Analysts yesterday called on the federal government to urgently introduce measures to reflate the economy.
The analysts, in separate interviews with THISDAY on the heels of the report by the National Bureau of Statistics (NBS) that the country's real Gross Domestic Product (GDP) figures contracted by 6.10 per cent year-on-year in the second quarter of the year (Q2 2020), also advised the government to boost investments in the digital economy and scale up the various interventions programmes designed to spur economic recovery.
With the 6.10 per cent contraction in the GDP for Q2 2020, compared to a growth rate of 1.87 per cent in the preceding quarter, analysts said the government should prioritise investment in the digital economy due to the increasing activities in the digital space, which may not have been properly captured by telecommunications.
According to the NBS report, the economic decline came on the heels of significantly lower levels of both domestic and international economic activities during the quarter, which resulted from nationwide shutdown efforts by the government to contain the spread of the COVID-19 pandemic.
The report stated that during the review period, domestic efforts ranging from initial restrictions of human and vehicular movements implemented in only a few states to a nationwide curfew, ban on domestic and international travels, closure of schools and markets among others had affected both local and international trade.
However, the GDP growth rate indicated a contraction of 8.22 percentage points when compared with the 2.12 per cent growth in Q2 2019 as well as a decline of -7.97 per cent when compared to the 1.87 per cent recorded in Q1 2020.
As a result, only 13 activities recorded positive real growth compared to 30 in the preceding quarter as average daily oil production dropped to 1.81 million barrels per day (mbpd) in Q2 or -0.26mbpd lower than the 2.07mbpd in Q1.
The NBS noted that the decline in economic growth had truncated the three-year trend of low but positive real growth rates recorded since the 2016/17 recession.
Real GDP declined by -2.18 per cent year-on-year for the first half of the year (H1 2020) compared to 2.11 per cent recorded in H1 2019.
According to Nigerian Gross Domestic Product Report - Q2 2020, released by the statistical agency, quarter-on-quarter, real GDP further contracted by -5.04 per cent.
In the quarter under review, aggregate GDP stood at N34.02 trillion in nominal terms or -2.8 per cent lower than Q2 2019, which recorded N35 trillion (revised) while real GDP was estimated at N15.89 trillion from N16.74 trillion in Q1.
The oil sector's contribution to real GDP in Q2 declined to 8.93 per cent from 9.50 per cent in the preceding quarter and 8.98 per cent in Q2 2019.
The non-oil sector also contracted by 6.05 per cent in real terms in Q2, representing the first decline in real non-oil GDP since Q3 2017.
In real terms, the sector accounted for 91.07 per cent of aggregate GDP, slightly higher than the 90.50 per cent share recorded in the previous quarter as well as 91.02 per cent in Q2 2019.
The non-oil sector growth was driven by financial and insurance institutions, information and communication, agriculture particularly crop production, and public administration, thereby moderating the economy-wide decline.
However, transport and storage, accommodation and food services, construction, education, real estate and trade, among others, experienced the highest negative growth during the review period.
Agriculture, industries and services contributed 24.65 per cent, 21.87 per cent and 53.49 per cent to real GDP respectively.
Agriculture grew by 1.58 per cent in Q2 from 2.22 per cent in Q1 and 1.79 per cent in Q2 2019 while manufacturing contributed 8.82 per cent, compared to 9.65 per cent in Q1 and 9.08 per cent in Q2 2019.
Analysts Proffer Stimulus for the Economy
However, reacting to the country's economic performance, Prof. Uche Uwaleke, of the Nasarawa State University, Keffi, said the GDP figures could be the worst this year.
He said the country was likely to post yet another negative real GDP growth in the subsequent quarter though the size of decrease might be much lower as the economic activities were expected to pick up and crude oil price gradually rises.
The former Imo State commissioner for finance said that to moderate the impacts of the economic headwinds, it was important to increase the size of the various interventions by the government and the Central Bank of Nigeria (CBN) as well as ensuring that these programmes are well-targeted and implemented.
He said: "The negative growth in real GDP in Q2 2020 was expected. It is easy to see why this happened. The negative impact of COVID-19 on health, which resulted in lockdown and supply chain disruptions, the collapse in crude oil price and reduction in output in compliance with OPEC + agreement, the illiquidity in the forex market and the lingering insecurity in the country, which affected agriculture output are to blame.
"This explains why the agriculture sector managed to eke out a growth rate of 1.58 per cent, and manufacturing, trade and so many other sectors recorded negative growth."
Also, an economist and former Director-General, Abuja Chamber of Commerce and Industry (ACCI), Dr. Chijioke Ekechukwu, said there would be ripple effects following the GDP decline as all sectors of the economy had been adversely affected except telecommunications, virtual and internet sectors.
By implication, he said the country's per capita income, which reveals the poverty level would decline as inflation rate could maintain its upward trajectory in subsequent months.
He said the unemployment rate would continue to rise as companies shut down, lay off staff or default in salary payment.
"When the foregoing happens, revenue realisable from taxes will drop. Company income tax will drop because profits have dropped and other companies may either shut down or producing at less than capacity.
"Government has to identify key sectors like manufacturing, ICT, agriculture and MSMEs, and channel so much of single-digit credit facilities, and monitor utilisation of same. In other words, the government should inject funds to critical sectors.
"We cannot over-emphasise the need for stable sources of power, whether renewable energy or hydro energy. Build them within a business park or cluster of companies and provide all facilities that will enhance seamless production at shared minimal cost," he added.
Ekechukwu stated that the government should also set a target for terminating the importation of petroleum products by revamping the refineries to reduce pressure on the country's foreign reserves and cut down the exchange rate dissipation.
Also commenting on the GDP, Chief Investment Officer, Sigma Pensions, Mr. Pabina Yinkere, also predicted a lower rate of GDP contraction in Q3.
He said: "We had expected to see a sharp decline in Q2 2020 GDP growth resulting from the COVID-19 induced lockdown, steep decline in oil prices and associated low economic activity for much of the quarter.
"This comes as no surprise as other world economies have faced similar sharp contraction in output because of the global pandemic.
"We expect that Q3 2020 GDP numbers will show an improvement from the 6.1 percent contraction in Q2 as the world and domestic economies lift the lockdown restrictions."
Head of Research at United Capital, Mr. Wale Olusi, also said that the current performance indicated that a full-blown recession was imminent in the next quarter and urged the government to explore the enormous potentials provided by the digital economy to spur growth.
He said: "We think the digital economy still needs to be properly captured, due to the rising amount of activities in the digital space, which may not be properly captured by the telecommunications or ICT.
"For the rest of the year, we think this signals that recession will kick in fully by Q3, as key sectors such as oil and gas, trade and agriculture, accounting for about 50 per cent may not rebound fully by end of September 2020."
Also, an Associate Professor of Agricultural Economics at the University of Port Harcourt, Dr. Anthony Onoja, said the government must respond to the declining economic fortune by providing stimulus packages to SMEs in the form of interest-free loans, tax holidays, easing off lockdown restrictions particularly the opening of markets closed down since the beginning of the pandemic in most states while enforcing social distancing and use of face masks.
He said social protection infrastructure for households needed to be developed and existing ones implemented transparently so as to boost aggregate demand, which is a necessary condition for improving the unemployment situation.
Onoja said the foreign exchange regimes should be strictly guided by the CBN to arrest the falling value of the naira to the US dollar.
Head of Research at Afrinvest West Africa Limited, Mr. Abiodun Keripe, said while the contraction was in line with expectations, "however, we had estimated a sharper contraction in excess of 10 per cent year-on-year given that the size of the GDP is different across quarters, and Q1 and Q2 are the lowest in terms of size."