By Babajide Komolafe, Nkiru Nnorom, Godwin Oritse, Rosemary Onuoha, Udeme Akpan
•This is a wake up call for govts — Analysts
•As IMF calls for 100% increase in tax compliance
LAGOS — Nigeria’s Gross Domestic Product, GDP, growth which has been trending positively since the third quarter of 2016, bucked the trend reversing down to 1.95 per cent in the first quarter of 2018 (Q1’18), from 2.11 percent recorded in the preceding quarter (fourth quarter, 2017), with the agricultural sector recording the lowest growth rate since 2013.
The agric sector had led growth in GDP for several quarters and analysts have attributed the sudden decline to the severe impact of increasing incidence of farmer/herdsmen clashes across the farm belts of the country.
Meanwhile, the International Monetary Fund (IMF) said that Nigeria needs to increase tax compliance rate by 100 percent in order to stimulate economic growth.
The Nigeria Bureau of Statistics (NBS), GDP Q1’18 report released yesterday showed that though the nation’s GDP rose year-on-year 1.95 percent in Q1’ 18, from –0.91 percent recorded in Q1’17, it however declined when compared with the 2.1 percent recorded in the fourth quarter of 2017 (Q4’17).
The NBS report also showed that the Non-oil sector GDP growth rate of 0.76 percent in Q1’18 performed lower when compared to 1.45 percent recorded in Q4’17, while the Oil sector GDP growth rate of 14.77 percent in Q1’18 performed higher when compared to 11.2 percent recorded in Q4’17.
The NBS stated: “Nigeria’s Gross Domestic Product (GDP) grew by 1.95 percent (year-on-year) in real terms in the first quarter of 2018. This shows a stronger growth when compared with the first quarter of 2017 which recorded a growth of –0.91 percent indicating an increase of 2.87 percent points. Compared to the preceding quarter, there was a decline of
–0.16 percent points from 2.11 percent. Quarter on quarter, real GDP growth was –13.40 percent.
“Still on the first quarter of 2018, aggregate GDP stood at N28,464,322.01million in nominal terms. This performance is higher when compared to the first quarter of 2017 which recorded a nominal GDP aggregate of N26,028,356.03 million thus, presenting a positive year on year nominal growth rate of 9.36 percent.
“This rate of growth is however lower relative to growth recorded in Q1 2017 by –7.70 percent points at 17.06 percent but higher than the proceeding quarter by 2.14 percent points at 7.22 percent. To give a clearer depiction, the Nigerian economy has been classified broadly into the oil and non-oil sectors.”
“Real growth of the oil sector was 14.77 percent (year-on-year) in Q1 2018. This represents an increase of 30.37 percent points relative to rate recorded in the corresponding quarter of 2017. Quarter-on-Quarter, the oil sector grew by 13.24 percent in Q1 2018.
The Oil sector contributed 9.61 percent to total real GDP in Q1 2018, up from 8.53 percent and 7.35 percent recorded in the Q1 2017 and Q4 2017, respectively.
“The non-oil sector grew by 0.76 percent in real terms during the reference quarter. This is higher by 0.04 percent point compared to the rate recorded same quarter of 2017 and 0.70 percent point lower than the fourth quarter of
- This sector was driven mainly by Agriculture (Crop production); other drivers were financial institutions and insurance, manufacturing, transportation and storage and Information and
Communication. In real terms, the non-oil sector contributed 90.39 percent to the nation’s GDP, lower than 91.47 per cent recorded in the first quarter of 2017 and 92.65 per cent recorded in the fourth quarter of 2017.”
The GDP growth rate of 1.95 percent for Q1’18, represents the first decline since, Q3’16, when the nation’s recorded the lowest GDP growth rate of 2.34 percent. Since then, the GDP growth rate rose steadily for six quarters till Q1’18. The Q1’18 GDP growth rate of 1.95 percent was also below analysts’ consensus projection of 2.6 percent.
Disappointing economic growth, wake-up call to govt-Analysts
Analysts described the slowdown in GDP growth disappointing and a wake-up call to government to expedite needed structural reforms to achieve economic diversification.
Commenting, analysts at Lagos based Vetiva Capital Management said the economy underperformed in Q1’18 GDP growth rate. They cited the historic low GDP growth recorded in the agricultural sector, attributing it to the farmer-herdsmen clashes in the middle belt.
“Agriculture GDP growth came in at 3.0% y/y, the lowest quarterly real GDP growth since Q2’13. We point to recent challenges plaguing the sector in the form of the August 2017 Benue flooding and ongoing farmer and herdsmen clashes across the Middle Belt region and believe these could be taking their toll on the sector. Notably, Livestock GDP growth turned negative (-1.9% y/y) for the first time since Q4’12. Our outlook for the agriculture sector would have been positive given the support from moderating food inflation and Central Bank of Nigeria development finance initiatives. However, the Q1’18 slowdown and prevailing threats to food security compelled us to adopt a more cautious stance on the sector. As such, we revised our Q2’18 agriculture GDP forecast downward to 3.3% y/y (previous: 3.5% y/y) and our FY’18 forecast to 3.4% y/y (previous: 3.7% y/y)”, they noted.
Speaking to Vanguard, Johnson Chukwu, Managing Director/CEO, Cowry Asset Management Limited, said: “The slowdown should be a source of concern to government, particularly as the slowdown is occurring in the most relevant sectors of the economy, which is the non-oil sector.
“The 1.46 percent growth last quarter last year was considered as weak. Now, to drop to only 0.76 percent should be of great concern to those managing the economy.
“Again, the economy has become riskier in the sense that the economic health is now largely dependent on what happens in the oil and gas sector. Should any factor affect growth in that sector, the economy will be thrown back into recession.”
Also reacting, Mr. Peter Moses, an analyst with Cordros Capital said that though the GDP figures released yesterday by the NBS was in line with expectations, it poses danger to the government’s diversification agenda, revenue generation drive and has the capacity of throwing the country back into the 2016/2017 recession era.
According to him, the numbers on the non-oil sector points to the fact that the needed structural reform to speed up growth was still lacking in the economy.
“In addition to that is the rate at which unemployment was moving. We had expected that after the exit from recession in the second quarter of 2017, we would start seeing unemployment normalise, but that has not happened. In other words, most of the idle hands we saw in that recessionary period have not been put back to productive activities.
“Again, aggregate demand has remained constrained and that is affecting manufacturers and producers ability to push out significant high output,” he added.
On his part, Mr. Bala Zaka, a Port Harcourt-based energy analyst stated that the development showed that the government has not yet done much to stimulate sustainable development of the nation’s economy.
He said: ‘’The problem is that the government still over-depends on crude oil for revenue to finance its yearly budget. The price of oil was not really high then as it is today.
‘’From all indications, the nation will not be in a position to record sustainable growth in its economy until it is able to stimulate the development of major sectors, especially agriculture and manufacturing.”
However, Executive Director of Law Union & Rock , Mr Supo Sogelola attributed the slow down in economic growth in the first quarter of 2018 to the non passage of the budget in the first quarter.
He said, “Recall that the budget was only passed last week, so that might have contributed to the decline in economic growth in the first quarter. In the absence of a national budget, release of money into the economy was contained and this impacted on the growth of the economy. Although the official figures are not out but when there is a slowdown in the economy, the insurance sector suffers because people will not have the needed fund to purchase insurance.”
Furthermore, National President of the Association of Nigeria Licensed Customs Agents, ANLCA, Tony Iju Nwabunike, blamed the slow growth in the nation’s economy in the first quarter of the year on slow activities at the beginning of the year, government policies and high tariff placed on some category of imported goods.
According to Nwabunike: “The slow growth may also have been affected by the consumption level and even in the maritime sector, most of our importers do not do great turnover in the first quarter, they do not import heavily in the first quarter, it is always in the last quarter.
“In totality, the policies and the import guidelines are also affecting the economy. Government should relax its policies a little in areas where they cannot encourage the manufacturers effectively well, for example the production of tomato.”
“High tariff is equally a factor and that is why smuggling is on the rise because most of the smuggled goods are those with high tariff. If government reviews these policies, such goods will come into the country and duty will be paid on them. This will lead to reduction in the revenue lost to smuggling by the government annually,” he noted.
Nigeria should raise tax compliance by 100%-IMF
The International Monetary Fund (IMF) said that Nigeria needs to increase tax compliance rate by 100 per cent in order to stimulate economic growth.
Head of IMF in Nigeria, Mr. Amine Mati stated this while speaking in Lagos yesterday at the presentation of the IMF Regional Economic Outlook for Africa titled: “Domestic Revenue Mobilisation and Private Investment.”
He said: “We think that for the region, there needs to be three to five per cent GDP growth. How do you get there? In Nigeria you can remove a lot of exemptions and expand income taxes.
If you look at all the various forms of taxation, you can take another look at property tax, then you can have tax administration and improving compliance. “You know, in Nigeria, complying with many of the taxes is still very low.
In Nigeria, you need to double tax compliance to GDP ratio from 25 per cent to 50 per cent.
“Those are the types of measures that, as part of a comprehensive package, can make the difference in increasing revenue mobilisation.
“Raising growth is really key for the challenges ahead in Nigeria and Sub-Sahara Africa. For the region as a whole, we can say the average growth rate on a per capita base is low. And a third of African countries, in 2017, with Nigeria as one of them, has seen a decline per capita GDP level. And we expect some of that to continue. To really make a difference, that trend needs to be reversed. So, the growth rate really needs to surpass its population growth to make a difference.
“Where we see per capita income going up, we also see SDG improvement, we also see that infant mortality has gone down. All of that are linked.
Private investments, at about 13 per cent in the region, remains too low. Recent recession, oil price collapse have also exacerbated the situation.
“The interesting characteristics is that non-resource countries have higher private investments. Oil prices have gone up and this is an opportunity for these countries to really use the opportunity provided by the pick up in oil price to initiate some reforms that would encourage more private sector investments.”