Q4 2023 GDP Figures Indicate Economy Fast Adjusting to Tinubu’s Reformation Policies

Policy Statement 07

The latest Gross Domestic Product (GDP) numbers from the National Bureau of Statistics (NBS) have shown in many ways that the Nigerian economy is not only fast adjusting but also adapting to the national economic reforms being spearheaded by the President Bola Ahmed Tinubu administration. The reformation is headlined by the twin policies of fuel subsidy removal and unification of the foreign exchange rates.

Whereas the GDP figures of the third quarter (Q3) 2023, which was the first full quarter of the administration, envinced national economic production activities data which reacted sharply to the introduction of the two policies,the economy recorded a marginal increase in the GDP growth trajectory for the year which had commenced an incremental momentum in Quarter 1 (Q1) 2023 by a 2.31 percent growth.

Though the figure was, in reality, a reflection of a 1.21 percent decline from a high of 3.52 percent growth recorded in the fourth quarter, 2022 (Q4 2022), the Q2 2023 GDP added some form of velocity when it grew by .20 percent to 2.51 percent. The half-year momentum,  however,  balked when the then new administration of President Tinubu announced on the May 29, 2023 inauguration day that it had removed the very popular payment of subsidy for Premium Motor Spirit (PMS) also known as petrol.

A few days later on 14 June 2023, the Central Bank of Nigeria, taking a cue from the fiscal authorities, announced the unification of all segments of foreign exchange market, effectively shutting down all privileged access to the multiple windows forex market, that had enabled round tripping and other forms of profiteering from the forex market to the detriment of the nation’s foreign exchange reserve in particular and the larger economy, in general.

From our reading of the national economy, the deployment of the two policies was received with a form of equanimity by economic agents in the country. In quarter three 2023, being the first full quarter of the implementation of the subsidy removal and unification of Forex rates, the economy,  as reflected in the GDP figures, did not go down as some critics had anticipated. Rather, it grew by a marginal 0.3 percent in Q3 2023, to 2.54 percent from 2.51 percent in Q2 2023. That razor thin marginal increase was easily explained away as the consequence of the two policies that now constitute the drivers of the national economy.

Some other critics had predicted actual decline in the economy with macroeconomic indicators returning stressful figures. The inflation rates had hugged a high of 26.72 percent in September, 2023. In December 2023, inflation rate sped to a historic high of 28.9 percent amidst high food inflation rate of 33.93 percent while the Naira to Dollar exchange rate at the black market closed the year at N1200/$. This scenario for many commentators was the equivalent of the proverbial Sword of Damocles literally hanging over the head of the country. But the Q4 2023 GDP figure recently released by the NBS is a reflection of strong growth compared to Q3 2023. This is indicative of a resilient economy that is in ascendancy.

By our consideration, if there was any doubt concerning the appropriateness of the deployment of the subsidy removal policy and the floating of the Naira exchange rate policy in Q3 2023, all that doubt evaporated with the strong showing of the GDP in Q4 2023, with a figure indicating an expanded national economic production value that grew by 3.46 percent (year-on-year), in real terms.

Though we acknowledge that the figure is lower than the 3.54 percent of the corresponding Q4 2022, for context, as a body of analysts, we dichotomized the GDP aggregation periods into the “business as usual” economic era, and the “economic reform” era. The period starting from June, 2023 represents the reform era.

Up until this moment, the national economy has continued to manifest different characterisations of macroeconomic disruptions across all indicators from high inflation rate to high interest rate,  and high exchange rates to high unemployment rate. 

In the ordinary sense, not many analysts gave the reform-era economy a fighting chance to grow as exponentially as it did in Q4 2023, despite the hoopla that had characterised the reactions to the two policies in the public space.

Though analysts attributed the relatively high GDP figure of Q4 2023 to a low base effect, yet, to our minds, the emerging reality is that the Nigerian economy appears to have been waiting for this hypodermic intervention to wean the populace off unmitigated consumption. This will enable the government channel earned revenue to savings and productivity enhancing infrastructure. Besides, a sectoral analysis of the GDP Q4 2023 showed even more interesting undercurrents in the different sectors that make up the national economy.

The NBS explained that the performance of the GDP in Q4 2023 was driven mainly by the services sector, which recorded a growth of 3.98 per cent and contributed 56.55 per cent to the aggregate GDP. Impressively, the agriculture sector grew by 2.10 per cent, from the 2.05 per cent recorded in Q4 2022. 

This, in our consideration, may have provided answers to questions over the level of preparedness of the federal government to feed its citizens in the aftermath of the subsidy removal, and unification of the exchange rate. This will inexorably lead to depreciation of the local currency thereto.

As it were, the increase in the growth of the agricultural sector, as reflected in increased crops production, is indicative of more jobs because agriculture, besides the food security implication,  is a major enabler of employment.

Directly linked with this, is the equally impressive 3.86 percent growth in the industry sector as encapsulated in the manufacturing sector. This is an improvement on the lowly -0.94 per cent recorded in the fourth quarter of 2022. In addition to this, the sector grew by 30.93 percent in 2023 compared to 6.93 percent in 2022 on an annual basis. It is, indeed, exhilarating to finally see a big movement in the percentage contribution of manufacturing to GDP recording a high of 17.34 percent. This is despite the envisaged constrictions of possible low productivity in the sector as a consequence of the twin policies highlighted above by some critics and cynics.

This expansion in Manufacturing GDP should be a source of excitement because it is a key driver that propels progress in a nation’s economy. It is a powerful force that revolves on the growth, productivity, and competitiveness trajectories. A nation’s overall economic growth can greatly depend on robustness and performance of the manufacturing sector.

Besides, the manufacturing sector is a high labour-absorbing sector that can create direct employment. It can also create indirect employment for supply chain actors in other sectors of the economy such as raw materials suppliers, logistics and transportation, farmers, miners etc.

In addition, manufacturing helps to expand the tax base (number of taxable people and entities) and tax returns. This is because taxes are paid by both manufacturers and workers which ultimately increases the nation’s revenue. 

The manufacturing sector currently accounts for about 30percent of Nigeria’s Non-Import VAT and 26percent of its Company Income Tax. Given its potential to empower skills development, facilitate increased export and global competitiveness, andQ4 2023 GDP Figures Indicate Economy Fast Adjusting to Tinubu’s Reformation Policies.

The latest Gross Domestic Product (GDP) numbers from the National Bureau of Statistics (NBS) have shown in many ways that the Nigerian economy is not only fast adjusting but also adapting to the national economic reforms being spearheaded by the President Bola Ahmed Tinubu administration. The reformation is headlined by the twin policies of fuel subsidy removal and harmonisation of the foreign exchange rates.

Whereas the GDP figures of the third quarter, Q3 2023, which was the first full quarter of the administration, envinced national economic production activities data which reacted sharply to the introduction of the two policies, the economy recorded a marginal increase in the GDP growth trajectory for the year which had commenced an incremental momentum in Quarter 1 (Q1 2023) by a 2.31 percent growth.

Though the figure was, in reality, a reflection of a 1.21 percent decline from a high of 3.52 percent growth recorded in the fourth quarter, 2022 (Q4 2022) the Q2 2023 GDP added some form of velocity when it grew by .20 percent to 2.51 percent. The half-year momentum,  however,  balked when the then new administration of President Tinubu announced on the May 29, 2023 inauguration day that it had removed the very popular payment of subsidy for petroleum motor spirit (PMS).

A few days later on 14 June, 2023, the Central Bank of Nigeria, taking a cue from the fiscal authorities, announced the unification of all segments of foreign exchange market, effectively shutting down all privileged access to the multiple windows Forex market that had enabled round tripping and other forms of profiteering from the forex market to the detriment of the nation’s foreign exchange reserve in particular and the larger economy, in general.

From our reading of the national economy, the deployment of the two policies was received with a form of equanimity by economic agents in the country. In quarter three, Q3 2023, being the first full quarter of the implementation of the subsidy removal and unification of Forex rates, the economy, as reflected in the GDP figures, did not go down as some critics had anticipated. Rather, the economy grew by a marginal 0.3 percent in Q3 2023, to 2.54 percent from 2.51 percent in Q2-2023. That razor thin marginal increase was easily explained away as the consequence of the two policies that now constitute the drivers of the national economy.

Some other critics had predicted actual decline in the economy with macroeconomic indicators returning stressful figures. The inflation rates had hugged a high of 26.72 percent in September, 2023. In December, 2023, inflation rate sped to a historic high of 28.9 percent amidst high food inflation rate of 33.93 percent while the Naira to Dollar exchange rate at the black market closed the year at N1200/$. This scenario for many commentators was the equivalent of the proverbial Sword of Damocles literally hanging over the head of the country. But the Q4 2023 GDP figure recently released by the NBS recently is a reflection of strong growth compared to Q3 2023 and indicative of a resilient economy that is in ascendancy.

By our consideration, if there was any doubt concerning the appropriateness of the deployment of the subsidy removal policy and the floating of the Naira exchange rate policy in Q3-2023, all that doubt evaporated with the strong showing of the GDP in Q4 2023, with a figure indicating an expanded national economic production value that grew by 3.46 percent (year-on-year), in real terms.

Though we acknowledge that the figure is lower than the 3.54 percent of the corresponding Q4 2022, for context, as a body of Analysts, we dichotomized the analysis of the GDP aggregation periods into the “business as usual” economic era and the “economic reform” era. The period starting from June, 2023 represents the reform era.

Up until this moment, the national economy has continued to manifest different characterisations of macroeconomic disruptions across all indicators from high inflation rate to high interest rate to high exchange rates and high unemployment rate, thus, in the ordinary sense, not many analysts gave the reform-era economy a fighting chance to grow as exponentially as it did in Q4 2023, not in the face of the hoopla that had characterised the reactions to the two policies in the public space.

Though analysts attributed the relatively high GDP figure of Q4 2023 to a low base effect, yet, to our minds, the emerging reality, as it were, is that the Nigerian economy appears to have been waiting for this hypodermic intervention to wean the  populace off unmitigated consumption and channel earned revenue to savings and productivity enhancing infrastructure. Besides, a sectoral analysis of the GDP Q4 2023 showed even more interesting undercurrents in the different sectors that make up the national economy.

The NBS explained that the performance of the GDP in Q4 2023 was driven mainly by the services sector, which recorded a growth of 3.98 per cent and contributed 56.55 per cent to the aggregate GDP. Impressively, the agriculture sector grew by 2.10 per cent, from a growth of 2.05 per cent recorded in Q4 2022. This, in our consideration, may have provided the answer to questions over the level of preparedness of the federal government to feed its citizens in the aftermath of the subsidy removal and unification of the exchange rate which will inexorably lead to depreciation of the local currency thereto.

As it were, the increase in the growth of the agricultural sector, as reflected in increased crops production, is indicative of more jobs creation because the agriculture, besides the food security implication, is a major enabler of employment.

Directly linked with this is the equally impressive 3.86 percent growth in the industry sector as encapsulated in the manufacturing sector. This is an improvement on the lowly -0.94 per cent recorded in the fourth quarter of 2022. In addition to this, the sector grew by 30.93 percent in 2023 compared to 6.93percent in 2022 on annual basis. It is, indeed, exhilarating to finally see a big movement in the percentage contribution of manufacturing to GDP recording a high of 17.3.4 percent. This is despite the envisaged constrictions of possible low productivity in the sector in consequence of the twin policies highlighted above by some critics and cynics.

This expansion in Manufacturing GDP should be a source of excitement because it is a key driver that propels progress in a nation’s economy. It is a powerful force that revolves on the growth, productivity, and competitiveness trajectories. A nation’s overall economic growth can greatly depend on robustness and performance of the manufacturing sector

Besides, the manufacturing sector is a high labour-absorbing sector that can create direct employments for people like operators of machineries, technicians and engineers in the manufacturing sector. The sector can also create indirect employment for supply chain actors in other sectors of the economy such as raw materials suppliers, logistics and transportation, farmers, miners etc.

In addition, manufacturing helps to expand the tax base (number of taxable people and entities) and tax returns as taxes are paid by both manufacturers and workers ultimately increasing the nation’s revenue. The manufacturing sector currently accounts for about 30percent of Nigeria’s Non-Import VAT and 26percent of its Company Income Tax. 

Given its potential to empower skills development, it facilitates increased export and global competitiveness as well as enhance infrastructural development. Manufacturing can also influence revenue generation across other sectors.

According to the World Bank, industry employment accounted for 13percent of total employment in Nigeria in 2021, therefore, with the increase in the manufacturing GDP in Q4 2023, we can safely surmise that all things being equal, more jobs would have accompanied the exponential growth recorded in the manufacturing sector.

Further background checks of the data returned by the best performing sectors showed that the two policies that are being vilified continuously by some critics may have been directly and indirectly responsible for the impressive growth of the manufacturing GDP. To that extent,  it has created possibilities for realising the functional and associated attributes of the manufacturing sector as highlighted above.

This also speaks to how the rejuvenation of the manufacturing sector must have energised the financial service sector to deliver on its financial intermediation role in the money and credit market.

Indeed, our analysis of the latest data released by the NBS showed that the value of Nigeria’s financial service sector’s contribution to Nigeria’s GDP increased to N3.8 trillion in 2023, representing 26.5 percent Year-on-Year (YoY) from N3.01 trillion reported in 2022. This figure, by our estimation, is considered unprecedented, especially so, in the context of the prevailing macro economic challenges that the country has had to contend with. 

Instructively, the growth in Fintech, foreign exchange unification, and lending to the real sector were major highlights of the banking sector in 2023. To show the connection between manufacturing GDP growth and financial institutions, the CBN has made public the quantum of banks’ credit to the private sector. Banks’ credit to the economy, according to the CBN, rose by 49.77 per cent Year-on-Year (YoY) to N62.52 trillion in December 2023 from the N41.74trillion reported in the corresponding period of 2022. A larger percentage of these credits would have been used by operators in the manufacturing sector because the sector is a large consumer of the financial sector’s credit.

Data from CBN’s Money and Credit Statistics showed that credit to the private sector stood at N62.52 trillion for the month of December, second to total credits of N63.57 recorded in October, the highest value of credits forged in 2023 and, incidentally, both high credits months were in Q4 2023.

This increased lending to private sector operators, from our point of view, is suggestive of the sustained confidence in the economy, and more than anything else, an accommodation of the subsidy removal policy and the unification of the foreign exchange rates policy by critical industry stakeholders.

Thus, it can be said about Nigeria, under President Tinubu, that the country is evolving into a robust financial environment with an expanding private sector.

Added to the Q4 GDP impetus is the revival in crude oil production after years of near doldrums. According to the NBS, real growth of the oil sector spiral upward to 12.11 percent year on year in Q4 2023. This indicated an increase of 25.50 percentage points (highest in the last three years) compared to the rate recorded in the corresponding quarter of 2022 which was -13.38 percent. Growth also increased by 12.96 percentage points when compared to Q3 2023 which was -0.85 per cent.

By way of production breakdown, the nation in the fourth quarter of 2023, recorded an average daily oil production of 1.55 million barrels per day (mbpd), higher than the daily average production of 1.34mbpd recorded in the same quarter of 2022 by 0.21mbpd. This is higher than the production volume of the third quarter of 2023, which is 1.45mbpd, an increase of 0.10mbpd. This has implications for inflow of foreign exchange because the nation depends on crude oil export for more than 90 percent of its foreign exchange earnings.

The principal explanation for this impressive crude oil production increase is that the country now has about 30 functioning rigs in its upstream oil and gas sector. 

According to OPEC data, Nigeria’s average rigs count was 11, 7, and 20 in 2020, 2021 and 2022 respectively. Rig count is a measure of vibrant activities in the oil industry. It also referred to the number of active drilling rigs extracting oil from the ground at a given time. It is an important metric in the oil and gas industry as it provides insight into the level of drilling activity, which can influence oil production levels and market dynamics. 

The draw down from this is that the Tinubu administration must have rolled up its sleeves and went to work to redeem the nation’s problematic crude oil production activities as soon as it was sworn into office.

By our conservative estimation, we can posit that the economy may have survived the most elementally critical stage as it adjusts to the  subsidy removal policy and unification of the foreign exchange rates. We, therefore, envisage an economic growth trajectory, even in the face of prevailing challenges confronting the economy. 

We are confident of increased GDP growth in 2024, buoyed by the non-oil sector and driven by expansion in the financial sector which shall benefit from regulatory increase in interest rates as the Central Bank of Nigeria battles to tame inflation and stabilize the foreign exchange rate. These will act together to impact the living standards of the citizens in the months ahead.

Signed
Chief Niyi Akinsiju, Cfian
Chairman,
Independent Media and Policy Initiative (IMPI)

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