August 29, (THEWILL) – Notwithstanding the 5.01 percent growth attained by the Nigerian economy in the second quarter of 2021 (Q2 ’21), the continued shrink in the agricultural sector has created serious concern among those who believe that the trend could erode any gains that the GDP ‘growth’ might have created.
The National Bureau of Statistics (NBS) in a report released last Thursday, (August 26) said the economy recorded a Gross Domestic Product (GDP) growth of 5.01 per cent (year-on-year) in Q2 ’21. This marks three consecutive quarters of growth following the negative growth rates recorded in the second and third quarters of 2020. The report shows that the Q2 ’21 growth rate was higher than the -6.10 percent growth rate recorded in Q2 ’20 and the 0.51 percent recorded in Q1 2021.
According to the bureau, the report indicates the return of business and economic activity near levels seen prior to the nationwide implementation of COVID-19-related restrictions.
“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,” the report stated.
Year-to-date, real GDP grew 2.70 per cent in 2021, compared to -2.0 percent for the first half of 2020. Further analysis of the report showed that on a quarter-on-quarter basis, real GDP grew at -0.79 percent in Q2 ’21, compared to Q1 ’21, reflecting slightly slower economic activity than the preceding quarter due largely to seasonality.
But the continued decline in the agricultural sector is creating a serious worry among Nigerians who see the trend as portending an unpleasant omen for the economy as the sector hit an all-time low in Q2 ’21.
In the review period (Q2 ’21), the agricultural sector grew by 1.30 per cent (year-on-year) in real terms, a decrease of -0.28 percent points from the corresponding period of 2020, and a decrease of -0.97 percent points from the preceding quarter, which recorded a growth rate of 2.28 percent. On a half-year basis, the sector grew 1.77 percent in 2021, compared to 1.88 percent for Q1 ’20. On a quarter-on-quarter basis, the sector grew at 5.55 percent.
By contribution, the sector accounted for 23.78 per cent of overall GDP in real terms in Q2 ’21, lower than the contribution in Q2 ’20, which stood at 24.65 percent, but higher than Q1 ’21 which recorded 22.35 percent.
Further study of the report showed that the Q2 ’21 figure was the lowest since 2012 published, as published by NBS when the sector recorded a growth of 6.7 percent followed by 2.94 percent in 2013. In the following year, 2014, the agricultural sector grew by 4.27 percent and dropped 3.72 percent in 2015.
The figures for the following years were 4.11 percent, 3.45 percent and 2.12 percent in 2016, 2017 and 2018 respectively. The sector recorded 2.36 percent and 2.17 percent in 2019 and 2020 respectively, before nose-diving to 1.3 percent in Q2 ’21.
The shrink in the performance of the agricultural sector reflects in the high cost of food, which has been the trend for a long time. A report by Nairametrics (an online business platform) in 2020 showed that Nigeria’s food inflation rose by 110.5 percent in five years, between September 2015 and September 2020.
“A comparison of the Composite Food Index within the period under review indicated that food inflation rose from 181.8 index points to 382.7 index points. This means that the price of food items has not only increased, but more than doubled in the last five years of President Muhammadu Buhari’s administration,” the report said.
Following the continued rise in food prices, the World Bank recently observed that high food prices have sent an estimated seven millions of Nigerian citizens into poverty, thus worsening the worrisome situation of about 87 million people living on less than $1.87 a day, according to the World Poverty Clock. Although the inflation rate has been on a downward trend in the past four consecutive months, after hitting an all-time high of 18,17 percent in March, the figure still remains worrisomely high at 17.38 percent in July 2021.
On food inflation, the report revealed that the composite food index rose 21.03 percent in July 2021 compared to 21.83 percent in June 2021, reflecting the continued rise in food prices in June, but at a slightly slower speed than it did in June which is still high.
Commenting on the declining fortune of the agricultural sector as shown in the Q2 ’21 GDP report, the Managing Director of Cowry Asset Management Limited, an investment banking firm, Mr Johnson Chukwu, observed that the consistent decline in agriculture should be a source of concern to Nigerians because of the impact on the economy.
“The poor performance of the agric sector has a huge impact on inflation because of its significant place in the economy. Until there is a real growth in agriculture we are not likely to feel the impact of the GDP growth”, he said on national television while analysing the NBS report.
He added, “We are seeing a slowdown in a sector that accounts for about a quarter of our GDP. If we do not arrest it, it has the capacity of pulling the economy back into negative and that might push the economy into another recession.”
In another television conversation, Dr Bunmi Bajemo, Group Head, Corporate Banking Manufacturing Group at First Bank, noted that the 5.01 percent GDP growth reflects the trend in the economy following the full recovery of activities after COVID-19 restrictions when virtually every sector was shut down.
However, the full return to activities in the air and land transport, manufacturing, trade and others pushed the GDP from 0.51 percent in the Q1 ’21 to 5.01 percent in Q1 ’21 (year-on-year). “But if you compare the GDP growth between Q1 ’21 and Q2 ’21, you see a growth of 2.7 percent, that is not something to celebrate because there is still a significant slowdown,” she said.
A significant performance in the GDP report relates to the performance of the non-oil sector which showed tremendous improvement during the period. The non-oil sector grew by 6.74 percent in real terms during the reference quarter (Q2 2021). The Q2 2021 growth rate was higher by 12.80 percent 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 percent 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 percent and the first quarter of 2021 recorded as 90.75 percent.
An economist and Chief Executive Officer, BIC Consultancy Services, Dr Boniface Chizea, expressed delight at the GDP growth recorded in the preview period. He noted that it was the highest growth point since 2014 and points to the direction of the right actions being taken to reposition the economy after the COVID-19-induced recession. He also applauded the significant growth in the non-oil sector.
As indicated in this report, the non-oil sectors of trade, Information technologies, transport (road), agriculture (crops) and manufacturing ( Food, beverages & tobacco) accounted for this growth. We should therefore do well to concentrate efforts on these sectors. The performance of the oil market contrary to what most of us expect is currently underwhelming.
“With current daily production rate of 1.6 million barrels per day (mbpd) relative to 1.8 mbpd in 2020 the pandemic year, the extent of the slowdown could be better appreciated. And this to a large extent is due to the loss of our traditional customers exacerbated by economic slowdown across the globe because of the pandemic,” Chizea said in a note to THEWILL.
Offering explanations on why the apparent improvement in our economic situation is not felt at the level of the common man on the street, the renowned economist said, “The reasons for this situation are not far-fetched. With an unemployment rate of 33 percent, that is, one-third of the workforce is out of job and inflation rate at 17 percent; the misery index in the land (unemployment rate× inflation rate) remains relatively unsustainably high! So there you have your explanation.”
“But we must find comfort in the fact that if the trends being now witnessed in the economy is sustained, that before too long we might begin to witness the glimmer of light at the end of the proverbial tunnel
Chukwu and Chizea agreed that closer attention should be paid to the engine of the GDP which the key non-oil sectors represent. According to Chukwu, Nigeria must address the ravaging insecurity across the country, which is affecting farming, farmers and movement of farm produce across the country. He also wants the collapsing infrastructure fixed to facilitate economic activities.
Chizea noted that the mainstay of the economy has always been Agriculture which contributes over 20 per cent to our GDP, “But the fortunes in that sector is currently undermined by the insurrection in the land which has denied farmers access yield per hectare for most farming is well below global standards, driving up the cost of whatever is left to be sold to Nigerians.”
The worsening spate of insecurity has a serious effect on agriculture because farmers also face the challenge of flooding and famine, which affect their ability to plant and harvest. Post-harvest challenges also persist. This leaves the farmers to contend with middlemen, transportation, storage and extortion by government revenue officials across the states and local government areas. Consequently, there is far less farm produce reaching the final consumer, which largely explains the rising price of food despite positive GDP growth.