FDC: Nigeria to see real impact of exogenous shocks in Q3'22 GDP

Nigeria's economic landscape continues to face challenges as the country grapples with the impact of exogenous shocks on its GDP growth. According to the Financial Derivatives Company (FDC), the sectors that expanded in Nigeria's second quarter GDP growth are ones with a low impact on unemployment, which is currently at a staggering 33%. Bismarck Rewane, the CEO of FDC, highlighted the various shocks that hit the economy in the second quarter of the year, which are expected to manifest in the third quarter GDP numbers. In a recent interview, Rewane emphasized that the GDP is an output measure, not a revenue measure. This distinction is crucial as it explains how a decrease in oil production can lead to negative growth despite higher oil prices. He pointed out that the economy started from a low base due to the impact of the lockdown in 2020 and has been gradually recovering since then. In the second quarter of 2022, Nigeria recorded a growth rate of 3.54%, showing positive momentum compared to the previous quarter. However, the economy also faced several external shocks in the second quarter, including the Russia-Ukraine conflict, currency depreciation, and food crisis, among others. These shocks have a lagged effect on the economy, and policymakers' responses to them further contribute to the delay in feeling their impact. Rewane warned that the third quarter of the year might reflect the negative effects of the carry-over from the shocks in the previous quarter. One key theme that emerged from the discussion was the importance of monitoring the sectors that drive employment and economic activity. While some sectors like road transportation, coal mining, water supply, and broadcasting showed expansion, others, including real transport, livestock, crude oil, and metal, contracted. The sectors that are contracting are the ones that typically have a higher employability rate, presenting a challenge for overall employment levels in the country. Rewane highlighted that the petroleum sector, which has been in recession for several quarters, showed signs of improvement, offering a glimmer of hope for the manufacturing industry. He urged caution and noted that the sector's recovery would take time and continued policy support. The discussion also touched on the performance of the agriculture sector, a vital component of Nigeria's economic growth agenda. Despite government intervention programs aimed at boosting agricultural productivity, the sector faced challenges due to security issues and input cost inflation. The CEO emphasized that while some traction was observed, total output did not see a significant increase, indicating underlying structural issues that need to be addressed. One of the critical concerns highlighted was the rising cost of fertilizers, which impacted agricultural production. Rewane explained that the high cost of inputs led to cross-border trade, where Nigerian farmers sold fertilizers in neighboring countries for better prices, exacerbating the supply chain challenges within the country. While this cross-border trade reflects rational economic decisions, it also underscores the need for domestic policy reforms to support local farmers and ensure food security. As Nigeria navigates these economic challenges, stakeholders are urged to remain cautiously optimistic and focus on long-term strategies to address the structural issues affecting key sectors. The road to economic recovery may be bumpy, but with concerted efforts and targeted interventions, the country can overcome the obstacles posed by exogenous shocks and pave the way for sustainable growth and development.