June 3, (THEWILL)- The Q1 2024 gross domestic product (GDP) report by the National Bureau of Statistics (NBS) which showed a growth of 2.9 percent (year-on-year), was not favourable to the real sector – agriculture and manufacturing mainly. The real sector which is the main job creating window that drives economic growth has been lagging over the years. Although oil and gas which sustains the economy has been receding remarkably, it continued to be the major foreign exchange earner but with limited job-creating opportunities.
According to the NBS report, agriculture recorded a poor 0.18 percent growth (year-on-year) in Q1 2024 in real terms. Although this was an increase of 1.08 percent points from the corresponding period of 2023, the performance represents a decrease of 1.92 points from the preceding quarter which recorded a growth of 2.1 percent. It grew on a negative quarter-by-quarter basis at -32.25 percent.
This strategic sector, in real terms, recorded a declining performance in its contribution to the overall GDP during the period (Q1 2024) with 21.02 percent against 2.66 percent in the preceding quarter. It was also lower than the 26.11 percent achieved in the corresponding quarter of 2023.
“The declining performance of agriculture in our GDP growth is remarkably challenging. It points to a bleak future and should trigger worries among the leadership of the country, especially those whose responsibilities have to do with achieving a buoyant agricultural sector for enhanced economic growth,” said Dr Aguba Nwaneme, an agro-allied practitioner.
Of the four sub-activities that make up the agricultural sector — crop production, livestock, forestry and fishing — crop production, the major driver, was the most impacted. It suffered most from the worsening insecurity across the country as many famers have deserted their farms to live in the IDP camps. The few that managed to produce are constrained in evacuating their produce due to insecurity, bad roads and countless checkpoints where they experience extortion and attack by hungry residents.
This contributes to the unprecedented high food inflation recorded in the country in recent times. The NBS reports that food inflation hit an all-time high of 40.53 percent in April and was the major driver of the 33.69 percent inflation rate in April – the highest in 20 years.
In the same vein, the manufacturing sector which is another major employer of labour, suffered a decline in Q1 2024. The NBS report revealed that the manufacturing sector, in real terms, recorded a growth of 1.49 percent (year-on-year) which is 0.12 percent points lower than in the corresponding period of 2023, but 1.74 percent of 0.12 points higher than in the preceding quarter.
“The Real contribution to GDP in the 2024 first quarter was 9.98 percent lower than the 10.13 percent recorded in the first quarter of 2023 and higher than the 8.23 percent recorded in the fourth quarter of 2023”, the report stated.
The Services sector has remained the main driver of Nigeria’s GDP growth in recent years against oil and gas and the real sector thouth it recorded mixed performance indices in the reporting period.
In Q1 2024 the services’ real GDP grew by -18.27 percent (year-on-year). This growth was higher by 1.78 percent points than the growth recorded in the same period of the previous year, and lower by 18.32 percent points from Q4 2023. Quarter-on-quarter growth was -33.37 percent. The sector contributed 2.51 percent to real GDP in Q1 2024, lower than the 3.17 percent recorded for the corresponding quarter of 2023 and lower than the 3.17 percent recorded in Q4 2023.
An Economist and CEO BIC Consultancy, Dr Boniface Chizea applauded the impact of the services sector on the GDP, but observed that the lag in the real sector is not a healthy development for the economy.
“We must be thankful for little mercies. At least we are growing. There are countries in the world that cannot manage the sort of growth we have. The yardstick is that your GDP growth must be in excess of the rate of growth of your population. But who says services do not provide employment? They do! It is just that real sector growth has more multiplier effects and therefore more impactful.,” Chizea said in a note to THEWIL.
Aside from worsening the unemployment situation, the receding fortune of agriculture impacts severely on the consumer goods firms which are also major activity areas in the real sector. Findings showed that Nigeria’s agricultural sector has been on a continued decline since 2017. This is not good news for the consumer goods firms who depend on the sector for local sourcing of their raw materials under the backward integration scheme.
According to data by the NBS, aside from the second quarter (Q2) of 2016 when agriculture achieved a real gross domestic product (GDP) growth rate of 4.5 percent year-on-year, the sector has maintained an uninterrupted slide in seven years (2017 – 2023).
In Q2 2017, agriculture declined to a growth rate of 3.01 percent (from 4.5 percent in the corresponding period of the previous year), before it hit 1.19 percent in Q2 2018. The fortune of this strategic sector, which is the largest employer of labour, rose marginally to 1.79 percent in Q2 2019, then plunged to 1.58 percent in Q2 2020.
Although the overall GDP growth rate rose to 3.40 percent in Q2 2021 from -1.92 percent in the previous year’s equivalent period, the positive trend did not impact on agriculture: The sector, instead, nosedived to a 1.3 percent growth rate in Q2 of that year. It then sank deeper to 1.2 percent in Q2 2022, before recording a stunted growth of 1.50 percent in Q2 2023.
In all, while the overall contribution of agriculture to GDP hovered on the average of 23 percent during the seven-year period, the receding fortune of this sector was a major concern to the consumer goods firms. This is because the consumer goods firms rely significantly on agriculture to source their local raw materials under the backward integration policy.
Backward integration is a practice where companies are encouraged to cultivate their own raw materials by purchasing from their suppliers or establishing farms to grow produce for their factories. The government put the scheme in place to save foreign exchange, create jobs, boost domestic productivity and grow the GDP. On a positive note, the initiative was well received in the real sector.
The consumer goods firms keyed into the scheme and have since taken giant strides in its implementation. This is to the benefit of the small and medium enterprises (SME), especially those engaged in the agriculture value chain and transport.
For instance, Nigerian Breweries stepped up local production of sorghum and cassava to boost local raw material supply for its plants. The 78-year-old consumer goods firm has made significant strides towards large-scale cultivation of sorghum and industrial application since the 80’s.
Similarly, FrieslandCampina WAMCO Nigeria developed its local raw milk sourcing in a bid to support backward integration, an initiative that has proved a source of sustained income to almost 2,000 farmers (including 900 women).
Incidentally, these projects have been negatively impacted by the receding fortune of agriculture occasioned by lingering structural supply-side challenges. These include rising insecurity, infrastructure deficits, inadequate storage facilities, logistical challenges, multiple taxes, extortion, amongst others.
The projects are now severely challenged by the myriad of environmental obstacles across the states where the farms are established and the value chain is threatened. This is bad news for the economy amid GDP growth.
The umbrella body of major manufacturers in Nigeria, the Manufacturers Association of Nigeria (MAN) recently declared that 767 manufacturing companies shut down while 335 others became distressed in 2023 thereby worsening the unemployment situation in the country which is abou 40 percent.
“Undoubtedly, macroeconomic instability will continue to disrupt production plans, jeopardize investments, and cloud the sector’s prospects. For instance, the current monetary stance will amongst others result in further decline in manufacturing competitiveness; disruption of manufacturing value chain; and further reduction in access to credit,” said Segun Ajayi-Kadir, Director General of MAN;
Sam Diala is a Bloomberg Certified Financial Journalist with over a decade of experience in reporting Business and Economy. He is Business Editor at THEWILL Newspaper, and believes that work, not wishes, creates wealth.
