The Nigerian Gross Domestic Product (GDP) report, published by the National Bureau of Statistics (NBS) penultimate week indicates that the economy grew by 0.11 per cent in real terms in the fourth quarter of 2020, representing the first positive quarterly growth in the last three quarters.
According to the report, the growth was largely driven by positive growth recorded in the information and communication sector (15.9%) and agriculture (3.42%).
The positive growth in real GDP indicates that the Nigerian economy has recovered from the pandemic-induced recession which disrupted economic activities in most part of 2020.
The country is expected to capitalise on this to boost the economy further in subsequent quarters.
A breakdown of the GDP result indicates that the oil sector plunged by 19.76% (year-on-year) in real terms as against a contraction of 13.89% recorded in Q3 2020.
The non-oil sector on the other hand grew by 1.69% in real terms, an improvement compared to the contraction of 2.51% recorded in Q3 2020. It however was slower than 2.26% recorded in the corresponding period of 2019.
The service sector contributed 54.28% to the GDP in Q4 2020, followed by agriculture, which contributed 26.95%, and industries with 18.77%.
The agricultural sector, in the fourth quarter of 2020, grew by 3.42% (year-on-year) in real terms, an increase by 1.11% points from the corresponding period of 2019, and an increase of 2.03% points from the preceding quarter which recorded a growth rate of 1.39%.
The sector also contributed 26.95% to the overall GDP in real terms in Q4 2020, higher than the contribution in Q4 2019 but lower than Q3 2020 which stood at 26.09% and 30.77% respectively.
However, Governor of the Central Bank of Nigeria, Godwin Emefiele, had expressed optimism last year that the country was going to come out of recession in the fourth quarter of 2020.
The moment Emefiele predicted Nigeria will be out of recession in Q4 2020
The CBN Governor had during the November 2020 Monetary Policy Committee (MPC) meeting, predicted that the country was going to come out of recession by the fourth quarter of 2020.
Speaking at the 55th Chartered Institute of Bankers of Nigeria (CIBN) dinner last November in Lagos, the CBN governor said there is no cause to panic.
He said prior to the recession, Nigeria witnessed 12 consecutive quarters of economic expansion after a similar experience in 2016.
“As we are all aware, prior to the onset of the virus in December 2019, the Nigerian economy was on a positive growth trajectory, having made a significant recovery from the 2016-2017 recession, which was triggered by the drop-in commodity prices in 2016,” he said
Also speaking at a recent event, Emefiele said: “You said that in November MPC, I was cautiously optimistic that fourth-quarter GDP will be positive thereby taking Nigeria out of a recession that I was aggressively optimistic that during the first quarter, we will exit recession. I am praying very seriously that my prayer should be heard because I know that people are waiting to put my neck on the chopping board to say that I do not know my work.’’
Emefiele’s messaging has been consistent in communicating that the various COVID-19 interventions by the Central Bank of Nigeria (CBN) prevented Nigeria from experiencing a larger contraction in Q2, 2020.
The key interventions and measures that CBN deployed to respond to disruptions caused by COVID-19 included a one-year extension of the moratorium on principal repayments for CBN intervention facilities; regulatory Forbearance was granted to banks to restructure loans given to sectors that were severally affected by the pandemic. Reduction of the interest rate on CBN intervention loans from nine to five per cent.
The Apex bank also strengthened the Loan to Deposit ratio (LDR) policy, which has resulted in a significant rise in loans provided by financial institutions to banking customers. Loans given to the private sector have risen by over 21 per cent over the past year.
There is also the creation of a N100bn credit facility for affected households and small and medium enterprises through the NIRSAL Microfinance Bank; the creation of an N100 billion intervention fund in loans to pharmaceutical companies and healthcare practitioners intending to expand and strengthen the capacity of our healthcare institutions as well as the N1 trillion facility in loans to boost local manufacturing and production across critical sectors.
How agric intervention contributed to GDP growth
In order to develop other sources of revenue as well as to protect the economy from perennial shocks occasioned by the drop in crude oil prices, the federal government has been paying more attention to the agricultural sector.
Indeed, that has prompted the Central Bank of Nigeria (CBN), through its Anchor Borrowers’ Programme (ABP), under its development finance function to continue to seek ways to support operators in the agricultural sector in order to create job opportunities and help preserve foreign exchange (forex) revenues.
The pilot phase of the ABP with rice cultivation that commenced in Kebbi State had proven to be a success, which was extended to other states.
The ABP programme was designed and introduced by the Governor, Central Bank of Nigeria, Mr Godwin Emefiele, to assist small scale farmers to increase the production and supply of feedstock to agro-processors.
The programme is aimed at creating an ecosystem to link out-growers (small holder farmers) to local processors, increase banks’ financing to the agricultural sector, enhance capacity utilization of agricultural firms involved in the production of identified commodities and as well as the productivity and incomes of farmers.
The anchor borrowers’ programme is also a platform to build the capacity of banks in agricultural lending to farmers and entrepreneurs in the value chain, reducing commodity importation. It is also expected to reduce the level of poverty among small holder farmers and create jobs while assisting rural small-holder farmers to grow from subsistence to commercial production levels.
Disbursements of over N260 billion to 1.28 million farmers under the Anchor Borrowers Scheme in 2020 to support the cultivation of key staple items by farmers.
Analysts have argued that sustained public sector interventions in agriculture are critical to the growth and transformation of the sector in Nigeria. This is due to the low level of investment in the sector compared to its huge potentials to create employment, generate wealth and reduce poverty
Giving his take on the intervention at a time, The Chief Executive Officer – BIC Consultancy Services, Boniface Chizea said: “I think the size of the intervention we have seen from the CBN is more than adequate to spur a growth trajectory. What we should worry about is effective deployment.
“If properly deployed, we will see a “V” curve as against a “U” curve recession and from there, we can go on to attain the two per cent growth projected for 2021”
A V-shaped recovery involves a sharp rise back to a previous peak after a sharp decline in these metrics. Because of the speed of economic adjustment and recovery in macroeconomic performance, a V-shaped recovery is a best-case scenario given the recession.
Chizea was quick to emphasise the need for the federal government to quickly address insecurity as that will have an impact on farmers and “the intervention in that sector may suffer once we lose the opportunity of the planting season.”
The Managing Director of Kairos Capital, Sam Chidoka said: “My first reaction is to say better than nothing. The result is not the kind of growth we want to see because, with our potentials, the county should be growing at a minimum of six per cent. But the exiting recession is great.
“What this result also indicates is that we now need to look at the key sectors that have done well and improve on them whilst working to do more on the sectors that are lagging.
What was also obvious to me looking at the result is that we need to deal with the issue of security very urgently because looking at the performance of the sub-sectors, Agric grew by 3.4 per cent despite all the issues of securities around the adoption of farmers, farmers headers clash which has impacted the sectors.
“So if we can resolve that, Agric should be able to do more. The same goes for animal farming and fisheries.”
According to a Professor of Capital Market at the Nasarawa State University, Keffi, Uche Uwaleke, the government should channel the bulk of its loans to financing infrastructure, especially off-grid quick power solutions.
He opines that the NBS report has a number of lessons: The first is that the Nigerian economy can actually survive without the oil sector. The growth rate in Q4 2020 was powered by the Non-oil sector which recorded a positive growth of 1.69% despite a deep contraction in the oil sector by as much as over 19%. Information and Communications, Agriculture and Real Estate sectors were among the top performers.
“The second lesson is that the Agriculture sector remains a game-changer, contributing over 24% to real GDP and posting a growth rate of 3.42% from about 1.3% in the previous quarter. This is remarkable and largely reflects the increased interventions in this area, especially by the CBN. This should be sustained and possibly ramped up.
“The third lesson is that crude oil output is critical to the oil sector’s performance. Despite relatively higher crude oil prices in Q4 2020, the sector’s performance was dismal due largely to the declining trend in average crude oil production from over 2 million barrels per day in the first quarter of 2020 down to 1.56 million barrels per day in the last quarter. The OPEC cut agreement notwithstanding, it is important to ensure that the drop is not due to plant shutdowns and vandalism.
“Going forward, now that the economy has turned the corner, earlier than predicted, it is time to focus on achieving strong growth that is inclusive. By implication, more attention should be focused on jobs and reducing the high rate of unemployment and poverty.”
He said the will require, among others, an aggressive approach to increasing food output by facilitating access to credit by farmers and SMEs, collaborating with State governments to address rural infrastructure deficit as well as insecurity.
Uwalake said doing so will help bring down food inflation which is exerting the most pressure on the general price level.
“That the government heeded the advice of many including the CBN not to impose another lockdown in the wake of the rising COVID-19 cases in Q4 2020 helped economic recovery.”