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…CBN monetary tightening blamed for slowing productive activities
Economic crunch is biting manufacturers, oil and gas firms as well as services-rendering companies in Africa’s most populous nation whose growth tumbled in the third quarter of 2022.
The Nigerian Gross Domestic Product Report Q3 2022 released by the National Bureau of Statistics on Thursday showed that the economy grew by 2.25 per cent (year-on-year) in real terms in the third quarter of 2022 as against 4.03 per cent reported in the same period of 2021.
According to the nation’s statistics body, the decline was attributable to the base effects of the recession and the challenging economic conditions that impeded productive activities.
Hence, the Nigerian economy slowed by 1.78 per cent between the third quarter of 2021 and the corresponding period of 2022.
In the quarter under review, aggregate GDP stood at N52.255tn in nominal terms, which was higher than N45.113tn reported in the third quarter of 2021.
However, real growth (not nominal) is the true reflection of the economy as it makes room for inflation adjustment.
The Nigerian economy is classified broadly in terms of oil and non-oil sectors.
Based on the NBS report, the oil sector is facing a myriad of challenges.
Real growth of the oil sector was –22.67 per cent (year-on-year) in Q3 2022, indicating a decrease of 11.94 percentage points relative to the rate recorded in the corresponding quarter of 2021.
Growth also decreased by 10.91 percentage points when compared to Q2 2022, which was –11.77 per cent.
Quarter-on-quarter, the oil sector recorded a growth rate of -1.80 per cent in Q3 2022. The oil sector contributed 5.66 per cent to the total real GDP in Q3 2022, down from the figures recorded in the corresponding period of 2021 and the preceding quarter, where it contributed 7.49 per cent and 6.33 per cent respectively.
This is a red flag for a sector that accounts for 60-70 per cent of the country’s revenue and 80 per cent or more for its foreign exchange earnings.
However, the non-oil sector grew by 4.27 per cent in real terms. This rate was lower by 1.18 points compared to the rate recorded same quarter of 2021 and 0.50 per cent lower than the second quarter of 2022.
The sector was driven mainly by information and communication (telecommunication); trade; transportation (road transport); financial services and insurance (financial institutions); agriculture (crop production) and real estate, accounting for positive GDP growth.
“In real terms, the non-oil sector contributed 94.34% to the nation’s GDP in the third quarter of 2022, higher than the share recorded in the third quarter of 2021, which was 92.51% and higher than the second quarter of 2022 recorded as 93.67%,” NBS noted.
Manufacturers, others struggle
But manufacturers were not so lucky.
Real GDP growth in the manufacturing sector in the third quarter of 2022 was -1.91 per cent (year-on-year), lower than the same quarter of 2021 and slower than the preceding quarter by 6.20 percentage points and 4.91 percentage points respectively.
The real contribution to GDP in the 2022 third quarter was 8.59 per cent, lower than the 8.96 per cent recorded in the third quarter of 2021 and lower than the 8.65 per cent recorded in the second quarter of 2022.
Similarly, electricity, gas, steam and air conditioning supply grew by -3.07 per cent in the third quarter of 2022. This was 46.21 per cent lower than the 43.14 per cent growth rate recorded in the corresponding quarter of 2021,.
Hence, the sector was unable to support manufacturers and other critical players in the economy within that quarter.
“The contribution of this sector to real GDP in the third quarter of 2022 was 0.38%, lower than the 0.40% recorded in Q3 2021. Moreso, the figure in 2022 was lower than the 0.69% recorded in Q2 2022.”
Services other than human health, financial, insurance, education, administrative support, among others, grew by -2.67 per cent (year-on-year) in Q3 2022. This growth was lower by 3.40 per cent than the growth recorded in the same period of the previous year, and lower by 5.72 per cent points from Q2 2022.
Oil theft
In terms of oil and gas sector, the elephant in the room is lower production fuelled by theft, which has hurt revenues and stalled progress, according to experts.
Nigeria now ranks seventh on Organization of the Petroleum Exporting Countries’ crude oil production list, according to the organisation’s Monthly Oil Market Report for November, which examined oil production performance in October.
Nigeria’s output was a mere 1.014 million barrels per day in October, ranking seventh after Saudi Arabia, United Arab Emirates, Kuwait, Iraq, Angola and Algeria.
Nigeria’s production was 1. 014mb/d in October, but Angola produced 1. 051mb/d; Algeria, 1.060mb/d; Kuwait, 2.811mb/d; UAE, 3.188mb/d; Iraq, 4.651mb/d; and Saudi Arabia, 10. 957mb/d.
Nigeria used to rank fifth, with countries such as Angola and Algeria behind it in terms of crude oil production.
The Group Chief Executive Officer of the Nigeria National Petroleum Company Limited, Mele Kyari, recently alleged that stolen crude oil products were being stored in places of worship such as churches and mosques.
“When we say we are losing several 700,000 barrels of crude oil per day, we mean it. This is opportunity loss. There is no company that will produce oil and then you lose 80 per cent of that and continue to produce the oil,” he said.
“So, we deliberately shut down the pipelines whenever we see these infractions getting to a limit that we cannot manage. That means as we speak to today, we know, for sure, there’s at least 700,000 barrels that we could have produced that we can’t because we cannot guarantee the safety of the pipeline,” Kyari disclosed.
Though the number is widely debated, it does not obliterate that oil theft is hurting productive activities in the sector.
Chairman and Chief Executive of Oilserv Limited, Engr. Emeka Okwuosa, advised the Federal Government to employ modern technologies and methodologies in solving the pipeline vandalism problem currently bedeviling the country’s oil and gas sector.
Okwuosa, while speaking with The PUNCH during an interview, identified one of the methods of solving this problem as the horizontal directional drilling.
“That technology is already tested in the United States and it is working there,” he said.
According to him, beyond technology, Nigeria needed to identify the challenges, find the origin of the problem and deal with it.
“It also involves all the communities. It involves governments at all levels: local governments, state governments and Federal Government.”
Manufacturing crisis
Manufacturers are hard hit by foreign exchange crunch, energy crisis and supply chain disruptions.
In a statement, Director-General of the Manufacturers Association of Nigeria said, “The Manufacturers Association of Nigeria is greatly concerned about the implications of the over 200% increase in the price of AGO on the Nigerian economy and the manufacturing sector. More worrisome is the deafening silence from the public sector as regards the plight of manufacturers.
“Four obvious questions that readily come to mind that are seriously begging for answers are: What can we do as a nation to strengthen our economic absorbers from external shocks? Should manufacturing companies that are already battered with multiple taxes, poor access to foreign exchange and now over 200% increase in price of diesel be advised to shut down operations? Should we fold our arms and allow the economy to slip into the valley of recession again? Is the nation well-equipped to manage the resulting explosive inflation and unemployment rates?”
Economists warn
Economists have warned that the Nigerian policy makers must wake up and initiate policies that would reverse the ugly trend.
Professor of Economics at Covenant University, Jonathan Aremu, said one of the major drags of economic growth in the quarter was the poor performance of services across sectors.
Citing an American economist, Simon Kuznets, the former CBN assistant director said if the services sector was not performing well, the entire economy would also not perform well.
“There are services in other sectors too. So, if services are not performing well, the economy as a whole would not perform well,” he said, urging the government to steer growth through effective policies.
Professor of Finance and Capital Markets, Nasarawa State University Keffi, Uche Uwaleke, said, “The Q3 real GDP performance in 2022 further underscores the increasing importance of the non-oil sector. Despite a slump in oil sector performance due chiefly to the reduction in oil production to just 1.2 million barrels per day, the economy was still able to expand by 2.25 per cent in the third quarter driven by the non-oil sector which contributed over 94 per cent to GDP.
“Another remarkable development is that there was an improvement in the agric sector relative to the previous quarter in spite of the flooding and insecurity in many parts of the country, which goes to show that agriculture remains one of the resilient sectors of our economy.
“The manufacturing sector, for example, covering 13 activities, recorded a negative real GDP growth rate. The same with electricity and gas. The dismal performance of the manufacturing sector reflects the disconnect between the financial services sector and the real sector. It also indicates that the monetary policy tightening stance of the CBN in July and September of 2022 and the resultant high lending rates might have had adverse impact on the manufacturing sector coupled with forex crisis and high energy costs.
“The impact of the prolonged ASUU strike equally reflected in the education sector’s real GDP which dropped compared to the corresponding period in 2021.
“I think real GDP growth rate can be improved if the challenge of oil theft and pipelines vandalism is tackled against the backdrop of favourable crude oil price.
“Also, in view of the negative impact of monetary policy tightening on economic growth, the CBN is advised to halt further hikes in the monetary policy rate while using its open market operations and non-traditional measures, including the effective implementation of the currency redesign and eNaira to control money supply.
Deputy President of the Lagos Chamber of Commerce and Industry, Dr Gabriel Idahosa, attributed the decreasing GDP to the steady rise of inflation.
“The decline in GDP reflects current realities of key economic indicators. The steady spike in inflation rate has pushed many small and medium enterprises to close down or reduce capacity.
“The larger enterprises are forced to reduce capacity in response to much reduced demand of Nigerians who cannot cope with rising consumer prices. Production of food and agricultural raw materials continue to decline as a result of insecurity in our farmlands. Insecurity in our highways and rising diesel costs has massively increased the cost of haulage of foodstuffs, raw materials and finished goods.”
The former Chairman of the Nigerian Association of Small-Scale Industrialists, Segun Kuti-George, stated that the drop in GDP was also a clear manifestation of dropping the level of activities.
“The sharp depreciation in foreign exchange and devaluation of naira are major factors.
“Manufacturers industries are finding it difficult to produce because of the sharp increase in the cost of raw materials.”
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