Perspectives on Nigerian Output growth from the Q1 GDP Figures


By Chinedu Okoye 



Summary:

- Data from the National Bureau of Statistics show that Nigeria's Q1 2024 GDP slowing growth rate from the previous quarter, indicating an overall economic expansion amidst significant challenges. 

- Despite a decrease in the GDP growth rate from 3.46% in Q4 2023 to 2.98% in Q1 2024, the Nigerian economy continues to grow, albeit at a relatively slower quarterly growth rate. 

- This is reflective of resilience against factors such as adverse weather conditions and currency depreciation as pointed out by Bloomberg Africa. 

- Zero Equilibrium attributes the slowdown in growth to exchange rate depreciation, even.though there are other (structural) factors at play that require policy response 

- We break down Gross Domestic Product into its five subsectors to assess sectoral performances, structural challenges, and the necessity for targeted reforms to enhance output growth, especially in critical areas like food, Oil and Gas and Power.



A Resilient Growth:

Both Nairametrics and Bloomberg reported this week of a Q1 Nigerian GDP, quoting a decline in Output. The Nairametrics article suggests a fall in total output which can be misconstrued to be a negative quarterly growth. However that is not the case. A as Q1 GDP didn't grow at a negative rate.

Output grew at 2.98% compared to 3.21% the previous quarter, indicating that the economy is growing, at a slower pace, from.Q4 2023. Given the challenges faced as given by Bloomberg; Bad weather and Naira's slump, the growth of 2.98% increasing in comparison to the same quarter in the previous year is nuanced and commendable, given challenges mentioned. This necessitates a breakdown of the sectoral output (GDP).



Breaking Down GDP: A Comparison between Time-Periods:

The overall output components can be broken down into five categories (sectors); Services, Agriculture, Industry, Oil and Gas, Non-Oil. All five are presented below and compared with the Q4 2023 and Q1 2023, to check for observe the quarterly and annual change in output growth.

A comparison of Nigeria's GDP in Q1 2024 and Q1 2023:

-GDP growth rate; 2.98% in Q1 2024, up from 2.31% in Q1 2023.

- Services sector growth: 4.32% in Q1 2024, down from 4.35% in Q1 2023.

- Agriculture sector growth: 0.18% in Q1 2024, up from -0.90% in Q1 2023.

- Industry sector growth: 2.19% in Q1 2024, up from 0.31% in Q1 2023.

- Oil sector growth: 5.70% in Q1 2024, up from -4.21% in Q1 2023.

- Non-oil sector growth: 2.80% in Q1 2024, up from 2.78% in Q1 2023.

- Aggregate GDP: N58,855,142.27 trillion in Q1 2024, up from N51,242,151.21 trillion in Q1 2023.


From the above, all sectors grew in the quarter, compared to the same period in the previous year, apart from Services which declined in growth, although it drove quarterly overall growth as the figures below suggest.


Comparing Nigeria's GDP in Q4 2023 and Q1 2024:

- GDP growth rate: Q4 2023 was 3.46%, while Q1 2024 was 2.98%, a decline of 0.48%

- Services sector growth: Q4 2023 was 3.98%, while Q1 2024 was 4.32%, an increase of 0.34%.

- Agriculture sector growth: Q4 2023 was -0.90%, while Q1 2024 was 0.18%, an increase of 1.08%.

- Industry sector growth: Q4 2023 was 0.31%, while Q1 2024 was 2.19%, an increase of 1.88%.

- Oil sector growth: Q4 2023 was 12.11%, while Q1 2024 was 5.70%, a decline of 6.41%.

- Non-oil sector growth: Q4 2023 was 95.30%, while Q1 2024 was 93.62%, a decline of 1.68%.

Overall GDP experienced a reduced growth, not total Absolute figures), by 0.48%. The services sector , agriculture and Industry increased in growth as well on a Q-o-Q basis, and the Oil and Non-Oil sectors declined in growth on a quarterly basis. 

I'm response to recessionary fears, we asseer that the above is not a contraction in GDP but a decline in growth on a Q-o-Q basis, and an increase in growth from the same period in 2023. As such these fears are over blown and not anticipated in the near term. 



Growth in Spite of Challenges:

The Naira value against the USD declined from N459/$ in Q1 2023 to N1533/$1 in the first quarter of 2024. A total of 759 companies also left within that period. This would normally correspond to a decline in economic activity, an output contracting. Another headwind is inflation which stood at 33.20% in March, with food prices leading the charge.

The economy grew in Q1 by just under 3% (2.98%) compared with the 3.46% annualized growth for Q1 2023, despite the consumer disposable income eroded by inflation, and exchange rate declining. 

Overall output rose from N51,242,151.21 million in Q1 2023 to N58,855,142.27 million in Q1 2024, suggesting thar the slowed growth is structural. Absent bold economic reforms aimed at curbing inflation and exchange rate pressures, the reduced quarterly growth of 0.46% from Q4 2023 could have been worse.



Deeper Structural Challenges:

Output growth related to the most weighted items in the Consumer Price Index - food and beverages (50.4%), Housing, water, electricity, gas and other fuels (22.4%), grew the least with agriculture adding just 0.18%, from -0.90%, and Oil and Gas grew at the most reduced rate of 5.70% , from 12.11% in the Q1 2023. This underscores deep structural and supply challenges in these sectors.

The food inflation is attributed to supply constraints from increases in input costs (equipment, fertilizers, etc) - which are also affected by exchange rates to a large extent, and insecurity, electricity, gas and other fuels are a combination of supply and capital constraints, costs increases and regulatory/structural issues.

These sectors affect the common man the most, and also contribute the most to the drag on output growth and the cost of living, it becomes imperative to focus on Food and Energy and encourage investments directly into these sectors. To grow output the focus should be on both these sectors.



Foreign Capital to enhance Output Growth:

Reforms and innovative policy initiatives aimed at encouraging investments in the real sectors are required to boost output. The tight liquidity conditions reinforces the need to pull investments into local assets.

So far the monetary authorities have been able to stabilize the local currency at the N1200-N1500/$ range (Naira closed Froday at N1533.41/$1), and attract foreign investment into government securities (FPIs into T-Bills). 

But this comes at a cost - higher interest rates. With the Cash Reserve Ratio at 500 basis points shy of 50%, banks have limited funds to allocate to government securities, or increase credit exposure to the private sector, and the Central Bank is claely focused on boosting foreign capital inflows. So far there's been successful on bringing in capital into short-term government securities, however investments in real assets and long term financial assets are essential.

Foreign Portfolio Investments are fleeting capital and cannot be depended on for longer-term stability of net inflows. They are also costly, and this underscoring the need for foreign direct investments - foreign capital inflows to the real economy, as FDIs are the growth enhancing components of Foreign capital importation.



Concluding Remarks:

Nigeria's Q1 2024 GDP data reflects a slowing growth rate rather than a contraction. Despite significant challenges, the economy shows some resilience.

This provides a glimmer of hope, but points to the need for targeted and appropriate reforms that encourage investments in the agriculture and energy segments, as they are essential for stability and sustainable growth. Encouraging FDIs over FPIs will be crucial for long-term economic stability and growth.

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