Nigeria’s industrial sector contracted to its lowest value as a contribution to GDP in 7 years, reveals data from the National Bureau of Statistics (NBS).
Nigeria’s industrial sector includes mining and quarrying (including oil and gas), manufacturing, electricity (including gas, steam, and air conditioning), construction, sewage and waste management.
This is also the 6the back-to-back quarterly recession that recorded another contraction in the third quarter of 2022. NBS data also reveals that Nigeria’s industrial sector reported a GDP contraction of -8% in the third quarter of 2022.
What the data says: The real GDP value of the sector has risen from approximately 14.9 trillion naira at the end of 2016 to 14.2 trillion naira (derived from the sum of real GDP for the fourth quarter of 2021 and the first three quarters of this year). .
- In addition, the contribution of the Industries sector to GDP has fallen from 23.7% to only 18.37%, the lowest since the fourth quarter of 2021.
- Nigeria’s industrial sector contributed 24% to the country’s GDP in the first quarter of 2016. It contributed 20.57% in the corresponding quarter of 2021.
- In addition to the oil and gas sector, which has led the decline over the years, construction and manufacturing have also posted massive declines.
- For example, oil refining as a percentage of GDP fell to just 0.01% this quarter, while construction fell below 4% of total GDP. Manufacturing also fell to 8.59% this quarter compared to 8.96% in the corresponding quarter in 2021.
Nigeria has had to rely on the service sector for economic growth since it entered a recession in 2020. However, to achieve faster economic growth, it will need the industrial sector to grow.
Why is it falling? A closer look reveals that the sector’s decline is largely due to the drop in crude oil extraction and production.
- Crude oil and natural gas contributed up to 10% of Nigeria’s GDP in 2016, but it has now dropped by 43.5% to just 5.66%.
- The manufacturing sector has also declined from 9.5% to 8.6% during the same period.
- The two subsectors dominate the industrials in terms of size and contribute to the decline we have seen over the years.
- Nigeria recorded a GDP growth rate of 2.25% in the third quarter of 2022, confirming an overall slowdown in the Nigerian economy.
causal factors because the fall stems from the fall in crude oil prices in the last five years that has stifled investment.
- While oil prices have also risen this year to 8-year highs, Nigeria has yet to benefit due to high instances of crude oil theft.
- The country has also faced challenges over the years from pipeline vandalism and insecurity in oil-producing areas.
- On the macro front, the outflow of foreign investors from emerging economies such as Nigeria triggered a currency outflow that further decimated the value of the naira and prompted draconian forex policies.
- The result is a lack of access to foreign exchange for most manufacturers, leading to limited production runs amid rising cost of production. Inflation has also affected the cost of their operations, forcing them to survive by raising prices despite limited production growth.
- It is also important to add that insecurity and logistics bottlenecks have also affected the industrial sector considering that they need to transport merchandise from one place to another to make sales.
Why this matters: The government, through the central bank, has invested trillions of naira in intervention funds, all aimed at reviving the industrial and agricultural sector.
- The data also reveals that Nigeria is an increasingly service-oriented economy, while government efforts to boost the agricultural sector are also working.
- The agricultural sector contributed 29% of GDP compared to 22% in 2016. It now appears that efforts to generate growth in the industrial sector have not worked as planned despite policies aimed at stifling imports.
- While growth has been in nominal terms, the sector has lagged behind the agriculture and service sectors over the years.
- In fact, the services sector has recorded strong growth every quarter since the first quarter of 2021 when it contracted.
What does this mean: The GDP data is evidence that hopes of Nigeria’s industrial sector being the engine of growth for the economy are gradually eroding.
- The Nigerian economy appears to favor service-based companies as they are less dependent on the country’s road network to increase production.
- For example, the financial services sector, telecommunications companies, and even commerce rely more on technology and mobility to increase sales and increase volumes.
- The sectors are likely to continue to grow as they are more dependent on population growth for more growth.
- We also note that the agricultural sector has also grown over the years largely thanks to government support.
- It also means that sectors that have the full backing of the government often do better.
Panorama: The central bank is likely to drastically reduce its intervention funds in the industrial sector. This was confirmed by the governor of the central bank, Godwin Emefiele, when answering questions at the last meeting of the MPR.
- According to Emefiele, the intervention funds will be halted as the country battles rising inflation that has yet to deliver growth.
- However, he argued that intervention in the agricultural sector will probably continue as long as the government boosts local food production.
- As inflation continues to rise and the central bank has reacted with tightening monetary policy, we expect the industrial sector to shrink further in the near term.
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