Reflections On Q2 2017 Domestic Output Numbers, By Uddin Ifeanyi
…the moral of the story told by the output numbers for the second quarter is that the economy has been a beneficiary, not so much of government’s programmes to lift it out of the rut it was in, but simply of improved crude oil sales, and at higher global prices.
A set-piece was missing from the national response to data released (last week) by the official bean counters to the effect that domestic output grew by 0.55 percent (on an annual basis) in the April-June period. It still is something of a surprise that no one thought it fit to organise interdenominational prayers at mosques (on Friday) and churches (the following Sunday) to commemorate this happy fact. Otherwise, the hubbub around the data and its near-term import for the economy was fully justified. Six quarters of an economy in full retreat and of domestic inflation dashing forward at a fierce clip mean that for the better part of the incumbent administration’s stay in office, the “poor and vulnerable” segments of our population have come a cropper.
Given that the administration came into office on the back of this constituency’s frustration with the failure of the previous administration to democratise the gains from economic growth, the economy’s recent poor performance was always going to hurt the Buhari administration. How much succour the new numbers provide the Buhari government is moot, though. For prices of goods and services are still rising by more than 16 percent annually. Worse, food, an essential part of the “poor and vulnerable’s” shopping cart, has been rising much faster. What little chance there is of businesses investing in the economy in a way that supports increases in the current levels of employment (and hence, of stronger consumer spending) is held back by the government’s humongous appetite for borrowing. The monetary authority’s desire to maintain the real rate of return on naira-denominated asset, only compounds this process. Consequently, high local borrowing costs worsen already fraught conditions for doing business locally.
Add to all this the fact that a growth rate of 0.55 percent is not likely to move the needle of an economy with population growth more than 3 percent annually, and you begin to get a sense of the tasks before the managers of this economy. A task that we have spent the last two years in fierce debate over. A task, which unfortunately was always going to be met in the breach once the Buhari government persuaded itself that with Nigeria in the best of all possible conditions under its husbandry, all is for the best.
Even at that, the output numbers recently released by the National Bureau of Statistics (NBS) are a cautionary tale of sorts. We may have emerged from recession, but in doing so, we were only able to persuade growth in 14 of the economy’s 46 activity sectors. Trade, telecommunications & information services, and real estate sectors all saw output fall. Together, these sectors account for more than a third of domestic output. Agriculture, this government’s poster child, and the recipient of innumerable central bank-led funding initiatives, grew a lot less in the second quarter than it did in the first quarter. Despite the sound and fury that has accompanied OPEC’s efforts to keep global crude oil prices elevated, the second quarter output numbers for the crude petroleum and natural gas sector did signify much. The sector did very well — not just in absolute terms (up by 17.24 percent on the first quarter of the year), but especially relative to the deep funk that it fell into in the third quarter of last year (the oil sector was up 13.26 percent on the rate recorded in the corresponding quarter of 2016).
…despite the muscular efforts of proponents of the incumbent administration’s successes in office, we still have not done anything to strengthen the economy’s resilience to external shocks, nor enough to boost its capacity to cater to the needs of a larger part of its people.
In other words, the moral of the story told by the output numbers for the second quarter is that the economy has been a beneficiary, not so much of government’s programmes to lift it out of the rut it was in, but simply of improved crude oil sales, and at higher global prices. Put differently, despite the muscular efforts of proponents of the incumbent administration’s successes in office, we still have not done anything to strengthen the economy’s resilience to external shocks, nor enough to boost its capacity to cater to the needs of a larger part of its people. If government programmes failed to properly support the economy’s growth ambitions, could they have hurt it? The evidence from the manufacturing sector’s performance in the second quarter of the year would seem suggestive of a tentative “yes” as the answer to this question. The NBS reports real GDP growth in the second quarter of this year of 0.64 percent, 0.72 percent “lower than the rate recorded in the preceding quarter”.
Critics of the Central Bank of Nigeria’s (CBN) intervention in the foreign exchange markets in support of a “healthy” naira have long described it as an arbitrary usurpation of the functions of what is arguably the economy’s most powerful tool for adjusting to external shocks. The CBN, on the other hand, routinely points to the real sector’s foreign exchange funding needs in defence of its policy. If, despite the monetary authority’s best efforts in this regard, the real sector continues to tread water, is it time, then, to reverse the policy and let automatic adjustments to the price mechanism allocate domestic resources?
Yes, would have been an obvious (and immediate) response, but for a peculiarly Nigerian conversational device. Despite the CBN’s illustrious work trying to keep the naira in fine fettle, see how the real sector has fared. Imagine how much worse its fortune would have been if it were denied the CBN’s life-support?
An interesting counter-factual this seems at first blush. Problem is that it assumes what must be proved as part of its set of proofs.
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