—low oil prices shrink economy
—Rise in unemployment
—Non-oil sector contracted by -0.4
—Inflation hits 17.1
—Agriculture grew by 4.5 per cent
Nigeria’s economy officially slid into technical recession for the first time in more than 20 years as the National Bureau of Statistics NBS, announced a further contraction in the second quarter of the year. An economy is in recession when the goods and services produced within the economy do not expand for two consecutive quarters.
NBS in a report signed by Nigerians Statistician General Dr Yemi Kale said yesterday in its report on the economy that Nigeria’s Gross Domestic Product GDP at constant basic prices, contracted by 2.06 percent in the second quarter after shrinking 0.36 in the first quarter. It said that the non-oil sector declined due to a weaker currency, while lower prices dragged the oil sector down.
A slump in crude prices, Nigeria’s mainstay, has hammered public finances and the value of the naira, causing foreign exchange shortages. Crude sales account for around 70 per cent of government revenues. Compounding the impact of low oil prices, attacks by militants on oil and gas facilities in the southern Niger Delta hub since the start of the year has cut crude production by about 700,000 barrels per day (bpd) to 1.56 million bpd. The government’s 2016 budget assumed 2.2 million bpd.
The National Bureau of Statistics said “Quarter on quarter, real GDP increased by 0.82 per cent during the quarter while nominal GDP was N23, 483,954.78 million in nominal terms at basic prices. It said that annual inflation reached 17.1 percent in July from 16.5 percent in June – a more than 10-year high – and food inflation rose to 15.8 percent from 15.3. Nigeria’s sovereign dollar bonds fell across the curve to their lowest value in more than two weeks after the NBS released its data.
“The Nigerian economy contracted more deeply than we had expected in the second quarter,” said Razia Khan, chief economist, Africa at Standard Chartered bank.
“With a wider current account deficit it remains important for Nigeria to maintain a credible policy response, in order to attract much-needed stabilising inflows,” she added.
The NBS figures showed Nigeria attracted just $647.1 million of capital in the second quarter, a 76 per cent fall year-on-year and 9 per cent down from the first quarter.
Nigeria’s economy was last in recession, for less than a year, in 1991, NBS data shows. It also experienced a prolonged recession from 1982 until 1984.
“The key point from today’s data is that there was a very poor performance across almost the entire economy,” John Ashbourne, an economist at London-based Capital Economics Ltd., said. “Every engine has blown out.” The economy as a whole expanded 0.8 percent compared with the previous quarter, according to NBS. That means Nigeria avoided a technical recession, Cobus de Hart, an analyst at NKC African Economics in Paarl outside Cape Town, said.
While the government planned to stimulate the economy with a record N6.1 trillion budget this year, it delayed approving the spending plans as President Muhammadu Buhari haggled with lawmakers over allocations. The government collected N1.16 trillion in revenue, or about half of what it expected, in the second quarter compared with N1.27 trillion in the previous three months, the central bank said in a report.
“There is a limit to what the federal government, with its limited tax collections and expenditures can really do at an economy-wide level,” Alan Cameron, an economist at Exotix Partners LLP, said. “One obvious area of improvement would be the power sector.”
The slump in oil, the nation’s biggest revenue earner, as well as shortages of foreign currency and power could cause the economy to shrink 1.8 per cent this year, according to the International Monetary Fund. That would be Nigeria’s first full-year contraction since 1991, according to data from NBS. The economy will fare better in 2016 than the IMF forecast, Adeyemi Dipeolu, a special adviser on economic matters to Buhari, said in an e-mailed statement on Wednesday.
“We are likely to see better growth numbers coming through in the third and fourth quarters, but it’s unlikely to make up for the really poor performance of the first half of the year,” Ridle Markus, an Africa strategist at Barclays Plc’s unit in Johannesburg, said.
The oil sector the NBS said contracted by -17.5 per cent year on year compared with -1.9 per cent in the first quarter of 2016. The non-oil sector contracted by -0.4 per cent year on year compared with a contraction of -0.2 per cent recorded in the first quarter 2016. For the non-oil economy, manufacturing contracted by -3.4 per cent compared with -7.0 per cent in the first quarter of 2016. The slower contraction is attributed to base effects as foreign exchange sourcing issues are biting hard on manufacturers and power shortage was at its peak in the second quarter.
According to NBS “Agriculture grew by 4.5 per cent year on year compared with 3.1 per cent recorded in the first quarter. Growth in the sector was driven by crop production output”. It said that construction sector contracted by -6.3 per cent year on year compared with a contraction of -5.4 per cent in the first quarter. The NBS stated the “delays in execution of the budget as well as slowdown in demand from the private sector contributed to the continued slowdown. Education grew by 2.9 per cent year on year compared with 3.8 per cent”. In the case of Finance and Insurance NBS said that it contracted by -10.8 per cent year on year in the second quarter compared with -11.3 per cent in the first quarter.
Commenting on the NBS data FBNCapital said “There are no major surprises in this release as we expected a contraction in the second quarter of the year. Given the macro challenges, steep slide in oil prices, production shortages due to vandalism, foreign exchange sourcing issues in an import dependent country and hike in inflation, the negative reading was a foregone conclusion. Technically, given that Nigeria’s GDP has now showed a decline for two consecutive quarters, the economy is in recession”.
According to the minister of Finance, Mrs. Kemi Adeosun, this recession will be short-lived. However, she stressed that FGN is committed to stimulating the economy through its capital releases, social intervention programs, import substitution strategies, tackling the oil production crisis in the Niger Delta and policies geared towards attracting foreign portfolio and direct investments.
“Although we expect to begin to see signs of recovery as we enter the fourth quarter, there is still a lot of work to do and delays in releasing capital could also delay the recovery. There is also a risk that revenue collection shortfalls may led to capital expenditure cuts. Our 2016 GDP growth forecast is -1.2 per cent FBNCapital said
Unemployment rises by 1.78 %
Nigeria recorded employment of 106.69 million persons aged between 15 and 64 in the second quarter of 2016, a 0.65 per cent higher than 106.00 million recorded in the first quarter.
Dr Yemi Kale said economically active population or working age population such as persons between 15 and 64 years increased from 106.00 million in first quarter to 106.69 million in second quarter of 2016. “This represents a 0.65 per cent increase over the previous quarter and a 3.02 per cent increase when compared to second quarter of 2014. In the second quarter of 2016, the labour force population (those within the working age population willing, able and actively looking for work) increased to 79.9 million from 78.5 million in the first quarter of 2016. This represents an increase of 1.78 per cent in the labour force during the quarter,’’ he said.
According to Kale, this means 1.39 million persons from the economically active population entered the labour force, that is, individuals that were able, willing and actively looking for work.
“This magnitude of this increase between first and second quarters of 2016 is smaller when compared to four quarter of 2015 and first quarter of 2016, which was an increase of 1.59million in the labour force population. Within the reference period, the total number of person in full time employment, did any form of work for at least 40 hours, decreased by 351,350 or 0.65 per cent when compared to the previous quarter and also decreased by 749,414 or 1.38 per cent compared to second quarter of 2015.’’
He said with 106.69 million and 79.9million, it meant 26.8 million persons within the economically active or working age population decided not to work for one reason or the other in second quarter of 2016. “Hence, were not part of the labour force and cannot be considered unemployed,’’ Kale said.
The bureau describes the unemployed as those who were actively looking for work but could not find work for at least 20 hours during the reference week. “Accordingly, you are unemployed if you did absolutely nothing at all or did something but far less than 20 hours during the reference week.’’
