Nigeria’s 2020 GDP contraction equivalent to entire 2021 budget

By Philip Clement

We’re already in recession, no need for official figures, say experts

Construction, transport, real manufacturing, others record negative growth

The consecutive shrinking of Nigeria’s Gross Domestic Product (GDP) growth in the two quarters of 2020 is equivalent to the entire amount budgeted to be spent by the Federal Government, findings by Daily Times have shown.

Nigeria recorded a paltry 1.87 per cent growth in the first quarter of the 2020 as non-oil contributions appeared to have been weakened.

Subsequently, the recently released Gross Domestic Product (GDP) report by the National Bureau of Statistics shows that GDP growth shrinked by 6.10% in the second quarter of 2020.

According to the report which was released on Monday, Oil GDP contracted by -6.63 percent from 5.06 percent in the first quarter and 5.15 percent in the second of 2019.

Non-oil GDP was also reported to have contracted by -6.05 percent from 1.55 percent in the first quarter of 2020 and 1.64 percent in the second quarter of 2019 The GDP report now ends a three years trend of low but positive growth since the last recession in 2016 through 2017.

Consequently, an analysis of the figures released by Daily Times indicates that an aggregate of the 6% negative growth in the second quarter of 2020 and the 1.87% poor growth recorded in the second quarter of the year will amount to a total negative growth of 7.87%.

Further analysis has shown that 7.87% of the Country’s GDP amounts to about N12 trillion, virtually the same amount which has been projected to be spent in the 2021 fiscal year.

When compared with the second quarter of 2019, which recorded a growth of 2.12 per cent, the second quarter 2020 growth rate indicates a drop of 8.22 percentage points, and a fall of 7.97 percentage points when compared to the 1.87 per cent recorded in the first quarter of 2020.

Nigeria’s GDP figure stands at $446.53 billion according to the latest Statistics on the country’s GDP.

In the 2021-2023 Medium Term Expenditure Framework and Fiscal Strategy Paper (MTEF/FSP), the federal government had projected to spend N12.65trillion in the year 2021.

The documents also showed that no new projects will be financed in the 2021 budget. Consequently, the contraction of the country’s economy has been received with shock in some quarters while other stakeholders say it is expected owing to the Covid-19.

Experts have also been reacting to the development, with some already pronouncing that the country is already in recession and there was no need to wait for official figures from the federal government.

A financial expert and the Chief Executive Officer of Financial Derivatives Company, Bismarck Rewane said the recent GDP report was expected as the policies and packages put in place to cushion the effect of the pandemic weren’t good enough to keep the economy afloat.

“The new GDP report has been compounded by our limitations to contain the effects of Coronavirus.

The N2.3 trillion economic Stimulus package has proven not to be sufficient enough in dealing with our economic problems.

“There is recession which indicates negative growth, high inflation of over 12 per cent, high unemployment of over 20 million citizens and the weakness in our currency.

These four negative factors are the problems we must deal with, and we must stimulate the economy differently to solve them.” He said.

Asked what the report means to ordinary Nigerians, Rewane said Nigerians must brace up for high unemployment, high prices of food items, slow growth and vulnerability of the external sector.

He stated that a non-evasive approach must be adopted to ensure that the economy is put on the path of recovery now that the non-oil sectors of the economy like construction, transport among others have all recorded negative growth.

He further explained that “For recovery to commence, we need catalysts in two forms, government and private expenditure.

“Private sector investment is needed now than ever before, and the Petroleum Industry Bill must be passed now. Also a package of incentives like matching funds is urgently required.

“For instance, the South African Stimulus package for Covid-19 is about 20% of their GDP, ours is only N2.3 trillion which is just about 2% of our entire GDP,” On the solutions and policies that will ensure the economy does not deteriorate further, Mr. Rewane said selling of foreign exchange as well as increased incentives for domestic investors at this time is crucial.

He also said adjustment of exchange rate is the best option now rather than rationing.

Speaking further, he stated that reflective tariffs for the power sector is also vital as businesses and key sectors of the economy cannot go anywhere without power. He projects that the economy will begin full recovery from 2021.

Similarly, a renowned economist and Professor of Capital markets, Uche Uwaleke says the negative growth in real GDP in Q2 2020 was expected. He said the report appears to be in line with global expectations. Similar trends have been witnessed recently in countries like the United Kingdom and Japan.

He said “I am also not surprised about the huge size of the contraction put at 6.10%.

As a matter of fact, because it is based on year-on-year, when one considers the 2.12% positive real GDP growth this same period last year, the decline in GDP comes to as high as 8.22%,” Reeling The reasons behind the negative GDP growth, Uwaleke stated that “The negative impact of COVID’19 on health which resulted in lockdowns and supply chain disruptions, the collapse in crude oil price and reduction in output in compliance with OPEC + agreement, the illiquidity in the forex market and the lingering insecurity in the country which affected agriculture output are to blame.

“This explains why the Agriculture sector managed to eke out a growth rate of 1.58%, and manufacturing, trade and so many other sectors recorded negative growth.

“The lockdown and movement restrictions really affected the Accommodation and food services sector which declined by as much as 40%. “I think this is going to be the worst this year.

A negative real GDP growth is also most likely to be recorded in Q3 2020 but the size will be smaller as the economy gets restarted and crude oil price gradually picks up,” he stated.

According to him, to ensure the impact of these economic headwinds is moderated, it is important to increase the size of the various interventions by the government and the CBN and ensure they are well targeted and implemented.

Daily Times reports that the contraction of 6.1 per cent ended the three year trend of low but positive real growth rates recorded since the 2016 and 2017 recession.

The decline is alluded to significantly lower levels of both domestic and international economic activity during the quarter, which resulted from nationwide shutdown in a bid to curtail the COVID-19 pandemic.

Consequently, for the first half of 2020, real GDP declined by 2.18 per cent year on year, compared with 2.11 per cent recorded in the first half of 2019. Quarter on quarter, real GDP decreased by 5.04 per cent.

Furthermore, the NBS stated that only 13 activities recorded positive real growth compared to 30 in the preceding quarter.

Another economist and Chief Executive Officer of Global Analytics Ltd, Tope Fasua said Nigeria would continue to experience continuous decline for some due to shutdown of businesses and the entire economy for months as a result of the Covid-19 pandemic.

On the way forward, Fasua stated that “Even though Nigeria is not very famous for frugality, accountability and prioritization of what matters, the only advice one can offer is that the government must continue reflating the economy by its current interventions and palliatives.

READ ALSO: Declining GDP: Recession looms as Nigeria’s economy grows marginally by 1.87%

“The economy must keep running no matter. We are in very challenging times economically. More like a World War scenario.

So it is time to take very unusual decisions. I think the people of Nigeria should also maintain vigilance and give the government very important feedback especially as it pertains to spending on the right issues.

Continued wastage of the nation’s scarce resources, massive looting and fantastic corruption cannot continue to define this country.”