Analysts show cautious optimism as Nigeria sees 3.84% GDP growth in Q4 2024

• Over reliance on services sector is detrimental to sustainable growth- LCCI

Onome Amuge

Nigeria’s economic stakeholders have greeted the latest GDP data released by the National Bureau of Statistics (NBS) with a mix of enthusiasm and pragmatism. The optimistic implications of the data have not gone unnoticed, while stakeholders have remained grounded in the potential challenges facing the economy, adopting a balanced approach to interpreting the results.

While analysts view the 3.84 percent year-on-year GDP growth rate in the fourth quarter of 2024, the fastest pace in three years, as a positive sign of economic resilience, they have sounded a note of caution regarding the potential impact of this growth on living standards and business conditions for Nigerians.

The recent report released by the NBS reveals that Nigeria’s economy grew by 3.84 percent in real terms, marking an improvement over the 3.46 percent recorded in Q4 2023 and the previous quarter.

NBS, however, clarified that the figures were based on the old method of computation rather than the proposed rebased GDP.

The GDP growth is attributed primarily to the services sector,  consisting of telecommunications, banking, FinTech, and legal services, which expanded 5.37 percent and accounted for 57.38 percent of the country’s GDP, yet again, affirming its position as the key growth driver of Nigeria’s economy.

The latest GDP figures indicated that the economy demonstrated marked resilience, with a 3.40 percent overall growth recorded in 2024, representing an increase from the previous year’s 2.74 percent growth rate.

The agriculture sector emerged as a key contributor to GDP, accounting for 25.59 percent, followed by industry with a 17.03 percent contribution.

A major development was the petroleum refining sector’s recovery, recording a 9.6 percent growth rate, likely due to the Dangote Refinery’s commencement of operations and improved production from the NNPC refineries.

Conversely, the manufacturing sector’s contribution declined to 8.07 percent in 2024 from 8.23 percent in Q4 2023, indicating the persisting structural constraints that hinder its growth potential.

The GDP figures indicated that Nigeria’s non-oil sector has firmly maintained its position as the country’s economic mainstay, contributing 94.49 percent to total GDP, overshadowing the oil sector’s comparatively smaller contribution of 5.51 percent.

Analysts attributed the positive GDP growth to an uptick in consumer spending, which propelled growth across various sectors. This is as consumers spent more on clothing, food, entertainment, energy consumption, and recreational activities, during the period in review, driving economic activity in these sectors.

Beyond the commendable performance of the non-oil sector, Nigeria also registered a substantial foreign trade surplus of N5.81 trillion in Q3 2024, which extended into a positive trade balance in Q4, thereby strengthening overall GDP growth.

 Despite the promising GDP growth figures, analysts have cautioned against interpreting this trend as a resounding sign of economic stability, with some raising concerns about the sustainability of Nigeria’s economy.

The Lagos Chamber of Commerce and Industry (LCCI), in its assessment of the GDP figures, highlighted the potentially risky trend of the country’s disproportionate reliance on the services sector, with declining contributions from agriculture and manufacturing.

The chamber warned that the overreliance on services, which are often more volatile and susceptible to external shocks, poses a risk to the country’s economic stability and long-term sustainability.

Chinyere Almona, the director-general of the LCCI, in a statement,highlighted the need for Nigeria’s economic growth to be driven by a balanced mix of sectors, with a stronger focus on developing the country’s industrial and agricultural sectors.

Almona argues that a growth trajectory primarily powered by trade and finance, without commensurate expansion in agriculture and manufacturing, will not provide the necessary foundation for sustainable economic development.

“Despite improvements in oil production, which averaged 1.54 mbpd in Q4 2024, the sector’s contribution to GDP remains limited. Oil sector volatility continues to expose the economy to external shocks, underscoring the urgency of diversifying the revenue base,” the LCCI DG stated.

Recognising the fundamental importance of addressing structural bottlenecks to drive sustainable economic growth, LCCI called on the government to implement policies that tackle the underlying issues hindering productivity in key sectors.

To this end, the LCCI recommended a suite of policy interventions that stimulate domestic production, improve the ease of doing business, and facilitate access to finance for SMEs. It also urged the government to develop an industrialisation strategy that prioritises the development of local manufacturing capacity.

Echoing the fundamental importance of the agricultural sector, LCCI advocated for increased investments in mechanization, irrigation, and improved seed varieties to boost productivity, food security, and employment opportunities.

The chamber also urged the Nigerian government to pursue policies that enhance rural infrastructure, ensure market access, and strengthen value chain development.

Highlighting the adverse impact of Nigeria’s infrastructure deficit on production costs and competitiveness, LCCI stressed the criticality of addressing the deficits in power, roads, and ports.

To overcome these barriers, LCCI encouraged the government to expand the use of public-private partnerships (PPPs) to leverage private sector expertise and financing to address the nation’s infrastructure needs.

In a further call for reform, LCCI emphasised the need for effective communication and implementation strategies for proposed tax reforms to ensure that the reforms support economic expansion without overburdening businesses.

To achieve this balance, the LCCI advised the government to develop a transparent and equitable tax regime that encourages compliance while promoting investment.

Acknowledging the vital role of exchange rate stability for investor confidence and economic planning, LCCI highlighted the importance of the CBN’s continued efforts to maintain liquidity, stabilize the naira, and attract capital inflows through appropriate policies.

Furthermore, the chamber called for intensified government efforts to address insecurity in agrarian regions, which is essential for sustainable growth. LCCI stressed the need to curb banditry, kidnapping, and other security threats that deter investments in agriculture and industry. The chamber also urged constitutional amendments that would enable multilevel policing.

“While the Q4 2024 GDP report signals progress, sustaining and accelerating growth will require bold and strategic policy interventions. The government’s commitment to economic diversification, fiscal discipline, and business-friendly policies will be key to achieving the ambitious goal of a $1 trillion economy,” the chamber added.

According to the Centre for the Promotion of Private Enterprise (CPPE), the reported 3.84 percent GDP growth in Q4 2024 reflects a combination of the Nigerian economy’s gradual recovery from past challenges and the resilient spirit of the country’s entrepreneurs.

Commenting on the GDP, Muda Yusuf, chief executive officer of CPPE, said private investors had continued to forge ahead, despite the daunting macroeconomic and structural headwinds.

Highlighting the macroeconomic and structural challenges that investors have faced, Yusuf acknowledged that the latter half of 2024 saw some easing of these challenges, as indicated by a relatively stable naira exchange rate, a marginal decline in inflation, and a fall in energy prices.

Yusuf identified these factors as positive indicators that support investor confidence and suggest that the country’s economic environment may be slowly improving

 “One striking outcome of the Q4 GDP report was the recovery of the petroleum refining sector from decades of recession to a positive GDP growth of an impressive 9.6 per cent.

“This was one of the best sectoral performances among the strategic sectors of the economy,” the CPPE chief noted.

According to analysts at Parthian Partners, the ongoing positive growth trajectory of the Nigerian economy underscores the resilience and ability of the economy to sustain growth, even in the face of both external and internal challenges.

In explaining the growth observed in Q4 2024, the analysts cited a surge in aggregate demand, which typically increases during the festive season, as the primary driver of this growth.

The analysts at Parthian Partners further highlighted that the reduction in PMS prices was another key factor that supported economic growth during the quarter.

They observed further that the decline in Brent crude prices and the commencement of operations at the Dangote refinery, as well as other refineries like Old PH and Warri, contributed to a reduction in transportation and operational costs for both consumers and businesses.

Looking ahead, the analysts at Parthian Partners noted that Nigeria’s GDP growth outlook appears cautiously optimistic, with several factors that could foster a favourable economic environment.

Parthian Partners projected that the continued moderation of inflation could spur a shift towards monetary easing in the second half of the year, as policymakers at the CBN consider options for stimulating economic growth.

If such a shift were to occur, the analysts expect that interest rates would likely decline, reducing financing costs for businesses and encouraging expansion and investment. This more favourable monetary policy environment, they argue, would make credit more accessible and affordable, fueling growth not only in the corporate sector but also among Small and Medium Enterprises (SMEs).

“However, while these developments paint an optimistic picture, there are still potential risks that could derail the economic outlook. One significant risk is the ongoing global trade uncertainties, particularly the potential for tariffs and restrictive trade policies from major global economies,” they cautioned.

The analysts cited the example of trade policy shifts under President Donald Trump, or subsequent administrations, as a potential source of risk for Nigeria’s economy.

They noted that tariffs and import restrictions imposed by the U.S could impede the growth of Nigeria’s export sectors, including oil and agriculture, while also increasing the cost of imported goods.