The Q3 report released by the Nigerian Bureau of Statistics (NBS) showed that Nigeria’s economy has slid into recession for the second time in four years.
“Nigeria’s gross domestic product (GDP) recorded a growth rate of -3.62% (year-on-year) in real terms in the third quarter of 2020. Cumulatively, the economy has contracted by -2.48%,” the NBS said in the report.
It noted further that while the report represents an improvement of 2.48% points over the -6.10% growth rate recorded in the preceding quarter (Q2 2020), it also indicates that two consecutive quarters of negative growth have been recorded in 2020, and growth in Q3 was slower by 5.90% points when compared to the third quarter of 2019 which recorded a real growth rate of 2.28% year on year.
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The decline in GDP growth was attributed to the downturn in oil revenue and restrictions to movement and economic activity implemented across the country in early Q2 in response to COVID-19 pandemic.
However, the report noted that following the lifting of the restrictions and reopening of businesses, there have been notable improvements in economic activities resulting in positive growth. A total of 18 economic activities recorded positive growth in Q3 compared to 13 activities in Q2 2020.
“During the quarter under review, aggregate GDP stood at N39,089,460,61 million in nominal terms. This performance was 3.39% higher when compared to the third quarter of 2019 which recorded an aggregate of N37,806,924,41 million,” said the report. But it added that the rate was, however, lower relative to growth recorded in the third quarter of 2019 by -9.91% points buy higher than the proceeding quarter by 6.19% points.
Nigeria’s GDP is 90 percent oil-based; therefore, the economy took a nosedive as the pandemic plummeted global oil revenue.
The NBS report said the oil sector was -13.89% (year on year) in Q3 2020, indicating a sharp contraction of -20.38% points relative to the rate recorded in the corresponding quarter of 2019.
“Real oil growth decreased by -7.26% points when compared with oil sector growth recorded in Q2 2020 (6.63%),” it said, adding that quarter on quarter, the oil sector recorded a growth rate of 9.64% in Q3 2020. The sector made a contribution of 8.73% to total real GDP in Q3 2020, down from 9.77% and 8.93% respectively recorded in the corresponding period of 2019 and the preceding quarter Q2 2020.
Non-oil sectors also took a hit from the pandemic. Apart from the telecommunication and agricultural sectors, others were totally vulnerable to the health crisis.
The non-oil sector grew by -2.51% in real terms during the reference quarter, which is -4.36% points lower than the rate recorded in Q3 2019 but 3.54% higher than in the second quarter of 2020. Construction, Financial and insurance institutions, and public administration were among the sectors that revved up the non-oil sector contribution to the real GDP.
“In real terms, the non-oil sector contributed 91.27% to the nation’s GDP in the third quarter of 2020, higher than its share in the third quarter of 2019 (90.23%) and the second quarter of 2020 (91.07%),” said NBS.
The International Monetary Fund (IMF) said it expected Nigeria’s economy to contract by 4.3% in 2020 from 2.2% in 2019 and later recover with a growth rate of 1.7% in 2021.
While the recession has been expected due to the pandemic-induced economic turmoil, the Nigerian government’s preparedness and economic sustainability plan seem far from the recommended framework to exit the recession.
As the oil economy dwindles, the Nigerian government has resorted to borrowing and increasing taxes. Nigeria’s total debt increased from N28.63 trillion ($79.3bn) in March to N31.01 trillion ($85.9bn) in June, according to data from the Debt Management Office.
The minister of finance Mrs. Zainab Ahmed said recently that the government will increase Value Added Tax from 7.5% to 10% in attempt to increase government’s revenue generation. That is in addition to other newly introduced taxes such as Stamp Duty Charge.
The IMF had warned that imposition of taxes will do more harm than good to countries hardly hit by the pandemic, and advised the Nigerian government to grant tax waivers to businesses instead. It also said the recovery focus should remain on medium-term macroeconomic stability, with revenue-based fiscal consolidation essential to keep Nigeria’s debt sustainable and create fiscal space for priority spending.
However, Nigeria’s government decision to shut its land borders has cast doubt on its readiness to implement the IMF’s recommended Economic Recovery Growth Plan. Nigeria’s macroeconomic stability has a strong root in intra-African trade. Many SMEs have been shut out of business following the land border closure.
Therefore, the road to economic recovery to the 1.7% growth rate predicted by the IMF seems far as the oil revenue remains plummeted, and the federal government of Nigeria has shown no indication that the border will be reopened soon.