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With Population Growth at 2.7%, Nigeria Still Not Out of the Woods



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  • With Population Growth at 2.7%, Nigeria Still Not Out of the Woods

Notwithstanding that the Nigerian economy turned the corner by recording an expansionary GDP growth rate in the second quarter (Q2) of 2017, Nigerians, especially the country’s policymakers, should be under no illusion that the economy is out of the woods.

Although the GDP figures released by the National Bureau of Statistics (NBS) Tuesday showed that the economy grew by 0.55 per cent in Q2 2017, affirming that the economy has finally exited the recession, concerns remain that the growth could stutter, given the nation’s high population growth rate of 2.7 per cent and the attendant low income per capita, uncertainty in the oil markets, tepid consumer spending, and high inflation and unemployment rates.

It is noteworthy that the muted Q2 2017 growth rate of 0.55 per cent (year-on-year) was 2.04 per cent higher than the corresponding quarter of 2016 (-1.49%) and higher by 1.46 percentage points over the -0.91 per cent recorded in the preceding quarter, but 1.95 percentage points lower than the South African economy, which like Nigeria exited its recession in the same period under review by growing by 2.5 per cent.

According to the report, Nigeria’s economic recovery was driven principally by the performance of four main economic activities comprising oil, agriculture, manufacturing and trade.

Clearly, the growth rate was driven mainly by oil sector GDP, which recovered significantly by 17.04 percentage points from the -15.40 per cent recorded in Q1 2017 to 1.64 per cent in Q2 2017, reflecting the relative peace in the Niger Delta and increased oil output from the region.

Expectedly, this rubbed off positively on the electricity and gas sector, which also grew significantly by 35.5 per cent, compared to the contractions of 5.04 per cent in Q1 2017 and 10.46 per cent in Q2 2016.

Nevertheless, while oil GDP expanded considerably in the second quarter of 2017, non-oil GDP only grew slightly by 0.45 per cent, down from 0.72 per cent in the preceding quarter.

The non-oil sectoral breakdown showed that the agriculture sector, which should be the main growth driver in the government’s quest to diversify the economy, grew by only 3.01 per cent in Q2 2017, down from 3.39 per cent in Q1 2017 and 4.53 per cent in Q2 2016.

Manufacturing also declined to 0.64 per cent, compared to 1.36 per cent in Q1 2017, while trade which has a dominant share of GDP remained negative at -1.62 per cent, but the contraction in the sector decelerated from the -3.08 per cent recorded in Q1 2017.

The NBS report further showed that industry grew positively by 1.45 per cent in Q2 2017, after nine consecutive quarters of negative growth since Q4 2014.

Similarly, financial services sector grew by 11.78 per cent in Q2 2017, compared to 0.60 per cent in Q1 2017 and -13.24 per cent in Q2 2016.

But while the figures showed that the economic contraction appears to have petered out, Nigeria’s per capita income did not grow fast enough because its population growth rate of almost 3 per cent outpaced GDP growth.

Of greater significance, the Q2 2017 growth rate was primarily oil sector driven, which should sound a note of caution to the managers of the economy and policy makers, because further growth in the sector would most likely be muted in subsequent quarters, and bring to the fore the need to implement policies that would drive non-oil sector growth.

Indeed, Lagos-based Financial Derivatives Company (FDC), a financial advisory and research firm, pointed out that as the economy slowly crawled out of the recession, there was evidence to show that Nigeria is afflicted by general poverty, with abject poverty in the North-eastern part of the country.

The per capita income is used to measure the average income in a given population, and is used to compare the wealth of one population with those of others. It also measures a country’s standard of living and helps to ascertain a country’s development status. It is one of the three measures used for calculating the Human Development Index (HDI) of a country.

Buttressing his firm’s view in a phone chat with THISDAY Tuesday, the chief executive of FDC, Mr. Bismarck Rewane, explained that with the growth rate at 0.55 per cent and population growth at 2.7 per cent, the situation remains dire because Nigeria produces 14,000 children everyday.

At 0.55 per cent, the output growth rate can only cater to 3,000 children, he said.

“So, if you go by growth alone, 11,000 children would starve to death. What this means is that your growth rate is below your population growth rate, so for you to take care of the unemployed, you would need to grow at about 5.5 per cent. And we are far below what is needed to start celebrating.

“All you will see in Nigeria now is that everybody would want to start taking credit for what they did not do. What happened was essentially driven by increased oil production, so nobody should take any credit for that.

“Secondly, the sectors that recorded growth were electricity and gas, trade and financial services. Electricity went up because the pipelines were not sabotaged and we saw a spectacular performance in the sector.

“Trade performed because of the improved availability of foreign exchange to the sector. In terms of financial services, all they did was basically to take deposits and buy treasury bills, while credit to the private sector contracted.

“Now, the sectors that went down were agriculture, manufacturing, construction and real estate, because all of these were hit by high-interest rates. The implication is that if we don’t bring down interest rates, growth is going to be anaemic,” he warned.

In comparing Africa’s two largest economies, Rewane said the reason the South African economy grew by 2.5 per cent while the Nigerian economy stuttered to 0.55 per cent was because the South African central bank reduced interest rates, thus making access to capital cheaper for businesses and individuals.

“We cannot grow our economy if interest rates remain high and the government continues to crowd out the private sector. All the financial services sector did was to invest in treasury bills; that is what drove growth in the sector.

“Meanwhile, the real sectors of the economy such as manufacturing and agriculture suffered because they could not borrow at the high-interest rates offered by the banks. That was the main differentiator between Nigeria and South Africa,” he said.

Also, although the Chief Economist for Africa at Standard Chartered Bank, Razia Khan, welcomed the transition back into positive territory for the Nigerian economy, she said she had expected stronger growth.

According to Khan, while improved oil production had driven some of the recoveries, she said the output numbers provided by NBS (1.84 million bpd) suggested that a further upside from this source might be limited.

This, Khan warned, “is not at all a robust GDP print” for the country.
“We also need to take into account that the revised estimate for Q1 GDP growth had an even sharper contraction in GDP at the start of the year (-0.91% year-on-year from -0.52% previously).

“So while many will focus on the headline move back into positive territory, some of that optimism must necessarily be tempered. It still falls far short of the growth rates the Nigerian economy should be achieving.

“The one hope is that an improved forex backdrop will see further acceleration in the non-oil GDP performance over the coming months. Improved execution of the capital expenditure budget should also help,” she noted.

To Lagos-based CSL Stockbrokers Limited, the capital flows which had exited the Nigeria economy last year due to unclear monetary policies, inflationary pressures, and foreign exchange illiquidity, were now flowing back into the economy following the forex policy changes in February.

The firms stated further that with the introduction of the investors’ and exporters’ FX window (I &E window), and the subsequent harmonisation of FX rates, foreign investors that previously sat on the sidelines were fast moving back into Nigeria.

In all, the consensus among analysts was the need for badly needed structural reforms to take Nigeria out of the woods.

The reforms, they posited, should be a combination of monetary and fiscal policies that would create jobs, increase the disposable income of Nigerians and lift more citizens out of poverty.

The good thing is that the federal government’s response to the GDP data released by the NBS Tuesday has been subdued.

This was the surest sign that the managers of the economy were very conscious of the fact that the figures were merely esoteric and would only be felt when living standards begin to look up.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and, with over a decade experience in the global financial markets.


Gold Hits Eight-Month Low as Global Optimism Grows Amid Rising Demand for Bitcoin



Gold Struggles Ahead of Economic Recovery as Bitcoin, New Gold, Surges

Global haven asset, gold, declined to the lowest in more than eight months on Tuesday as signs of global economic recovery became glaring with rising bond yields.

The price of the precious metal declined to $1,718 per ounce during London trading on Thursday, down from $2,072 it traded in August as more investors continue to cut down on their holdings of the metal.

The previous metal usually performs poorly with rising yields on other assets like bonds, especially given the fact that gold does not provide streams of interest payments. Investors have been jumping on US bonds ahead of President Joe Biden’s $1.9 trillion coronavirus stimulus package, expected to stoke stronger US price growth.

We see the rising bond yields as a sign of economic optimism, which has also prompted gold investors to sell some of their positions,” said Carsten Menke of Julius Baer.

Another analyst from Commerzbank, Carsten Fritsch, said that “gold’s reputation appears to have been tarnished considerably by the heavy losses of recent weeks, as evidenced by the ongoing outflows from gold ETFs”.

Experts at Investors King believed the growing demand for Bitcoin, now called the new gold, and other cryptocurrencies in recent months by institutional investors is hurting gold attractiveness.

In a recent report, analysts at Citigroup have started projecting mainstream acceptance for the unregulated dominant cryptocurrency, Bitcoin.

The price of Bitcoin has rallied by 60 percent to $52,000 this year alone. While Ethereum has risen by over 660 percent in 2021.


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Crude Oil

Oil Prices Extend Gains to $64.32 Ahead of OPEC+ Meeting




Oil Prices Rise to $64.32 Amid Expected Output Extension

Oil prices extended gains during the early hours of Thursday trading session amid the possibility that OPEC+ producers might not increase output at a key meeting scheduled for later in the day and the drop in U.S refining.

Brent crude oil, against which Nigeria oil is priced, gained 0.4 percent or 27 cents to $64.32 per barrel as at 7:32 am Nigerian time on Thursday. While the U.S West Texas Intermediate gained 19 cents or 0.3 percent to $61.47 a barrel.

“Prices hinge on Russia’s and Saudi Arabia’s preference to add more crude oil production,” said Stephen Innes, global market strategist at Axi. “Perhaps more interesting is the lack of U.S. shale response to the higher crude oil prices, which is favourable for higher prices.”

The Organization of the Petroleum Exporting Countries (OPEC) and allies, together known as OPEC+, are looking to extend production cuts into April against expected output increase due to the fragile state of the global oil market.

Oil traders and businesses had been expecting the oil cartel to ease production by around 500,000 barrels per day since January 2021 but because of the coronavirus risk and rising global uncertainties, OPEC+ was forced to role-over production cuts until March. Experts now expect that this could be extended to April given the global situation.

“OPEC+ is currently meeting to discuss its current supply agreement. This raised the spectre of a rollover in supply cuts, which also buoyed the market,” ANZ said in a report.

Meanwhile, U.S crude oil inventories rose by more than a record 21 million barrels last week as refining plunged to a record-low amid Texas weather that knocked out power from homes.

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Crude Oil

Oil Dips Below $62 in New York Though Banks Say Rally Can Extend




Oil Dips Below $62 in New York Though Banks Say Rally Can Extend

Oil retreated from an earlier rally with investment banks and traders predicting the market can go significantly higher in the months to come.

Futures in New York pared much of an earlier increase to $63 a barrel as the dollar climbed and equities slipped. Bank of America said prices could reach $70 at some point this year, while Socar Trading SA sees global benchmark Brent hitting $80 a barrel before the end of the year as the glut of inventories built up during the Covid-19 pandemic is drained by the summer.

The loss of oil output after the big freeze in the U.S. should help the market firm as much of the world emerges from lockdowns, according to Trafigura Group. Inventory data due later Tuesday from the American Petroleum Institute and more from the Energy Department on Wednesday will shed more light on how the Texas freeze disrupted U.S. oil supply last week.

Oil has surged this year after Saudi Arabia pledged to unilaterally cut 1 million barrels a day in February and March, with Goldman Sachs Group Inc. predicting the rally will accelerate as demand outpaces global supply. Russia and Riyadh, however, will next week once again head into an OPEC+ meeting with differing opinions about adding more crude to the market.

“The freeze in the U.S. has proved supportive as production was cut,” said Hans van Cleef, senior energy economist at ABN Amro. “We still expect that Russia will push for a significant rise in production,” which could soon weigh on prices, he said.


  • West Texas Intermediate for April fell 27 cents to $61.43 a barrel at 9:20 a.m. New York time
  • Brent for April settlement fell 8 cents to $65.16

Brent’s prompt timespread firmed in a bullish backwardation structure to the widest in more than a year. The gap rose above $1 a barrel on Tuesday before easing to 87 cents. That compares with 25 cents at the start of the month.

JPMorgan Chase & Co. and oil trader Vitol Group shot down talk of a new oil supercycle, though they said a lack of supply response will keep prices for crude prices firm in the short term.

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