quarter.

“This GDP growth is doubtful; the NBS is just playing with figures. Also if you are to look critically at the report, you’ll see that there is no growth in the industrial sector as the sector recorded negative growth while the agricultural sector has slight positive growth.

“Those are the sectors that are supposed to generate employment and income. The sectors that they said are generating high level of growth such as transportation, trade, mining and so on; those sectors are serious employment generating units. What they should have told us is that because the price of oil has been rising, so we can now see that the GDP is growing.

“It is a matter of multiplying the price with the amount of oil we are exporting and then you get some growth. This is why despite the reported growth it is not possible for Nigerians to see any positive change in our lives.

“The issue of insecurity and other militating factors are still there and are becoming worse. For instance, insecurity is seriously affecting agricultural output and the industrial sector; nobody wants to invest in an economy that is insecure.”

However, President MohammaduBuhari has welcomed the Q2 2021 report by the NBS with delight, describing it as an outcome of recent measures put in place by his administration.

In a statement by the Special Adviser to the President on Media and Publicity, Femi Adesina, titled ‘President Buhari lauds GDP 5.01 per cent growth in Q2 2021’, Buhari assured Nigerians that recent reforms and efforts like the conclusion of the Marginal Fields Bid Round, the renewed focus on gas development (including the NLNG Train 7 project, and various pipeline construction projects) as well as the passage and assent to the Petroleum Industry Bill, were certain to attract new investment to the oil and gas sector, and create conditions for more robust levels of growth in the future.

“It is gratifying to note that the various policies of the government, aimed at boosting agricultural production, improving the business environment, and investing massively in infrastructure, are beginning to yield fruit”, the President said.

“Equally gratifying is the complementary news of the steady decline in the rate of inflation, over the last few months.”