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Is Nigeria’s economy growing?



Nigerians can be pardoned for doubting talk about the GDP growth. They don’t see the 7 percent GDP on the streets. That is because, as FBN Capital notes in its 2014 economic outlook, “strong non-oil sector growth depends heavily on the informal, unbanked economy, and so would not always be visible”.

The economy has performed robustly since 2002. This growth has come from reforms between 2003 and 2007 in the non-oil sector and favourable weather conditions for agriculture (Nigeria’s agricultural output is mainly rain-fed).

The informal nature of the economy and shallow level of financial intermediation is reflected in the solid minerals sector, one of the five sectors that grew by double digits in the third quarter of 2013. The sector also got the largest chunk of credit from banks (21 percent) as at March 2013. Building and construction, and real estate also grew by double digits.

Globally, between 2002 and 2012, Nigeria was the 13th fastest growing economy; the 5th fastest growth rate in Africa. Nigeria’s real GDP growth between 2002 and 2012 was 7.5 percent.


In 2013, Nigeria attracted over $7 billion in Foreign Direct Investment (FDI) making Nigeria as the number one destination for investments in Africa, according to the UN Conference on Trade and Development (UNCTAD).

Testimonies of a booming non-oil sector include mobile phones and cement.  Nigeria is Africa’s largest cement market. Cement output capacity has expanded to 28.5 million metric tonnes in 2013 from 2 million metric tonnes in 2002.

The largest number of active mobile phone subscribers in Africa is in Nigeria (121.8 million). Nigeria’s 56 million internet subscribers are helping to drive electronic payments. For instance, the value of e-payment transactions in 2012 was N2.09trn (US$13.2bn), of this amount N1.98trn was from ATM transactions.

What do the growing non-oil sectors have in common? The rise in private consumption: household consumption expenditure (HCE), the largest component of GDP is often equivalent to 60 to 70 percent of total GDP. Nigeria’s HCE, in the soon to be released rebased GDP is estimated to exceed current non-rebased GDP of $283 billion. A rebased GDP will give a more accurate image of the economy.

This is why FMCGs and agro-allied businesses are doing well and continue to invest. In her presentation to the House of Representatives’ committee on finance, Okonjo-Iweala the following companies, as examples: $250m investments by Procter and Gamble in Ogun State; $40 million in agricultural projects by Dominion Farms in Taraba State; $1.2 billion in fertilizer and petrochemicals by Indorama; a $200 million steel plant by Kam Industries; and a $9 billion investment in a petrochemicals and refinery complex by the Dangote Group.

FBN Capital says “These companies are guided by their own very detailed research into private consumption trends. Not surprisingly, they will not share their findings with the market.”

According to Ngozi Okonjo-Iweala, Coordinating Minister for the Economy and Minister of Finance, 250,000 temporary jobs were generated through dry season farming in northern Nigeria The Onne Free Trade Zone, in Port Harcourt generated 30,000 direct and indirect job; the YouWiN project generated 18,000 jobs and the SURE-P Community Services generated 120,000 jobs.

However, there are constraints to the speed at which new jobs can be generated.
First, new entrants into the job market plus existing job seekers are growing faster than the number of available jobs. Infrastructure is the second roadblock, particularly epileptic power supply

The cost of running the Nigeria government is high. Adding to this cost is the inefficiency and leakages that have since become monumental. From 2006 to 2013, recurrent expenditure, as a percentage of government expenditure, was always more than 50 percent.

More quality expenditure on infrastructure, education, health and other social services are important, in addition to a stable macroeconomic environment i.e. keeping inflation low, providing stable exchange rates, and ensuring prudent levels of government borrowing.

BusinessDay

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