May 29, 2020

SPECIAL REPORT: Oil prices volatility deflates Nigeria’s GDP

Crude oil price hits $65.85 per barrel after OPEC, Non-OPEC meeting

By Peter Egwuatu

THE Nigerian economy has been facing challenges for the past five years following its over dependence on oil as a major source of its revenue as the country recorded the highest growth in Gross Domestic Product, GDP of 2.65 per cent in 2015.

To that effect, as the country is an oil exporter, the decline in crude oil prices is a downside to the economy in both the short and medium term. Meanwhile, the economy of Nigeria advanced 1.87 per cent Year on Year, YoY in the first quarter of 2020 compared to a 2.55 per cent growth in the previous period, against the backdrop of significant global disruptions resulting from the COVID-19 public health crisis, a sharp fall in oil prices and restricted international trade.

It was the slowest pace of economic expansion since the third quarter of 2018, reflecting the earliest effects of the disruption, mainly in the non-oil sector (1.55 per cent vs 2.27 per cent in Q4), amid declines in internal trade (-2.82 per cent vs -0.58 per cent); accommodation and food services (-2.99 per cent vs 2.05 per cent); public administration (-8.72 per cent vs 0.06 per cent); administrative and support services (-1.9 per cent vs 1.27 per cent).

Also, output grew less in manufacturing (0.43 per cent vs 1.24 per cent) and agriculture (2.20 per cent vs 2.31 per cent). At the same time, the all-important oil sector lost steam (5.06 per cent vs 6.36 per cent). On a quarterly basis, the GDP shrank 14.27 per cent, following a 5.59 per cent expansion in the previous period.

Nigeria’s Q1 GDP of 1.87 per cent reveals that there are indeed challenges that cannot be ignored. Beyond the effect of the pandemic, the oil price wars driven by Saudi Arabia and Russia, have increased the level of uncertainty in the oil market. While the growth rate for the quarter might not have been as bad as expected, the GDP actually contracted by 14.27 per cent from the fourth quarter.

Vanguard’s review of the economy shows that the GDP in 2016 declined by -1.58 percent, a period the country went into recession.

But in the year 2017, the country recorded a real annual growth rate of 0.83 per cent higher by 2.42 per cent than –1.58 per cent recorded in 2016. In the fourth quarter of 2017, aggregate GDP stood at N31,209,137.74 million in nominal terms higher when compared to N29,169,058.99 million in Q4 2016, resulting in a Nominal GDP growth of 6.99 per cent. This growth is lower relative to growth recorded in Q4 2016 at 12.49 per cent. Nominally, 2017 recorded an annual growth rate of 12.05 per cent higher by 4.25 per cent compared to 2016 annual growth of 7.80 per cent. Further review shows that the economy of Nigeria advanced 1.91 per cent in 2018. The Non oil growth rate grew by 2.0 per cent; oil growth rate 0.97 per cent; Services 1.83 per cent. The Services sector contributed the highest to the GDP of 52.63 per cent followed by Agriculture 25.13 per cent and Industries 22.24 per cent.

READ ALSO: COVID-19: Nigeria’s economic growth slows to 1.87% in Q1’2020

In 2019, the GDP grew by 2.27 per cent, the highest after the recession in 2016. Analysis show the GDP advanced 2.55 per cent YoY in the fourth quarter of 2019 compared to an upwardly revised 2.28 per cent rise in the previous period. It was the strongest expansion since the third quarter of 2015, mainly driven by the oil sector (6.36 per cent vs 6.49 per cent in Q3), amid higher crude oil production (2.00 million barrels per day, up from 1.91 mbpd in the same period a year earlier) and more favourable prices. The non-oil sector increased 2.26 per cent, quickening from a downwardly revised 1.84 per cent advance in the prior period, boosted by telecommunications and information services (10.26 per cent vs 12.16 per cent in Q3), crop production (2.52 per cent vs 2.41 per cent), financial services (22.33 per cent vs 0.61 per cent) and manufacturing (1.24 per cent vs 1.10 per cent).

On a quarterly basis, the GDP grew 5.59 per cent, following a 9.23 per cent expansion in the previous period. In 2019, the economy expanded 2.27 per cent, the most since 2015, and compared to 1.98 per cent in 2018.

The economy of Nigeria advanced 2.28 percent YoY in the third quarter of 2019 compared to an upwardly revised 2.12 percent rise in the previous period. It was the fastest expansion since the fourth quarter of 2018, as oil output grew the most in over three years.