Nigeria’s economy has suffered its worst decline in three decades as the Gross Domestic Product, GDP, contracted by -6.1 percent Year-on-Year, YoY, in the second quarter of 2020.
The National Bureau of Statistics, NBS, report released yesterday indicated that the development was a direct fallout of the Coronavirus (COVID-19) induced commercial and social lockdowns, as well as the impact of weaknesses in oil and non-oil output of the economy.
According to the bureau, YoY, GDP fell by 8.22 percentage points in Q2’20 from 2.12 percent recorded in Q2’19.
NBS noted that the oil sector and non-oil sector contributed 8.93 percent and 91.07 percent, respectively, to real GDP during the quarter as only 13 activities recorded positive real growth, compared to 30 in the preceding quarter.
The report showed that real growth of the oil sector was –6.63 percent YoY in Q2’20 indicating a decrease of 13.8 percentage points relative to 7.17 percent recorded in the corresponding quarter of 2019.
The NBS stated:” Nigeria’s GDP decreased by –6.10 percent YoY in real terms in the , ending the 3-year trend of low but positive real growth rates recorded since the 2016/17 recession.
“The decline was largely attributable to significantly lower levels of both domestic and international economic activity during the quarter, which resulted from nationwide shutdown efforts aimed at containing the COVID-19 pandemic.
“When compared with Q2’19, which recorded a growth of 2.12 percent, the Q2’20 growth rate indicates a drop of 8.22 percentage points, and a fall of 7.97 percentage points when compared to Q1’20 (1.87 percent).
“Consequently, for the first half of 2020, real GDP declined by 2.18 percent YoY, compared with 2.11 percent recorded in the first half of 2019.
“Quarter on quarter, real GDP decreased by 5.04 percent. Furthermore, only 13 activities recorded positive real growth compared to 30 in the preceding quarter.
In the oil sector, the report said:” In Q2’20, average daily oil production of 1.81 million barrels per day (mbpd) was recorded. This was -0.21mbpd lower than the daily average production of 2.02mbpd recorded in the same quarter of 2019, and –0.26mbpd lower than the first quarter 2020 production volume of 2.07mbpd.
“Real growth of the oil sector was –6.63 percent (YoY) in Q2’20 indicating a decrease of 13.80 percentage points relative to the rate recorded in the corresponding quarter of 2019. Growth decreased by 11.69 percentage points when compared to Q1’20 which recorded 5.06 percent.
“Quarter-on-Quarter (QoQ), the oil sector recorded a growth rate of -10.82 percent in Q2’20. The Oil sector contributed 8.93 percent to total real GDP in Q2’20, down from figures recorded in the corresponding period of 2019 and the preceding quarter, where it contributed 8.98 percent and 9.50 percent respectively.
In the non-oil sector, the bureau stated: “The non-oil sector declined by 6.05 percent in real terms during the reference quarter (Q2’20). It was the first decline in real non-oil GDP growth rate since Q3 2017. The recorded growth rate was 7.70 percent points lower compared to the rate recorded during the same quarter of 2019, and -7.60 percentage points compared to Q1’20.
“Nevertheless, non-oil sector output was driven by Financial and Insurance (Financial Institutions), Information and Communication (Telecommunications), Agriculture (Crop Production), and Public Administration, moderating the economy-wide decline.
‘’On the other hand, sectors which experienced the highest negative growth included Transport and Storage, Accommodation and Food Services, Construction, Education, Real estate and Trade, among others.
“In real terms, the Non-Oil sector accounted for 91.07 percent of aggregate GDP in Q2’20, slightly higher than the share recorded in the second quarter of 2019 (91.02 percent) as well as the Q1’20 (90.50 percent)”.
The economy in dire straits — LCCI
Reacting to the latest GDP figures, Muda Yusuf, the Director-General of the Lagos Chamber of Commerce and Industries, stated: “The Lagos Chamber of Commerce & Industry notes with concern the decline in national output in Q2-2020. This marks the steepest quarterly contraction in Nigeria’s recent economic history. The contraction in Q2-2020 also ended the three-year trend of marginal but positive growth era the Nigerian economy had after exiting recession in Q2-2017.
“The 6.1 percent contraction is not a surprise as the number reflects the profound impact of the COVID-19 pandemic on the Nigerian economy.
“We note the weak performance of the economy at the sectoral level, particularly among critical sectors with potentials to facilitate economic diversification. While some sectors did expand in the second quarter, most of the sectors that reported positive growth in the first quarter plunged into sharp contraction, while others maintained their position in recessionary territory.
The Nigerian economy is currently in dire straits. Apart from the urgent need for policymakers to reflate the economy, it is critically important for policymakers to also tackle the twin challenge of rising inflation and unemployment rates.
“We note that the fiscal and monetary authorities have implemented several policies to mitigate the adverse impact of the COVID-19 shock on the economy and business environment.
Commenting on the latest GDP developments, economy analysts at Afrinvest, a Lagos based investment house, stated: “Considering our forecasted contraction of 13.4% YoY in Q2’20, the performance was better than expected.
“We attribute the weakness in growth to the COVID-19 pandemic, given the lockdown and social distancing measures implemented in early Q2’20 to contain the spread of the virus. Specifically, this was driven by the shutdown of economic activities in many key sectors domestically – especially services – and other COVID-19 related factors including the restrictions on international trade.
“As the lockdowns and other restrictions have gradually been eased in Q3’20 (third quarter 2020), we expect a better performance in subsequent quarters. Our 2020 growth forecast is under review given the new numbers.”
Equally optimistic on the future GDP performance especially in the remaining two quarters of this year, analysts at CardinalStone Finance, another Lagos-based investment house, projected that full-year 2020 GDP would be around -4.6 percent.
Uche Uwaleke, Professor of Finance and Capital Market of Nasarawa State University, Keffi, and former Commissioner of Finance of Imo State said the negative growth in real GDP in Q2’20 was expected.
In his reaction sent to Vanguard, Uwaleke stated: “This appears to be in line with global expectations as we have seen similar trends recently in countries like UK and Japan.
“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%.
“It is easy to see why this happened. 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. 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.
“To ensure, the impact of these economic headwinds are 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.”
Economy seriously bleeding – CEO APT Securities
In his reaction, Managing Director/CEO, APT Securities & Funds Limited, Mallam Garba Kurfi said: “That is beyond the expectations of -6% and it shows that the economy is seriously bleeding more than what was predicted.
“However, when compared with the UK and Japan which recently declared double digits lost for their Q2 GDP, it shows that ours is not hopeless. But we need a strong fiscal and monetary policy that would reduce the impact on the economy in general.
“As for the impact on the stock market, we are still hopeful the market may restore marginal impact because of the inflation that may promote the price of stocks to be better than where the market price was early in the year as we witnessed in the last two weeks stock close on marginal gains.
“The advice to investors is for them to be cautious and invest in stocks with good fundamentals and prospect in declaring a dividend.”
The implication to equity investments
Commenting, Sola Oni, Chartered stockbroker and CEO, Sofunix Investment and Communications said: “There is an inverse relationship between the Gross Domestic Product (GDP) and the stock market. When the GDP increases, it connotes more spending in the economy and this spurs demand for financial assets on the stock market with likely emergence of the bullish trend. But as a corollary, declining GDP is an indication of less spending. Many investors may embark on massive sell-off to meet up their obligations and the trend may depress the market, a euphemism for volatility.
“The news of declining Nigeria’s GDP is a signal for investors to seek professional advice from stockbrokers as they are better positioned to offer investment advice. Volatility is a double-edged sword. While it can elicit share diminution, it will also enable investors to purchase shares of companies with strong fundamentals at give away prices.”
On the outlook for the economy, the LCCI’s boss stated: “Although there had been a gradual reopening of the economy, we note that business and commercial activities remain subdued, evidenced by July PMI readings which shows business activities are still in the recessionary threshold.
“Given the protraction of the COVID-19 pandemic and lack of a vaccine, there is a high possibility that the economy would contract, though marginally, in the third quarter and this would mark the second recession under the watch of the current administration.
“It is imperative to ensure effective synchronization of fiscal and monetary policies and proper implementation of the sustainability plan among other measures. The structural bottlenecks to productivity in the economy need to be urgently removed through a mix of fiscal, monetary, and regulatory measures. It is imperative to reduce policy uncertainties in order to inspire the confidence of investors, both domestic and foreign.
“This would give the economy a boost in the near term. However, growth will continue to remain weak and fragile until the first quarter of 2021.”