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Main factors to lead Nigeria’s economy in 2021 differ from 2020

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Nigerian economy

2020 was an unprecedented year, no thanks to the coronavirus outbreak as the National Bureau of Statistics (NBS) in its Gross Domestic Product (GDP) report in the first quarter (Q1) of 2020 unveiled that Nigeria grew by 1.87% in real term.

It was obvious that the performance recorded in Q1 2020 represents a drop of –0.23% points compared to Q1 2019 and –0.68% points compared to Q4 2019. Quarter on quarter, real GDP growth was –14.27%.

During the first quarter of 2020, average daily oil production of 2.07 million barrels per day (mbpd) was recorded. The production level was higher than the 1.99mbpd recorded in the same quarter of 2019 by 0.08mbpd and the fourth quarter of 2019 by 0.06mbpd.

The global economy was suspended in Q2 and most of Q3-2020 to safeguard human health. Oil prices plummeted to levels never seen before, airlines were grounded, hotels shut down, and all forms of congregational economic activity halted

According to the NBS, “performance was recorded against the backdrop of significant global disruptions resulting from the COVID-19 public health crisis, a sharp fall in oil prices and restricted international trade”.

The quarter review aggregate GDP stood at N35,647,406.08 million in nominal terms. This performance was higher when compared to the first quarter of 2019 which recorded N31,824,349.67 million, with a nominal growth rate of 12.01% year on year.

The oil sector recorded a real growth rate of 5.06%  (year-on-year) in Q1 2020 indicating an increase of 6.51% points relative to the rate recorded in the corresponding quarter of 2019. The Oil sector contributed 9.50% to aggregate real GDP in Q1 2020.

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The report has it that the non-oil sector grew by 1.55% during the reference quarter (Q1 2020).  This was slower by -0.93% points compared to the rate recorded during the same quarter of 2019, and -0.72% points slower than the fourth quarter of 2019.

The non-oil sector was driven mainly by Information and Communication (Telecommunications), Financial and Insurance (Financial Institutions), Agriculture (Crop Production), Mining and Quarrying (Crude Petroleum & Natural Gas), and Construction. In real terms, the Non-Oil sector contributed 90.50% to the nation’s GDP in the first quarter of 2020.

The NBS believes that the performance was recorded against the backdrop of global disruptions from the COVID-19, we believe the effect of the pandemic will be seen more in the Q2 2020 GDP figures.

Due to the shutdown of economic activities in Nigeria, a negative return of over 3% is expected.

The sectoral contribution to GDP with the oil sector on 9.50% and the non-oil on 90.5% shows that the Nigerian economy is well-diversified but not on the revenue front.

A well-diversified economy in terms of product creates an opportunity for income diversification if the right support is given to other sectors especially infrastructure.

In Q3-2020, the global economy began to reopen as countries looked to recover from the sharp blow dealt by the pandemic. However, the cost of reopening was evident in Q4-2020, as the second wave of infections began in many advanced markets, particularly in the United States and Europe.

This forced some countries to halt economic reopening and, in some cases, reintroduce lockdowns, as of the end of the year, the global Covid-19 caseload count was above 83 million, including 1.83 million deaths and more than 47 million recoveries.

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In 2021, it is expected that the global economy to take ‘a shot at recovery’, largely due to the announcement and approval of effective Covid-19 vaccines. The risks of re-emerging infections remain high, however, and much will depend on the speed, scale, and long-term effectiveness of vaccination.

In 2021, it is expected the global economy to take ‘a shot at recovery’, largely due to the announcement and approval of effective Covid-19 vaccines.

The risks of re-emerging infections remain high, however, and much will depend on the speed, scale, and long-term effectiveness of vaccination. Away from the virus, the outcome of the recent US presidential election which will see Joe Biden replace President Trump from January 2021 greatly reduces political risk. Also, a Joe Biden presidency is positive for global trade and efforts against climate change.

Overall, global growth is projected by the IMF to rebound by 5.2% in 2021, buoyed by recoveries in emerging markets (+6.0%) and advanced economies (+3.9%).

Recovery will be aided by bold economic stimulus packages and a massive accommodative policy stance by central banks. Similarly, oil prices are expected to continue northwards but may be stuck within the $45-$55/b range if demand fails to keep up with supply.

Growth in the region will be driven by a few factors. Firstly, the capacity of SSA economies to keep the spread of the coronavirus pandemic at bay amid potential vaccination bottlenecks and financial distress will be a significant factor, as the region must avoid another round of unaffordable lockdowns.

Also, the implementation of the AfCFTA trade agreement, now scheduled to begin from Jan- 2021 rather than Jul-2020, and the commitment of major economies such as Nigeria and South Africa to the success of the pact are key.

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Finally, fiscal policy operations, supported by access to more concessional financing, relief, and private financing amid bold policy reforms, will help bolster recovery.

In 2021, it is also expected that the GDP growth to rebound by 1.7% to 2.0%, buoyed by increased economic activity and some improvements in the oil market.

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