Although the recent data released from the National Bureau of Statistics shows that the GDP declined by -2.06% in second quarter, the Budget and Planning Ministry noted that the picture that emerges points to the fact that agriculture and solid minerals sector, the areas given priority by the Federal Government are beginning to respond to policy initiatives.
The Ministry, in a release, stated that though the inflation rate remains high, the good news is that the month-on-month rate of increase has fallen continuously over the past three months.
For the rate of unemployment which still remains high, it explained that the unemployment issue is of a structural nature and is usually the case during growth slowdowns. It is expected that the social safety net initiative will slow down the unemployment rate before the end of the year.
According to the Ministry, past vulnerabilities of the economy combined with the short term effect of the structural changes complicates the trajectory of growth and inflation, pointing out that this formed the basis for negative growth in Q1 and Q2.
However, the rest of the Q2 data is beginning to tell a different story. There was growth in the agricultural and solid minerals sectors which are the areas in which the Federal Government has placed priority. Agriculture grew by 4.53% in the second quarter of 2016 as compared with 3.09% in the first quarter. The metal ores sector showed similar performance with coal mining, quarrying and other minerals also showing positive growth of over 2.5%. Notably also, the share of investment in GDP increased to its highest level since 2010, growing to about 17% of Gross Domestic Product.
It indicated that the manufacturing sector, though not yet truly out of the woods, is beginning to show signs of recovery while the service sector similarly bears watching; as it disclosed that available data already shows a reduction in imports and an increase in locally produced goods and services.
The Ministry is optimistic that the trend will be maintained, although it will start off slowly in the initial stages before picking up later.
Explaining the GDP decline in the second quarter, the Ministry said a close look at the data reveals that the outcome was mostly due to a sharp contraction in the oil sector due to huge losses of crude oil production as a result of vandalism and sabotage; but it quickly added that there is room for optimism that the recent commitments to stop attacks on oil installations in the Niger Delta will help to resolve this situation, while also improving government revenues.
This, it added, would however be a temporary solution in the sense that it still promotes the weak economic structure of the past which it said manifested in two ways – the over-reliance on crude oil and the country’s economy being mainly consumption driven with a high import propensity.
With crude oil contributing 8-12% of GDP and up to 50-53% of the non-oil sector dependent on the oil sector, it is clear that the fortunes of up to 60% of the Nigerian economy rested on a volatile sector. This shaky foundation was masked in the past by high oil prices and reasonably high foreign reserves.
Again with the availability of foreign exchange it was possible to drive growth in national income through consumption without feeling the fallout of such structural weaknesses.
These vulnerabilities were exposed when oil prices collapsed at a time the country did not have adequate revenues and reserves to cushion the effect, a situation further complicated by loss of production.
It drew attention to the fact that the situation which pointed to the need for difficult but necessary structural reforms necessitated Federal Government’s move to improve public financial management and change the structure of the economy through diversification and an investment driven model.
The Federal Government therefore took policy actions to promote sectors like agriculture, solid minerals, manufacturing and services and to boost public and private investment in infrastructure and housing. It also acted to remove supply constraints with regard to foreign exchange and the supply of premium motor spirit while encouraging the private sector to add value to crude oil through refineries, petrochemical plants, fertilizer plants and gas infrastructure.
In an attempt to maintain consumption demand in the short term, the Federal Government also assisted States to pay salaries and to encourage a private sector supply response by bringing about improvements in the ease of doing business.