Emeka Okoroanyanwu
Federal Government of Nigeria spent a total of N2.02 trillion in servicing debt in the first six months of this year. The amount is 90 per cent of the total revenue of N2.23 trillion generated by the country within the same period.
This was disclosed by Alfred Okon of the Budget Office last week, even as the Nigerian Bureau of Statistics (NBS) claimed last week that the country’s Gross Domestic Product (GDP) grew by 5.01%(year-on-year) in real terms in the second quarter of 2021, marking three consecutive quarters of growth following the negative growth rates recorded in the second and third quarters of 2020.
Nigeria’s average GDP growth has slowed to 1.7 per cent compared with the 4.8per cent recorded pre-recession before 2016. In 2017, the GDP growth was 0.8 per cent, while in 2018, it was 1.8 per cent. In 2019 and 2020, the GDP growth was 2.21 per cent and 1.92 per cent respectively, indicating a porous economy for a country that the population growth is exceeding 8.2 per cent annually. Cumulatively, the economy has grown less than o.5 per cent in the six years that the present government has been on the saddle.
Alfred Okon, an adviser to the Director-General of the Budget Office while presenting the “Overview of FGN 2022 Budget Call Circular” last week said Federal Government’s retained revenue was N2.23tn, about 67.58 per cent of pro-rata target of N3.3tn for the review period. However, Federal Government failed to realise the N1.07tn its projected revenue in the first half of the year.
Government’s total revenue in the period came from crude oil, N492.44bn; non-oil tax revenue, N778.18bn; Company Income Tax; N397.02bn; Value Added Tax, N129bn and revenue from Customs, N234.02bn. Revenues from other sources amounted to N922.09 billion.
Okon disclosed that the N2.02tn used to service debt in the first half of this year represented about 35 per cent of total government expenditure of N5.81tn.
On the expenditure side, he said that N5.81tn, representing 92.4 per cent of the prorated budget has already been spent. About N1.3tn had been released for capital expenditure, representing 22.3 per cent of total expenditure.
Experts are of the opinion that with the level of debt to income, the Nigerian economy is still in the woods as over 35 million citizens are at present below the poverty line, while the local currency, the Naira has fallen to a four-year low of N515 to one United States dollar.
There is fear that things may still get worse if nothing serious is done to reverse the downward trend.
Last month the World Bank had in its development Report said rising inflation pushed an estimated seven million Nigerians below the poverty line in 2020. Add this to the 28 million already feeding on less than one United States dollar per day, the figure of poor Nigerians will hit the 35 million mark.
The World Bank report was at variance with the declaration of President Muhammad Buhari in an interview recently that the economic policies of his government have pulled out about 10 million Nigerians out of poverty.
But the World Bank report attributed the rise in inflationary pressure to surging food prices, as Nigeria’s rate of inflation rose steadily throughout 2020 and reached a four-year high in March 2021.
Nigeria’s headline inflation rate, said the World Bank rose from 11.98% as of December 2019 to 15.75% at the end of 2020, and currently stands at 17.38% as at July 2021, while food inflation stood at 22.28% in July.
The report titled “Resilience through Reforms” however, noted that the Nigerian economy experienced a shallower contraction of 1.8% than the projected contraction of 3.2% at the beginning of the pandemic. Food prices accounted for over 60% of the total increase in inflation, said the report.
According to the World Bank Country Director for Nigeria, Shubham Chaudhuri, “Nigeria faces interlinked challenges in relation to inflation, limited job opportunities, and insecurity. While the government has made efforts to reduce the effect of these by advancing long-delayed policy reforms, it is clear that these reforms will have to be sustained and deepened for Nigeria to realize its development potential.”
Also, Marco Hernandez, the World Bank Lead Economist for Nigeria added that “Given the urgency to reduce inflation amidst the pandemic, a policy consensus and expedited reform implementation on exchange-rate management, monetary policy, trade policy, fiscal policy, and social protection would help save lives, protect livelihoods, and ensure a faster and sustained recovery.”
The report, however, acknowledged notable policy reforms by the government aimed at mitigating the impact of the crisis and supporting the recovery; including steps taken towards reducing gasoline subsidies and adjusting electricity tariffs towards more cost-reflective levels, both aimed at expanding the fiscal space for pro-poor spending.
In addition, the report highlighted that both the Federal and State governments cut nonessential spending and redirected resources towards the COVID-19 response. At the same time, public-sector transparency has improved, in particular around the operations of the oil and gas sector.
The report proposed three priority objectives that would help to reduce inflation and boost economic recovery to include implementing policies that support macroeconomic stability, inclusive growth, and job creation; protect poor households from the impacts of inflation and facilitate access to financing for small and medium enterprises in key sectors to mitigate the effects of inflation and accelerate recovery.
According to the NBS report in its recent growth projections, the Q2 2021 growth rate was higher than the -6.10% growth rate recorded in Q2 2020 and the 0.51% recorded in Q1 2021 year on year, indicating the return of business and economic activity near levels seen prior to the nationwide implementation of COVID-19 related restrictions.
NBS said the steady recovery observed since the end of 2020, with the gradual return of commercial activity as well as local and international travel, accounted for the significant increase in growth performance relative to the second quarter of 2020 when nationwide restrictions took effect. Year to date, real GDP grew 2.70% in 2021 compared to -2.18% for the first half of 2020. Nevertheless, quarter on quarter, real GDP grew at -0.79% in Q2 2021 compared to Q1 2021, reflecting slightly slower economic activity than the preceding quarter due largely to seasonality.
In the quarter under review, aggregate GDP stood at N39,123,713.32 million in nominal terms, higher than the second quarter of 2020 with aggregate GDP of N34,023,197.60 million, indicating a year on year nominal growth rate of 14.99%. The nominal GDP growth rate in Q2 2021 was higher than -2.80% growth recorded in the second quarter of 2020 when economic activities slowed sharply at the outset of the pandemic. The Q2 2021 nominal growth rate was also higher than 12.25% growth recorded in Q1 2021. For better clarity, the Nigerian economy has been classified broadly into the oil and non-oil sectors.
In the second quarter of 2021, average daily oil production stood at 1.61 million barrels per day (mbpd), which is -0.19mbpd lower than the average daily production of 1.81mbpd recorded in the same quarter of 2020 and -0.10mbpd lower than the 1.72mbpd recorded in the first quarter of 2021.
GDP grows Real growth of the oil sector was -12.65% (year-on-year) in Q2 2021 indicating a decrease of -6.02% points relative to the growth rate recorded in the corresponding quarter of 2020. Growth decreased by -10.44% points when compared to Q1 2021 which was -2.21%. For the first half of 2021, real GDP was recorded at -7.13%, compared to -0.80% for the first half of 2020, the performance reflecting lower oil output. Quarter-on-quarter, the oil sector recorded a growth rate of -20.35% in Q2 2021. The Oil sector contributed 7.42% to total real GDP in Q2 2021, down from figures recorded in the corresponding period of 2020 and down compared to the preceding quarter, where it contributed 8.93% and 9.25% respectively.
The non-oil sector grew by 6.74% in real terms during the reference quarter (Q2 2021). The Q2 2021 growth rate was higher by 12.80% points compared to the rate recorded in the same quarter of 2020 and 5.95% points higher than the first quarter of 2021. During the quarter, the sector was driven mainly by growth in Trade, Information and Communication (Telecommunication), Transportation (Road Transport), Electricity, Agriculture (Crop Production) and Manufacturing (Food, Beverage & Tobacco), reflecting the easing of movement, business and economic activity across the country relative to the same period a year earlier. In real terms, the Non-Oil sector contributed 92.58% to the nation’s GDP in the second quarter of 2021, higher from shares recorded in the second quarter of 2020 which was 91.07% and the first quarter of 2021 recorded as 90.75%.
Some experts have, however, doubted the NBS figures, saying the assumed growth did not reflect on the economy.
A senior lecturer in economics at the Pan Atlantic University, Olalekan Aworinde said on paper, the growth might exist but in reality it doesn’t. In the computation of GDP, he said, it was just the price of a particular commodity multiplied by the quantity of goods produced or the unit of services produced over time?
“Knowing full well that the prices of goods and services are on the increase, if we do the multiplication, on paper, it might exist but in reality, that is not the case. This is because even in the productive sector of economy, we have a situation whereby a lot of people are losing their jobs. It is worrisome,” he noted.
Another expert and professor of economics at the Olabisi Onabanjo University, Sheriffdeen Tella, noted that according to the report, key sectors of the economy didn’t record significant improvement, making it improbable for the GDP to witness a five per cent growth. He also noted that within the second quarter, the country continued to battle the challenges that were present in the first quarter.
“This GDP growth is doubtful; the NBS is just playing with figures. Also if you are to look critically at the report, you’ll see that there is no growth in the industrial sector as the sector recorded negative growth while the agricultural sector has slight positive growth.
“Those are the sectors that are supposed to generate employment and income. The sectors that they said are generating high level of growth such as transportation, trade, mining and so on; those sectors are serious employment generating units.
“What they should have told us is that because the price of oil has been rising, so we can now see that the GDP is growing. It is a matter of multiplying the price with the amount of oil we are exporting and then you get some growth. This is why despite the reported growth; it is not possible for Nigerians to see any positive change in our lives.
“The issue of insecurity and other militating factors are still there and are becoming worse. For instance, insecurity is seriously affecting agricultural output and the industrial sector; nobody wants to invest in an economy that is insecure.”
However, the Presidency expressed delighted over the report of GDP growth. In a statement by the Special Adviser to the President on Media and Publicity, Femi Adesina, titled ‘President Buhari lauds GDP 5.01 per cent growth in Q2 2021,’
Buhari said recent reforms and efforts like the conclusion of the Marginal Fields Bid Round, the renewed focus on gas development (including the NLNG Train 7 project, and various pipeline construction projects) as well as the passage and assent to the Petroleum Industry Bill, were certain to attract new investment to the oil and gas sector, and create conditions for more robust levels of growth in the future.
He said “It is gratifying to note that the various policies of the government, aimed at boosting agricultural production, improving the business environment, and investing massively in infrastructure, are beginning to yield fruit.
“Equally gratifying is the complementary news of the steady decline in the rate of inflation, over the last few months,” the statement said.
Also, the Director-General of the Lagos Chamber of Commerce and Industry, Dr Chinyere Almona, stated that the GDP growth by five per cent year on year compared with 0.5 per cent recorded in Q1 2021 was a strong and a more desirable growth. She said, “The loss of jobs due to the negative effects of the pandemic may have driven more people into the retail trade, commerce, and logistics. The positive growth in the transport subsectors like road and rail transport may have also had some positive impact on trade with the easing of movement.
“This is also evident that the Nigerian economy is recovering fast and sustained by the reduction in supply chain disruptions especially as there was no serious lockdown on economic activities in the second quarter. With this Q2 performance and if this is sustained, the growth projections for Nigeria will be reviewed upwards in the coming weeks.
“However, we must watch and respond appropriately to the major threats to this growth performance like the third wave of COVID-19 infections that could lead to restrictions of movement, the rising spate of insurgency, banditry, kidnapping, and the persistent farmer/herder conflicts,” she concluded.
The Abuja Chamber of Commerce and Industry reacting to the report called for concerted efforts to ease the many challenges facing the business sector in the country.
President of the chamber, Al-Mujtaba Abubakar, said the report was a welcome development especially in view of the very difficult security situation across the country and the many huddles facing Nigerian businesses.
He, however, noted that easing tax and other regulatory ropes on businesses would catapult the non-oil sector growth beyond 6.7 per cent recorded in the current data.
