GDP’s disappointing numbers and sectoral contributions

It was disappointing to see nation’s Gross Domestic Product (GDP) turn up below expectations in the second quarter (Q2) of 2019, running against assurances of an improved numbers based on acclaimed investments in the economy by the government.

This is coming when all indications are showing that the country’s population has been growing at three per cent, with accumulated unemployment estimated at about 23 per cent and lingering fiscal challenges, particularly the debt stock at over N24 trillion and debt service-to-revenue ratio at about 60 per cent.

Year-on-year, growth slowed to 1.94 per cent in Q2, compared with by 2.1 per cent in the first quarter, losing 0.16 per cent, according to the National Bureau of Statistics (NBS).

Of course, it is a signpost that the country’s economy has remained deep in its struggle to overcome the effects of the 2016 recession, after two years it exited the trap, creating huge doubts over government’s growth forecast of three per cent in 2019.

For some analysts, you cannot get anything out of nothing, but for others, it is a continuation of the questionable claims and lack of clear policy direction, putting more doubts and opportunity for speculations in the mind of the remaining investors.

A financial analyst, Egie Akpata, said ordinarily, there should not be too much to expect, because “you don’t get growth by doing nothing.”

Lukman Otunuga, the research analyst at FXTM, said the report comes as a test of investors’ confidence over the health of Nigeria’s economy, which outcome would soon be known as they make choices.

“One would have expected economic momentum to pick up after the Central Bank of Nigeria (CBN) cut interest rates in March and forced lenders to dish out more credit in a bid to boost growth.

“It is becoming quite clear that as long as oil dependence remains one of Nigeria’s biggest risk, this will continue weighing heavily on the economy for the rest of 2019,” he said.

Yet, Ayodele Akinwunmi of the FSDH Merchant Bank Limited noted that the economic implications of the ongoing subsidy regime in the country and lack of reflective power tariff is significant enough to affect investments that can induce growth.

“The growth in oil sector, which is the critical driver of the performance in Q2 2019, is not sustainable, because of the developments in the global economy. Real estate sector is down, trade is down, manufacturing is down and agriculture is down as well. These sectors are critical to the growth of the economy. How can we grow with these developments?” he queried.

For the Manufacturers Association of Nigeria (MAN), the economy has remained fragile and the manufacturing sector, in particular, still continues to face daunting challenges, despite various policies and initiatives of the Federal Government.

“The state of our infrastructure, as we all know, has deeply eroded the competitiveness of the sector. The supply of electricity, access to our ports and their low operating efficiencies, the poor condition of most of our highways and waterways, and the absence of a credible rail network all constitutes impediments to operating efficiencies of our manufacturing establishment inducing high costs of production and distribution and rendering our manufactured goods uncompetitive”, MAN President, Mansur Ahmed, said.

The GDP report defied expectations and came weaker than Bloomberg’s consensus forecast of 2.5 per cent, due to slow growth in the non-oil sector. The oil sector recovered from its year-long recession, expanding 5.2 per cent year-on-year in Q2, 2019.

For analysts at Afrinvest, “the trend in oil production in 2019 has been weaker than expected despite our optimism of a stronger performance due to the additional 200,000b/d provided by the recently launched Egina Field.

“We observe that oil production has been affected by fire outbreaks, force majeures declared by major oil companies, vandalism and the shutdown of export pipelines.”

The agriculture sector bucked its recovery trend as growth slowed to 1.8 per cent year-on-year in Q2, 2019, the second weakest quarterly performance on record.

Crop production grew at a slower pace of 1.9 per cent year-on-year against 3.3 per cent Q1, 2019, while the livestock sub-sector contracted 0.01 per cent against 0.8 per cent Q1, 2019.

“In our view, the slowdown in the agriculture sector reflects persistent security issues affecting production in Northern Nigeria as well as the resumption of planting activities in the quarter.

“We believe unresolved insecurity issues would continue to be the biggest risk to the sector in the near term, but we expect improved performance in H2, 2019, although this would likely be below the long-term trend of 3.8 per cent.”

Surprisingly, the manufacturing sector contracted 0.1 per cent year-on-year in Q2, 2019 against 0.8 per centQ1, 2019, driven by an underwhelming performance in its major sub-sectors.

Meanwhile, the textile, apparel and footwear sub-sector contracted 1.4 per cent year-on-year compared with 1.0 per cent in Q1, 2019, the weakest since Q2, 2018.

The slowdown mirrors the performance of publicly listed manufacturing companies which recorded weak volumes in H1, 2019 due to weak consumer spending.

Going forward, we expect an improved performance in H2, 2019, driven by the seasonal boost to demand and stable exchange rates.

“In line with our expectations, the services sector further moderated, growing slowly at 1.9 per cent year-on-year in Q2, 2019 against 2.4 per cent in Q1, 2019.

“The slowdown was widespread across the main sub-sectors, including the ICT sector with a strong growth of 9.0 per cent year-on-year rate, which was slower than 9.5 per cent in Q1, 2019.

“Conversely, the recovery in the trade and real estate sub-sectors was short-lived as both contracted at 0.3 per cent and 3.8 per cent year-on-year respectively against 0.9 per cent apiece in Q1, 2019.

“The financial services sector sustained its negative growth but at a slower pace of -2.2 per cent, compared with -7.6 per cent year-on-year in the preceding quarter. There was a similar trend in the construction sub-sector, which moderated sharply by 0.7 per cent year-on-year in Q1, 2019 against 3.2 per cent in Q1, 2019.

“We suspect that the partial closure of the Nigeria-Benin border by the FGN due to increased smuggling activities is likely to weigh on services growth in Q3, 2019,” the analysts added.