The National Bureau of Statistics (NBS) yesterday released GDP numbers for Q2 2020. Q2 2020 means the second quarter of 2020. GDP means the Gross Domestic Product.
It’s the monetary value of goods and services produced in a country over a period of time.Why does GDP matter? Why is it measured in the first place? GDP figures are a measure of growth.
If an economy is growing, so is the volume of goods and services produced in that economy. Nigeria’s GDP declined by 6.1% in the second quarter of 2020.
This means that the volume of goods and services produced in Nigeria between April 2020 and June 2020 dropped. In economic terms, negative growth is known as a contraction. The decline should not be surprising because a large part of the country was locked down during that period to curtail the spread of the COVID-19 virus.
Only 13 activities recorded positive real growth compared to 30 in the preceding quarter. When compared with Q2 2019, which recorded a growth of 2.12%, the Q2 2020 growth rate indicates a drop of -8.22% and a fall of -7.97% when compared to the 1.87% growth recorded in Q1 2020.
For the first half of 2020, real GDP declined by -2.18% year on year, compared with 2.11% recorded in the first half of 2019.If one were to annualize (estimate for the full year), GDP for the entire year could decline by about 4.3%. How to Read the NumbersYou can split Nigeria’s GDP in two ways.
The three broad sectors (Agriculture, Industries, and Services) or Non-Oil vs Oil. Services is the dominant sector in the Nigerian economy, it accounts for 53.49% of Nigeria’s GDP. Agriculture accounts for 24.65% of GDP while Industries accounts for 21.87% of the country’s GDP.
Of the three sectors, agriculture experienced positive growth. It grew by 1.58% which is much lower compared to the Q1 2020 growth of 2.20%. It is also the lowest growth recorded in the last 5 quarters. Industries had the biggest decline. It contracted by 12.05%, compared to 2.26% growth in the first quarter of 2020.
Services contracted by 6.78% in Q2 2020, compared to a 1.57% growth in the preceding quarter. Non-Oil vs Oil You can also split Nigeria’s GDP into the Oil sector and Non-Oil sector. About 91% of Nigeria’s sector is generated by the Non-Oil sector, while 8.9% of the GDP is generated by the oil sector.
The oil sector contracted by 6.63% in Q2 2020. This is a sharp decline compared to the 5% growth recorded in Q1 2020. While oil accounts for roughly 9% of Nigeria’s GDP, it plays a key role in the economy. It is the dominant source of government revenue, and foreign exchange earnings.
A crash in crude oil prices and production led to the economy slipping intoa recession in 2015. The non-oil sector also contracted in Q2 2020. It contracted by 6.05% in Q2 2020 compared to 1.55% growth in Q1 2020.
The Performers The telecoms sub-sector grew by 18.10% in Q2 2020 from 9.71% in Q1 2020 and 11.34% in Q2 2019. This space has shown strong growth in 4 of the last 5 quarters. Covid-19 has led to higher remote working and consequently higher consumption of data. In the financial space, we have two differing tales. Financial institutions grew by 28.4%. Insurance, however, declined by 29%.One could attribute the growth by financial institutions to the CBN’s Loan-Deposit Ratio.
The Leader From the BottomThe transportation sector was the worst-performing. It declined by 49.2%. It also had some of the worst performing sub-sectors. This isn’t a surprise as lockdowns meant activities in the space, ground to a halt save for those on essential duties.
Nigeria Is Heading to a RecessionFrom all indications, Nigeria is very likely heading into a recession. A recession is a decline in GDP for two consecutive quarters. A 6.1% decline in Q2 2020 will most likely be followed by a consecutive contraction in Q3 2020. Many lockdown measures are still somewhat in effect across the country.
Businesses such as those in hospitality and the food space have been mandated to operate at half their current capacity. Oluwatosin Oladeinde is a professional accountant with over 10 years of experience spanning across accounting, audit, financial management and taxation.
She is the Founder/CEO of Money Africa, an edtech platform that enhances financial literacy and investments leveraging on technology. Her Money Africa platform has reached over 100,000 people online and offline as it is a leading resource for personal finance in Nigeria.