By Moses Uwagbale
The Lagos Chamber of Commerce and Industry (LCCI) has hinged the 6.1 per cent Gross Domestic Product (GDP) contraction according to the National Bureau of Statistics (NBS) on the socio-economic disruptions of COVID-19 pandemic.
Dr Muda Yusuf, Director-General LCCI made this known in an economic report released to newsmen on Monday in Lagos.
Yusuf noted that the 6.1 per cent contraction marked the steepest quarterly contraction in the nation’s recent economic history.
According to him, the contraction value, though not surprising, reflected the profound impact of the COVID-19 pandemic on the Nigerian economy.
“The containment measures imposed globally and domestically to slow the spread of the pandemic significantly disrupted global supply chains and destabilized commercial, business, investment, and trade activities.
“In addition to these, it was also in the second quarter that the country was confronted with weakening oil prices, low crude production, huge volume of unsold crude cargoes and foreign exchange scarcity.
“The quarter also encountered depleting external reserves, portfolio outflows in the financial markets, disruption and adjustment of the 2020 budget, revenue collapse from oil and non-oil sources, rising spate of job losses, high food prices, among others,” he said.
On sectoral performance, the LCCI DG said the Chamber noted weak performance among critical sectors with potential to facilitate economic diversification and development.
“While some sectors did expand in the second quarter, most of the sectors that reported positive growth in the first quarter plunged into sharp contraction, while others maintained their position in recessionary territory.
“In all 46 sectors, 19 sectors inclusive of crude petroleum and natural gas contracted; 14 sectors are in recession, 11 sectors expanded, and two sectors reported slowdown in growth,” Yusuf said.
He also noted that the oil and gas sector contracted by 6.65 per cent in Q2-2020 compared to 5.06 per cent expansion reported in the preceding quarter.
According to him, the huge contraction was driven by low crude production, which averaged 1.81 mbpd in the quarter; the lowest since Q4-2016.
“We attribute the low level of crude production in Q2-2020 to OPEC+ production cut agreement (which became effective in May 2020), aimed at rebalancing the oil market.
“We also note that the economy experienced stockpiles of unsold crude cargoes, particularly in April and early May, due to collapse in crude demand from Asia and Europe.
“In addition to these, the steep contraction was also fuelled by weakening oil prices witnessed in the quarter,” he said.
Also, Yusuf stated that the non-oil sector which contracted by 6.05 per cent was driven by the more pronounced impact of lockdown, movement restrictions, flight suspension, restricted international trade as well as subdued commercial and business activities.
“Trade is Nigeria’s second biggest sector by percentage contribution to output.
“We note that the sector has been in recession since Q3-2019 due to the closure of the land borders, port inefficiencies, and weak consumer spending among other structural challenges.
“These challenges coupled with the global pandemic magnified the magnitude of contraction to 16.59 per cent in Q2-2020 from -2.82 per cent reported in Q1-2020,” he said.
On agriculture which expanded by 1.58 per cent, the DG noted that the slow growth was driven by disruption to the food supply chains, difficulties experienced by farmers in conveying their products inter-state and insecurity in food producing areas.
The Industry expert noted with concern the performance of the manufacturing sector in spite of being one of the biggest beneficiaries of the Central Bank of Nigeria’s (CBN) loan-to-deposit policy.
“We note with concerns that the manufacturing sector has been struggling with growth before the outbreak of the novel coronavirus.
“Manufacturing sector contracted by 8.78 per cent in Q2-2020 compared with a marginal 0.43 per cent growth in the previous sector.
“We note that of the 13 sub-sectors in the manufacturing space, only two sectors – chemical & pharmaceutical products and motor vehicles & assembly reported positive growths, while the other 11 sub-sectors had negative growth.
“In our view, we believe the weakness of manufacturing sector was due to global & domestic supply chain disruptions, foreign exchange illiquidity, weak consumer spending and high operating costs,” he said.
On aviation, Yusuf said the suspension of domestic and international flights to curtail the spread of COVID-19 significantly destabilized air transport industry as evidenced by the 57 per cent contraction reported in the second quarter.
On real estate, the DG noted that both lockdown and social distancing rules made it difficult for real estate players to interact and transact with clients, and this led to suspension of most real estate projects.
“The shutdowns of hotels, bars, event centres and relaxation centres equally weighed on the arts, entertainment, and recreation industry.
“This explains the 8.93 per cent contraction reported in Q2-2020 compared to 1.53 per cent growth recorded in the first quarter.
“The Information and Communications Technology (ICT) sector sustained its position as the country’s fastest growing economy as its growth expanded faster by 15.99 per cent in Q2- 2020.
“We believe the faster growth pace of ICT was largely driven by increased data consumption due to the social distancing and remote working from home operation policies,” he said.
Yusuf urged policy makers to tackle the twin challenge of rising inflation and unemployment rate to reflate the economy.
“The Nigerian economy is currently in dire straits with inflation and unemployment at record high of 12.82 per cent and 27.1 per cent respectively.
“Given the protraction of the COVID-19 pandemic and lack of a vaccine, there is high possibility that the economy would contract, though marginally, in the third quarter.
“This would mark the second recession under the watch of the current administration.
“It is imperative to ensure effective synchronization of fiscal and monetary policies and proper implementation of the sustainability plan among other measures.
“The structural bottlenecks to productivity in the economy needs to be urgently removed through a mix of fiscal, monetary and regulatory measures.
“It is imperative to reduce policy uncertainties in order to inspire the confidence of investors, both domestic and foreign.
“This would give the economy a boost in the near term.
“However, growth will continue to remain weak and fragile till the first quarter of 2021,” he said.