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GDP grows by 1.95% in Q1, non-oil sector accounts for 90.3%

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• Analysts advocate easing of interest rates
• IMF wants revenue increased to service debt profile

Though the nation’s Gross Domestic Product (GDP) grew by 1.95 per cent (year-on-year) in real terms in the first quarter of 2018, financial analysts have advocated easing of monetary policy for sustainability.

Data released by the National Bureau of Statistics (NBS), yesterday, showed a stronger growth when compared with the first quarter of 2017, which recorded a growth of -0.91 per cent, indicating an increase of 2.87 per cent points. Compared to the preceding quarter, there was a decline of -0.16 per cent points from 2.11 per cent. Quarter on quarter, real GDP growth was -13.40 per cent.

Real growth of the oil sector was 14.77 per cent (year-on-year) in Q1 2018. This represents an increase of 30.37 per cent points, relative to rate recorded in the corresponding quarter of 2017, while the non-oil sector grew by 0.76 per cent in real terms during the period under review.

The non-oil sector was driven mainly by agriculture (crop production); other drivers were financial institutions and insurance, manufacturing, transportation and storage, information and communication. In real terms, the non-oil sector contributed 90.39 per cent to the nation’s GDP, lower than 91.47 per cent recorded in the first quarter of 2017 and 92.65 per cent recorded in the fourth quarter of 2017.

According to the NBS, aggregate GDP for the first quarter stood at N28.4 trillion in nominal terms. “This performance is higher when compared to the first quarter of 2017, which recorded a nominal GDP aggregate of N26.028 trillion, thus presenting a positive year-on-year nominal growth rate of 9.36 per cent. This rate of growth is however lower, relative to growth recorded in Q1 2017 by -7.70 per cent points at 17.06 per cent, but higher than the preceeding quarter by 2.14 per cent points at 7.22 per cent.”

Speaking on the data, the Chief Executive of Financial Derivatives Company Limited, Bismarck Rewane, said the growth notwithstanding, the economy needs stimulus from the budget that was recently passed, and low interest rate to aid the numbers.He noted that the growth recorded was driven by the services sector, and that interest rate sensitive sectors, like manufacturing and agriculture, need to be complemented with monetary policies.He warned that it could take longer for the economy to recover if the Central Bank of Nigeria (CBN) retains key monetary policy rates, and called for a stimulus.

“The CBN is not in charge of fiscal policy. There is need to maintain price stability. The problem in the country has to do with unemployment, among others, even as growth slowed down in the critical sectors. The sectors that will deal with unemployment need to be stimulated. Vulnerability to shocks needs to be addressed,” he said.He added: “Issues that affect the everyday man need to be addressed. Election is not an issue if unemployment is reduced, as it would reduce dysfunctional behaviours in the society.”

For the Lagos Chamber of Commerce and Industry (LCCI), monetary policies should address access to funds and cost of funds for many domestic investors.According to the President, Babatunde Ruwase, “With commercial banks’ lending rate at between 20-35 per cent, depending on the borrower and other factors such as acceptability of collateral, it is very difficult for the private sector to successfully access fund, especially the SMEs. Investors in many sectors cannot finance projects profitably at an interest rate above 10 per cent. These sectors are majorly agriculture, real estate, solid minerals.”

Considering that yields on fixed income securities in the country have declined sharply in the last few months, despite the CBN retaining the Monetary Policy Rates, an Investment Analyst with Afrinvest, Omotola Abimbola, said there is need for deeper commitment by the Federal Government in implementing key fiscal policies.

Compared to the GDP figures in Q4 2017, Abimbola said the Q1 figures reflect a disappointing figure, as consumer confidence remains low.“For the equities market, a lesser than expected growth may have a negative sentiment on the market. However, foreign investor portfolio would help to address that sentiment. While it is appropriate to cut down on interest rates at this time, we expect the Monetary Policy Committee to retain rates at their meeting. The trigger for rates cut will be Foreign Direct Investments driving inflow in key sectors of the economy rather than in short term instruments,” said Abimbola.

Environmental Economist with the Federal University of Agriculture, Abeokuta (FUNAAB), Prof. Bola Okuneye, noted: “The increase in budgetary allocation is commendable, but the issue is if it will be retained. If under-spending is also addressed, the GDP contribution will increase. However, with the budget only recently passed, how much impact should we expect from it?

“Interventions in agriculture need to increase. The implementation of government policies is weak and people are not being encouraged. There are other policies that weaken the good policies that government initiates for the sector. We need more farms and also need to bring more people into the sector.”

Meanwhile, the International Monetary Fund (IMF) has advised Nigeria to increase its revenue to service its debt profile.The Senior Resident Representative and Mission Chief for Nigeria, African Department, IMF, Amine Mati, gave the advice, yesterday, at the public presentation of the Spring 2018 issue of the Sub-Saharan Africa Regional Economic Outlook (REO) in Lagos.

Mati said: “Revenue mobilisation at 6 per cent in Nigeria is low and the government is aware of it. It is aiming at growing it at 15 per cent of GDP. And we think it is the right way, because by increasing revenue, you will be able to reduce interest payment to revenue and have more resources available for priority spending.”

He projected the Nigerian economy would grow by 2.1 per cent in 2018, from 0.8 per cent in 2017.In her remarks, the Director-General of Debt Management Office (DMO), Patience Oniha, explained: “The new debt management strategy, which we introduced last year, seeks to moderate the growth of interest extent by shifting some of the growth externally. The debt service is a function of the interest paid on borrowings as well as revenues.”

She added: “The critical part is that revenue has been low. We are still borrowing because there are positions for borrowing in the budget, which we are all aware of. But in terms of how much it costs us to borrow, we are working actively on reducing that, and reducing the refinancing risk that we have with Treasury Bills every 90 days, every six months.”

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