by Oluwatosin Olaseinde
What do you see?
Nigeria is at a brink of officially slipping into a recession. For that to occur, there has to be a significant decline in activity across the economy, lasting longer than a few months. It is visible in industrial production, employment, real income and wholesale-retail trade. The technical indicator of a recession is two consecutive quarters of negative economic growth as measured by a country’s gross domestic product (GDP).
The economy has shown most of the signs, the Nigeria GDP posted a negative growth of -0.36% for the first time in 25 years. The unemployment rate has reached new highs of 12.1% from 10.6% in prior quarter. If we were using the old methodology, that will be that a whopping 31% of the labour force (people within the working age population willing, able and actively looking for work) are unemployed. The shocking statistic here is that 528,148 persons lost their jobs in the 1st quarter of this year. Inflation rate is at a high of 13.4%; analyst estimates the core index inflation will reach 15-16% region. In 2015, Inflation averaged 8%. Companies are reporting lower bottom line and top line growth and SMEs are downsizing or reducing capacity.
However, there is an opportunity in all of this. The overall potential isn’t as gloomy as it looks. The Nigerian economy could be better understood according to the oil and non-oil sector classifications.
In the First Quarter of 2016, as a share of the economy, the Oil sector contributed 10.29% of total real GDP. While Non-oil contributed 89.71% to the nation’s GDP.
Oil production stood at 2.11million barrels per day (mbpd) in the first quarter; 0.05mbpd lower from production in Q4 of 2015. The oil production per day reached 20 year low of 800,000 due to attacks on the oil infrastructure, so Q2 is definitely going to report a lower daily average. The budgeted oil production is 2.2 mbpd.
Though drop in oil prices has been constantly touted as the source of our economy decline, the biggest contributor to the GDP is the non-oil sector. The negative growth of 1.89% in the non-oil sector is the key driver of the negative growth. This should be where we should concentrate our effort.
The largess of the oil sector during its boom days gave rise to rent seeking money, money that fuelled temporary growth. Money that fuelled growth that was susceptible to quick ejection from the system. Money that fuelled growth that is not sustainable. Money that fuelled growth but did not translate to real jobs – that commensurate to the magnitude of proceeds.
Let’s take a look at the breakdown of the different sectors. Manufacturing contributes just 10% of the real GDP, Sometimes in the not so distant past this sector was just 7%. On the other hand, the services sector constitutes 55.4% to the economy!!!! (most of which involves trade that relies on import).
Agriculture that is constantly touted as an economy engine contributed just 20.5% to real GDP. The contribution of Finance and Insurance to real GDP totaled 3.13%, driven by the Financial Institutions activity while Trade’s contribution to GDP was 18.19% in Q1 2016.
Can you see the missing link?
Nigeria missed out on an era of Industrial Revolution. This has the propensity required to drive change in agriculture, textile, manufacturing and even transportation – as it is an integral part of determining the cost and availability of manufactured products.
Advances in agricultural techniques and practices that drives an increased supply of food and adds value to raw materials. Changes in industrial organization and new technology that is poised to increase production, efficiency and profits. Many of these conditions are so closely interrelated that increased activity in one spurs an increase in activity in another.
There is not much technical innovation beyond the slight improvements made on existing implements. For instance in agriculture – the breeding of livestock, control of insects, improved irrigation and farming methods, developing new crops the methods have been slightly improved on. We need to leverage on technology to drive the changes that we desperately desire. This is not an abrupt change as it needs to occur gradually.
Nigeria is open for business as opportunities exists in several sectors for those willing to carefully wean the pros from the cons and latch on the future growth. We have not scratched the surface yet.
The government has a role to effect policies that are not counterproductive but rather create an incentive to develop the country.
Lazy money is gone; the real work awaits us.
Oluwatosin is a Chartered Accountant with 7 years experience spanning across audit, finance, taxation and research.
She is passionate about finance as the numbers make her tick.
Op-ed pieces and contributions are the opinions of the writers only and do not represent the opinions of Y!/YNaija