EFFECT OF COVID -19 ON NIGERIA’S GROSS DOMESTIC PRODUCT (GDP)
Margaret Iember Tivlumun, ACA, NIM (CHARTTERED)
Finance and Tax Analyst
Abuja
The prolonged disruption in economic activities due to the Covid-19 Pandemic combined with the collapse of oil prices and the reduction in demand for Nigeria’s oil products and the rise of inflation rate are severely impacting on Nigeria’s Fiscal Position. Gross Domestic Product is the total market value of goods and services produced by a country’s economy during a specified period. In Nigeria, efforts were made to bolster aggregate demand through increased government spending and a reduction in tax for businesses as contained in the Finance Act, 2019.
The public budget increased from 8.83 trillion in the year 2019 to 10.59 trillion in 2020, representing 11% of the National GDP, while small businesses have been exempted from Company Income Tax, and the tax rate for medium-sized businesses has been revised downwards from 30% to 20%. Unfortunately, the Covid-19 pandemic is causing all components of aggregate demand to fall, except for government expenditure. The GDP in Nigeria was worth 448.10 billion US Dollars in 2019 according to official data from the World Bank and projection from Trading Economics.
Available data from the National Bureau of Statistics (NBS) showed that real Gross Domestic Product (GDP) grew marginally by 1.87 per cent in the first quarter of 2020 compared to 2.55 and 2.10 per cent in the preceding and corresponding quarters of 2019. The performance was largely driven by the 5.06 per cent growth in the oil sector and 1.55 per cent growth in the non-oil sector. The decline in output growth in the first quarter was largely attributed to the twin effect of the decline in oil prices and the shocks from the Covid-19 pandemic.
AN ANALYSIS OF THE OIL AND NON-OIL SECTOR
The Oil sector prior to the COVID-19 pandemic recorded a real growth rate of 5.06% in the First quarter (Q1) 2020 showing that there was increase of 6.51% points relative to the rate recorded in the previous year quarter of 2019 (-1.46%). So when we compare to Q4 2019 that recorded 6.36%, oil sector growth decreased by -1.3%. Therefore, the contribution of the oil sector to aggregate GDP stood at 9.5% in Q1 2020 as the average daily oil production stood at 2.07million barrels per day (mbpd) which was quite higher than 1.99mbpd recorded in the same quarter of 2019.
The Non-Oil Sector
The non-oil Sector growth rate in the Q1 2020, was 1.55%, an indication showing slower rate by -0.93%, with the same rate recorded in Q1 2019 (2.47%), which shows -0.72% points slower than the Q4 of 2019(2.26%)
The NBS’s report growth in the non-oil sector was propelled mainly by telecommunications, Financial institutions (Financial and Insurance), Agriculture (crop production, mining and quarrying and construction (real estate).
In the first quarter of 2020, it stood at 90.50% which -0.28% less than its share in the first quarter of 2019.Therefore activities that witnessed weaker performances of the Q1 2020 includes: Entertainment, Hospitalities/Tourism and Sport while the booster of the Q1 2020 were: Information and Communication Technology (ICT), Agriculture (essential goods) e.g food, health and hygiene products (sanitary pads, face mask, baby diapers, hand sanitizers e.t.c.
How the non-oil sector stands in the face of Covid-19
The Covid-19 pandemic has brought in structural adjustment plans to micro/macro-economic levels so as to accommodate changes brought up by the Covid-19 pandemic, not limited to massive job loss most especially the financial institution particularly banks as most of the commercial banks have closed down or temporary shut down some of their branches nationwide. This has in no small way affected the volume of purchases in the market as propensity to purchase now becomes low.
Secondly, the GDP of the Non-Oil sector stands looming and lurking in the dark because the Covid-19 pandemic which has affected service oriented businesses like the fashion industry. This is as a result of the closure of social events, entertainment, hospitality and tourism occasioned by protocols of social distancing.
Similarly, there is drastic decline from luxury items purchase to essential goods. This has affected those in the business of Jewelries and fabrics.
Furthermore, the rise in prices of goods and services in the market is overwhelming, inflation has become the order of the day, there is also an increase in starvation and poverty.
With the gradual easing of lock down, it is projected that there will be ease of trade as trade restrictions will be lifted thereby giving the non- oil sector a boost and GDP improvement.
Investors should look towards investment in essential products like agriculture and the exploits of Information and Communication Technology (ICT). This will augment the job loss in other sectors like the financial institution for maximum return on investment.
