Nigeria's economy slowed down in Q2, with dire implications

Q2 GDP slowed to 1.94% from 2.10% in the first quarter of 2019
Q2 2019 was higher than Q2 2018 which recorded growth of 1.5%
Q1 GDP was revised upwards from 2.01% to 2.10%

The big picture: Economic growth is stalling

Gross Domestic Product (GDP) is the market value of all goods and services produced within an economy within a period of time, usually annually.

In the fourth quarter of 2018, October to December, Nigeria recorded 2.38% GDP growth. In the first quarter of 2019, January to March, GDP growth slowed to 2.10%. In the second quarter of 2019, April to June, growth slowed further to 1.94%.

Q1 2019 was revised upwards from 2.01% to 2.10% based on oil output revisions.

What was responsible for the growth stall?

The Nigerian economy is made up of the oil sector and non-oil sector. In Q2 2019, the non-oil sector contributed 91.18% to GDP while the oil sector contributed 8.82%.

The oil sector posted 5.15% growth in Q2 2019, compared to a negative figure of 1.46% in Q1. The Non-oil sector posted a lower growth figure in Q2 of 1.64% compared to 2.47% in Q1.

Source: NBS Pulse Nigeria

Components of the non-oil sector that contributed to the slowdown include Agriculture, which saw its growth fall to 1.79% in Q2 from 3.17% in Q1, Manufacturing, which contracted into negative territory of 0.13% in Q2 from positive growth of 0.81% in Q1, and Transportation and Storage which fell to 8.02% in Q2 vs 21.48% in Q1, among others.

Nigeria’s economic growth is not keeping up with population growth

According to Nigeria’s National Population Commission, the country had an annual population growth rate of 3.2% as at 2016.

GDP growth has neither matched nor exceeded population growth for 5 years. The implication of this is that Nigeria’s economy is not growing fast enough to cater to its population. This puts a strain on the nation’s healthcare and welfare resources, among others, and increases poverty among the citizenry.

Source: NBS Pulse Nigeria

What is the way forward?

The Federal Government of Nigeria has to implement bold reforms that will spur growth. Price controls on fuel (PMS), electricity, and the exchange rate have to be gradually released in order to attract foreign investment. The consequence of this will be a spike in inflation in the short term, but over the long term, inflation will moderate. Badly needed upgrades to infrastructure are also needed in order to get the nation on the path to meaningful economic growth.