Is Nigeria Really Out of Recession? By Nnaemeka Obiaraeri

Nnaemeka Obiaraeri

I have read screaming headlines on different platforms, media outlets and forums on Wednesday hailing the exit of Nigeria from recession. Headlines like, “Oh great, finally Nigeria exits recession”. “Wow! Oil GDP grew by 1.65%”. The excitement is so suffocating that many of those commenting had not bothered to analyse the underlying assumptions, causative factors of this surge and its sustainability over time.

I am deeply worried by the excitement in certain quarters that we have exited recession, without first of all, interrogating the numbers to identify what the key drivers are and how sustainable they can be even in the short run.

I don’t mean to burst anyone’s bubble or sound pessimistic. I also do not by any means desire to downplay the fact that we have a very resilient population and a country with the greatest demographic potential to emerge stronger than we ever imagined, if only a majority of us (both the leaders and the led) will learn to tell less lies, stop baseless propaganda, banal/empty rhetoric, indolence, voodoo analysis and become, less boisterous, and face facts as they truly are with hard nose empiricism.

Statistics from the National Bureau of Statistics show that the GDP growth rate for the second quarter 2017, inched up by 0.55 per cent, a leap from the negative figure of -0.52 per cent recorded in the first quarter and year on year growth of 2.04 per cent from Q2 2016. This is coming at the back of the warning by the Governor of the Central Bank of Nigeria, Godwin Emefiele, that great works must be done on the fiscal side of the economy to prevent the economy from slipping back into recession. The key major sectoral drivers of the GDP growth, according to that report, are oil and gas, agriculture, manufacturing, trade and financial services.

Now, let’s separate the facts from fiction. Let’s separate the rhetoric from the realities. How did this recovery happen and how do we sustain it to avoid us slipping back into recession?

For the purpose of this comparative analysis, I shall select randomly four key items within the four key sectors of the economy that drove the GDP growth according to the NBS report. The items include mining, quarrying, oil and gas

Crude production and natural gas: From the NBS report, it was shown that Nigeria earned N1,449,406,116,700.42/$4,752,151,202.30 from crude oil production and export in Q2 2017, compared to the sum of N1,347,988991,567.66/$4,419,636,037.93 in Q1. This represents a quarterly growth of eight per cent.

Looking at the average crude oil prices per barrel over the intervening periods under review, the projected prices of crude oil per barrel over the next six months (as the inventory overhang of OPEC members dwindles) and the current relative peace in the Niger Delta region (cessation of hostilities and attack of oil facilities by the militants), you will see clearly that there is still much head room for this particular GDP growth item to rise in the next two quarters as we ramp up production from the current level to the 2.2million per day budget estimate levels. Now the million dollar question is: What is the Buhari government doing to sustain the existing relative peace in the Niger Delta region, in the light of the recent October 1 quit notice by some militants? How do they plan to ramp up output from the current level to 2.2million barrel per day in the next two quarters? There is so much growth head room in this area if sustainable and lasting solutions are provided for the seasonal problems and agitations in that region. So-restructuring, resource control and passage of the PIB that allows host communities 10 per cent participation in crude oil earnings are key solutions that we cannot shy away from.

Manufacturing: Crude oil refining/refined petroleum products. Another key sector that contributed to the 0.55 per cent GDP growth, according to the NBS report, is the crude oil refining. The Minister of State for Petroleum Resources, Ibe Kachikwu, even predicted that prices of petroleum products would crash within six months.

Let us critically review developments in this key item under manufacturing to see how sustainable it is. The NBS report shows that the value of refined products increased from N27, 206,957,751.94 in Q1 2017 to N47, 391,309,124.44 in Q2 2017. On the face value and to the non-discerning observer/properly informed analysts, this is a whopping 74 per cent increase and should be commended. However, this is not a true reflection of the reality on the ground. The reality on the ground actually shows a very pathetic, abysmal, woeful and deplorable level of performances in that key area of manufacturing.

A drill down of the figures above show that we only increased the refining capacity of our three existing refineries from 2,061,914 million litres per day in Q1 to 3,591,611 litres per day in Q2 2017. Kindly note that the daily PMS consumption in Nigeria is over 32 million litres per day. Which simply means that over 95 per cent of our refined petroleum product consumption are still imported. Recall that we waste over $6-10billion annually importing refined white petroleum products into Nigeria.

Thus, critically reviewing this latest NBS report, we can see clearly that the three refineries are not even producing up to three per cent of their installed name plate capacities. This is a very abysmal refining output in the light of the promises made in the second quarter of 2015 by the current government that they would bring the refineries to optimum capacity production within two years. Currently, the average landing cost of the PMS, our major energy consumption need is around N142 per litre. The NNPC through the PPMC currently spends over N35-42billion monthly and over N400bn annually to indirectly subsidise the prices of the refined PMS even at the current market price of N145 per litre. These are monies that ordinarily should have gone into the distributable Federation Account to be shared amongst the three tiers of government if the NNPC had allowed the market to be fully deregulated and had gone ahead to fix or totally concession the existing refineries for optimal production as they promised in 2015. It is deceitful for the authorities to boast of crashing the prices of the PMS through indirect subsidy and waste of our commonwealth to sustain consumption, instead of through genuine manufacturing activities (refining) which will actually lead to true and tangible growth of our GDP via production.

The question remains, why have the Presidency and the authorities in Abuja refused to concession, sell off or fix these three refineries with combined refining capacity of 445,000 barrels per day? Why have they not executed this refinery co-location concept since 2015? Who and what are they waiting for? Are they delaying fixing them until Dangote’s private refinery comes on stream in 2019? These are the kind of questions Nigerians should be asking from those they elected instead of having unnecessary orgasmic excitement over nothing.

Agriculture: Another key sector that drove the economic recovery is agriculture. That sector grew by three per cent from Q1 to Q2. The major driver within that sector is crop production which rose to over N5tn in Quarter 2 from N4.6tn in Q1. This is one sector with enormous growth potential if the fiscal authorities, especially, the Minister for Agriculture can sit down (while engaging the appropriate stakeholders) to do their work scientifically rather than engage in needless media untruths. One of such unnecessary lies is the news that over 80 per cent of our annual rice consumption are now produced locally. So, the million dollar question remains: If the domestic rice production in Nigeria now accounts for 80 per cent of the local demands/consumption, how come the market price of a 50kg bag of rice has inched up from N7,500 in 2015, when local production was 40 per cent, to the current N16,500 when the domestic production has inched up to a whopping 80 per cent of our demand/consumption? Enough of these lies, please.

Financial services: This is another sector that grew significantly from N930bn in Q1 to N1.013tn in Q2. This sector is the engine room of the economy, because of the critical role of financial intermediation in any economy. To ensure the continued growth of this sector, both the fiscal authorities and especially, the monetary authorities must take urgent steps to address the lingering liquidity challenges in that sector and the high ratio (14 per cent) of Non-Performing Loans in the banking sector. The huge public sector borrowing is crowding out the private sector borrowers and unless this is urgently addressed, we will never sustainably migrate from recession to true economic recovery.

To ensure that we do not slip back into recession, those responsible for managing our economy at all levels must shun the temptation to play to the gallery and redouble efforts to ensure that we moderately tackle/bring down the cost of funds in the system, drastically tackle the seemingly intractable energy challenges in Nigeria, fix or concession the refineries, concession our rail network and transport system (both existing and new ones, but first amend the moribund 1955 Railway Act to accommodate this), straighten enterprise management and enhanced operational/system efficiency in the public sector. They should set up a properly manned Special Projects Advisory/Monitoring Units in the Presidency to coordinate set targets for all the MDAs. Without proper accounts management and properly defined sanction grids for target failures in the public sector, we shall continue to run in circles.

Finally, we must commence the process to totally restructure Nigeria. It is a MUST!

Dr Obiaraeri, a financial and investment analyst, wrote in from Lagos via nnaemeka.obiaraeri@taurus-capital.com 0900900989