- Predicts higher growth in second quarter
BY FESTUS OKOROMADU
Financial experts at Financial Derivatives Company Limited have blamed the unimpressive Gross Domestic Product reported in the first quarter of 2023 on the Naira redesign policy introduced by the Central Bank of Nigeria in the fourth quarter of 2022.
However, this view is contrary to what the National Bureau of Statistics claims to be responsible for the decline in the growth rate
The NBS had stated in its latest report that Nigeria’s GDP grew by 2.31 percent (year-on-year) in real terms in the first quarter of 2023, adding that the growth rate declined from 3.11 percent recorded in the first quarter of 2022, and 3.52 percent in the fourth quarter of 2022.
“The reduction in growth is attributed to the adverse effects of the cash crunch experienced during the quarter,” NBS stated in its report.
But, FDC, in its monthly publication said, “the slowdown in Q1’23 growth was mainly driven by the crippling effect of the naira redesign policy, which began in Q4’22.”
While acknowledging the fact that the first quarter of the year is usually characterized by a decline in business activities, the financial advisory firm expressed optimism that the 4.35 percent growth in the service industry during the first quarter is an indication that the economy can do better when the right policies are put in place.
Consequently, FDC has predicted that GDP growth in Q2’23 would be slightly higher than what was reported in Q1 due to an increase in cash in circulation of more than 100 percent between February and April.
“The increase in cash availability will support business activities and even consumer demand which would sustain the country’s PMI in the expansion territory in the coming month,” it said.
It expressed worry that the continuous rise in the MPR would keep borrowing costs high, stifling business expansion plans and possibly output levels.
“The main sectors affected by the naira cash scarcity were the real sectors due to the fact that most trade and even agricultural activities in these sectors are informal and rely heavily on cash”
While on the demand side, rabid inflation will keep eroding consumer disposable income, and tapering aggregate demand.
Meanwhile, the NBS report revealed that the GDP performance in the first quarter of 2023 was driven mainly by the Services sector, which recorded a growth of 4.35 percent and contributed 57.29 percent to the aggregate GDP. The agriculture sector grew by -0.90 percent, lower than the growth of 3.16 percent recorded in the first quarter of 2022.
Although the growth of the industry sector improved to 0.31 percent relative to – 6.81 percent recorded in the first quarter of 2022, agriculture, and the industry sectors contributed less to the aggregate GDP in the quarter under review compared to the first quarter of 2022.
Reviewing the NBS report, FDC said, “In line with analysts’ expectations, Nigeria’s Q1’23 GDP fell to 2.31 percent from 3.52 percent in Q4’22. The non-oil sector, which had steadily grown since the third quarter of 2022, experienced its first slowdown to 2.77 percent in Q1’23 from 3.30 percent in the previous quarter. Meanwhile, the oil sector contracted by 4.21 percent, an improvement from the -13.38 percent growth recorded in the last quarter of 2022. The higher growth level in the oil sector was attributed to the increase in the country’s average domestic oil production, which rose to 1.51 million barrels per day (mbpd) from 1.34 mbpd in Q4’22, owing to the government’s increased efforts to curb oil theft and vandalism.
“Of the 46 activities tracked by the NBS, only 12 sectors expanded during the review period, compared to the 17 sectors recorded in Q4’22 and the 25 sectors in Q1’22. Some of these sectors include financial institutions (24.96%), telecommunication (11.71%), road transport (8.02%), and air transport (19.45%).
“On the other hand, the contracting and slowing sectors accounted for 73.91 percent of total business activities in Q1’23 and were mostly those affected by the naira cash scarcity which hindered their ability to hire more employees. Some of which include crop production (1.93%), livestock (-30.57%), rail transport (-49.08%), and insurance (-8.01%). Notably, the agriculture sector contracted for the first time in the last ten years by 0.9 percent from 2.05 percent in Q4 ’22 with the manufacturing and trade sectors slowing to 1.61 percent and 1.31 percent respectively.
“The main sectors affected by the naira cash scarcity were the real sectors due to the fact that most trade and even agricultural activities in these sectors are informal and rely heavily on cash. These sectors jointly employ about 60 percent of the country’s workforce and the contraction in their activities was able to drag down GDP growth. Although traders in these sectors began using e-payment systems in the latter stages of the cash crisis, it was still insufficient to increase the PMI above the 50-points expansion benchmark (42.3 points) in March.”
