Uwaleke, ACMAN president, worries about GDP growth services sector overweight

• Canvasses balance to counter overdependence

Onome Amuge

Uche Uwaleke, a professor of finance and capital market at the Nasarawa State University, has voiced his concerns regarding the recently released GDP report by the National  Bureau of Statistics which showed that the services sector remains the primary driver of growth in Nigeria’s economy.

Uwaleke warned that the lopsided growth pattern, where the services sector dominates at the expense of the more productive manufacturing and agricultural sectors, is not a healthy indicator for the development of Nigeria’s economy.

The  president of Association of Capital Market Academics of Nigeria, in a note to Business a.m., lamented that the unbalanced growth results in a situation where economic expansion is not broadly felt by the populace, with unemployment and poverty levels remaining stubbornly high. This conundrum, he said, presents a challenge for policymakers, who need to create an environment conducive to balanced growth across all sectors.

“In my view, this identified growth pattern, weighted in favour of the services sector, is not healthy for a developing economy such as ours. Little wonder, economic growth does not appear inclusive, reflecting in rising unemployment and poverty levels.

“It is time we reset this faulty economic structure, leveraging technology, in favour of the productive sectors: industry and agriculture.

“Indeed, structural change is strongly recommended (by UNCTAD) as one of the ingredients of building productive capacities,” he noted.

Uwaleke’s analysis also showed that the Central Bank of Nigeria’s (CBN) aggressive hike in the monetary policy rate (MPR) in February 2024, intended to contain inflation, had a negative impact on economic output in the first quarter of 2024.

He further noted that, similar to the fourth quarter of 2023 when growth was largely driven by the oil sector, the first quarter of 2024 also saw the oil sector as the main contributor to GDP growth, albeit at a slightly lower growth rate of 5.70 percent.

Uwaleke attributed the growth of the oil sector in the first quarter of 2024, at least in part, to the increase in crude oil production during the period in review. He observed that the upward trend in oil production from 1.55 million barrels per day in the previous quarter to 1.57 million barrels per day in the first quarter of 2024, supported the sector’s growth. He added that the performance of the non-oil sector was primarily driven by two key sectors within the services sector, namely, financial services and Information and Communication Technology (ICT).

Commenting on other sectors, he noted that manufacturing and agriculture sectors appeared hugely impacted by economic headwinds during  the quarter as growth rates were a mere 1.49 percent and 0.18 percent respectively.

Uwaleke also noted that the agriculture sector, comprising four activities, although dominated by crop production, tanked significantly in Q1 2024 to 0.18 percent from 2.10 percent in the previous quarter.

“With the agric sector’s dismal performance, it is easy to understand why food inflation has climbed to over 40% as of April 2024,” he wrote.

Amidst the lacklustre performance of many sectors, Uwaleke observed that the financial sector grew by 31.24 percent, a clear demonstration that it is detached from the productive sectors of the economy.

According to the National Bureau of Statistics (NBS), the gross domestic product (GDP) recorded a year-on-year increase of 2.98 percent in Q1 2024, higher than the 2.31 percent recorded in Q1 2023, but slightly lower than the 3.46 percent achieved in the previous quarter.

The Nigerian economy, as reported by the NBS, also showed significant growth in nominal terms. The aggregate GDP for the quarter stood at N58,855,142.27 million, representing a 14.86 percent year-on-year growth compared to the N51,242,151.21 million recorded in the corresponding quarter of 2023.

The NBS noted that the performance of the GDP in the quarter under review was driven mainly by the services sector, which recorded a growth of 4.32 percent, contributing 58.04 percent to the aggregate GDP.   The services sector not only led the charge in terms of economic growth but also increased its share of the GDP compared to the corresponding quarter of 2023.

The non-oil sector continued to drive growth in the first quarter of 2024, albeit at a slightly lower rate than in the previous quarter. The sector contributed 93.62 percent to growth in real terms, lower than 95.30 percent in the preceding quarter as well as 93.79 percent in Q1 2023. However, the sector grew by 2.80 percent in real terms during the reference quarter compared to 0.28 percent in Q4.

On the other hand, the oil sector contributed 6.38 percent to the economy in Q1 compared to 4.70 percent in Q4 and 6.21 percent in Q1 2023.

In real terms, the oil sector grew by 5.70 percent compared to the corresponding quarter in 2023, reflecting an increase of 9.91 percent from the negative growth of 4.21 percent.

However, in a comparison with the previous quarter, the oil sector growth was less robust, recording a 6.41 percent decrease compared to the 12.11 percent growth observed in the fourth quarter of 2023. The oil sector still managed to post a 13.77 percent growth when measured on a quarter-on-quarter basis.

According to the report, during the first quarter of 2024, Nigeria’s oil production showed signs of improvement, as daily oil production averaged 1.57 million barrels per day(bpd), a slight increase from the 1.55 million bpd and 1.51 million bpd recorded in the fourth quarter of 2023 and the first quarter of 2023, respectively.

The NBS report revealed a decline in the contributions of the agricultural and manufacturing sectors to the country’s GDP in real terms. While agriculture’s contribution dipped to 21.07 percent in the first quarter of 2024 from 26.11 percent in the previous quarter, it was still higher than the 21.66 percent contribution recorded in the same quarter of 2023.

Manufacturing, too, saw a decrease in its contribution to GDP, falling to 9.98 percent in Q1 2024 from 8.23 percent in Q4 2023 and 10.13 percent in Q1 2023.

Meanwhile, trade contributed 15.70 percent to GDP, lower than 15.50 percent the preceding quarter as well as 15.97 percent in Q1 2023.

The report further showed that the transportation sector’s contribution to GDP in Q1 2024 was 1.18 percent, relatively same with the 1.18 percent recorded in the preceding year and higher than 1.10 percent  recorded in the fourth quarter of 2023.

The Information and Telecommunication (ICT) sector contributed 17.89 percent in the 2024 first quarter, higher than in the same quarter of the previous year in which it represented 17.47 percent and higher than the preceding quarter in which it represented 16.66%.

Art, entertainment and recreation contributed 0.31 percent to GDP in Q1 2024, relatively the same with the 0.31 percent recorded in the same quarter of 2023 and higher than the 0.21 percent recorded in the fourth quarter of 2023.

Real estate contributed 5.20 percent to GDP in Q1 2024, lower than the 5.31 percent  it recorded in the corresponding quarter of 2023.

Finance and Insurance contribution to GDP totalled 6.81 percent, higher than the contribution of 5.35 percent  recorded in the first quarter of 2023, and higher than 4.95 percent recorded in Q4 2023.

Education contributed 1.87 percent to GDP in Q1 2024, which was lower than the 1.89 percent reported for the corresponding quarter in 2023 and lower than the 2.05 per cent recorded in Q4 2023.