Oil Sector Woes Worsen Nigeria’s GDP Fortune, Revenue, Other Economic Indices - Mc Ebisco
Latest News

Oil sector woes worsen Nigeria’s GDP fortune, revenue, other economic indices

Challenges of the oil sector have posed threat to Nigeria’s Gross Domestic Product (GDP) record as the Q3 2022 growth rate decreased by 1.78 per cent points from the 4.03 per cent growth rate recorded in Q3 2021 and 1.29 per cent points relative to 3.54 per cent in Q2 2022.

This is also the case with Nigeria’s revenue profile which declined in October according to the Federal Allocation Committee report. According to the Communiqué of FAAC, in the month of October 2022, Value Added Tax (VAT) and Companies Income Tax (CIT) increased significantly while Oil and Gas Royalties, Petroleum Profit Tax (PPT) Import Duty recorded considerable decreases. However, Excise Duty increased marginally.

The National Bureau of Statistics (NBS), said Nigeria’s GDP grew by 2.25 per cent in the third quarter of 2022 on a year-on-year basis.

The NBS said this in its Nigerian Gross Domestic Product Report Q3 2022 released in Abuja on Thursday.

According to the report, the growth rate declined from 4.03 per cent in the third quarter of 2021.

The slow growth is attributable to the base effects of the recession and the challenging economic conditions that have impeded productive activities.

In nominal terms, aggregate GDP stood at N52.26 trillion in the quarter under review, representing a 15.83 per cent growth compared to N45.11 trillion recorded in the corresponding period of 2021. Q3 2022 growth is higher compared to 15.03 per cent and 15.41 per cent recorded in Q2 2022 and Q3 2021 respectively.

Oil Sector

On the oil sector, decline in productivity appears to have reflected challenges on the fortune on the GDP records as the sector recorded -22.67 per cent (year-on-year) as of Q3 2022, indicating a decrease of 11.94 per cent points relative to the rate recorded in the corresponding quarter of 2021.

Also, the growth rate decreased by 10.91 per cent points compared to the 11.77 per cent contraction recorded in the previous period.

The oil sector contributed 5.66 per cent to the total real GDP in Q3 2022, down from the figures recorded in the corresponding period of 2021 and the preceding quarter, where it contributed 7.49 per cent and 6.33 per cent, respectively.

In the third quarter of 2022, Nigeria recorded an average daily oil production of 1.20 million barrels per day (mbpd), lower than the daily average production of 1.57mbpd recorded in the same quarter of 2021 by 0.37mbpd. It is also lower than the 1.43 mbpd recorded in the previous quarter.

Non-oil Sector

On the other hand, the non-oil sector grew by 4.27 per cent in real terms during the reference quarter (Q3 2022). This rate was lower by 1.18 per cent points compared to the rate recorded same quarter of 2021 and 0.50 per cent points lower than the second quarter of 2022.

Growth in the non-oil sector was driven mainly by Information and Communication (Telecommunication), Trade, Transportation (Road Transport), Financial and Insurance (Financial Institutions), Agriculture (Crop Production). and Real Estate, accounting for positive GDP growth.

In terms of contribution to GDP, the non-oil sector contributed 94.34 per cent to the total GDP, an increase from 93.67 per cent recorded in the previous sector, while the oil sector contributed 5.66 per cent to the aggregate real GDP for the period.

Mining Sector

Nigeria’s mining sector suffered a decline in economic productivity, causing a -21.31 per cent growth decline as of Q3 2022.

This was disclosed in the Q3 GDP report released earlier today by the National Bureau of Statistics (NBS).

The contribution of the mining and quarrying sector to the GDP dropped to 5.90 per cent in Q3 2022. This is lower by 10.75 per cent points and 10.21 per cent points, respectively, compared to the figures for Q3 2021 and Q2 2022.

“Quarter on quarter, the growth rate recorded was – 0.63 per cent during the quarter. The contribution of Mining and Quarrying to Real GDP in the quarter under review stood at 5.90 per cent, lower than the rate of 7.66 per cent recorded in the corresponding quarter of 2021 and lower than the 6.51 per cent recorded in the second quarter of 2022,” the report said.

The Mining & Quarrying sector consists of Crude Petroleum and Natural Gas, Coal Mining, Metal ore and Quarrying and other Minerals sub-activities. NBS stated that the sector grew nominally by 34.26 per cent (year-on-year) in Q3 2022. And the nominal growth was led by the oil and gas sub-sector.

“Quarrying and Other Minerals exhibited the highest growth rate of all the sub-activities at 62.52 per cent, followed by Metal Ore activity at 51.47 per cent.

“However, Crude Petroleum and Natural gas was the main contributor to the sector with a weight of 87.52 per cent in Q3 2022,” the report states.

Comparing Q3 2022’s rate of growth relative to Q3 2021 and Q2 2022 growth rates, there was a rise of 38.91 per cent points and a fall of 15.49 per cent points respectively

ICT

Activities in the Nigerian Information and Communications Technology (ICT) sector contributed 15.35 per cent to the country’s real Gross Domestic Product (GDP) in Q3 2022.

This shows an increase in contribution when compared with the 14.20 per cent recorded in the same period last year. However, on a quarterly basis, the sector recorded a decline in real GDP contribution when compared with the 18.44 per cent it added in Q2, 2022.

According to the NBS, the ICT sector is composed of the four activities of Telecommunications and Information Services; Publishing; Motion Picture, Sound Recording and Music Production; and Broadcasting.

While the ICT sector recorded a growth rate of 10.53 per cent in real terms year on year in the quarter under review, the growth was driven largely by activities in the telecommunications sub-sector, which contributed 12.85 per cent to the GDP in the real term.

Further breakdown of the report showed that the agricultural sector contributed 29.67 per cent to the aggregate GDP, an increase from 23.24 per cent recorded in the previous quarter and a 29.94 per cent decline compared to the same period in 2021.

Industries, on the other hand, recorded a decline in their contribution from 19.4 per cent in Q2 2022 to 18.37 per cent in the review quarter. Meanwhile, services contributed 51.96 per cent to the national GDP, a significant drop from 51.35 per cent in Q2 2022.

The decline in Nigeria’s GDP growth indicates a drop in productivity in the economy due to the recurrent contraction in the oil sector and the low growth in key non-oil sectors such as transportation, banking, and education.

This implies that Nigeria’s economic activities grew in the third quarter compared to the corresponding period of 2021, albeit at a slower pace compared to the previous period.

The decline in Nigeria’s GDP growth indicates a drop in productivity in the economy due to the recurrent contraction in the oil sector and the low growth in key non-oil sectors such as transportation, banking, and education.

This implies that Nigeria’s economic activities grew in the third quarter compared to the corresponding period of 2021, albeit at a slower pace compared to the previous period.

The Q3 2022 growth (2.25 per cent) represents the slowest GDP growth in the last six quarters.

Experts react

In swift response, a Financial Inclusion/Wealth Management expert, Mr Idakolo Gbolade said 2023 would be a challenging year for Nigeria.

Gbolade speaking to Nigerian NewsDirect while reacting to the 2.25 per cent Nigeria’s GDP record in Q3, 2022, marking the slowest growth since the COVID-19 pandemic, said, “The growth is likely to decline further in Q4 because the slowing economic growth is majorly as a result of inactivity and slump in oil production, and other key productive sectors of the economy.

“The slow growth can also be attributed to the non-oil sector as well, whose growth use to cover for the oil sector. This report also shows that the major policies of the government being implemented is not yielding the desired outcome as food inflation, energy cost, cost of production are expected to rise.

“Nigerians should be prepared to face tougher times this yuletide as cost of food experiences higher percentage increase in 10 years.

“With inflation biting harder and cost of goods and services increasing, then the impact will bring untold hardship on the people coupled with elections next year. The present government might not achieve much before its tenure expires.

“Year 2023 will be a challenging year for our economy and budget implementation might not be achieved,” he stated.

Also, a Don of Accounting and Financial Development at Lead City University, Ibadan, Prof Godwin Oyedokun, said the GDP slow growth shows that the Country is not working.

He said, “The issue of GDP is a very critical one. If you look at what is going on in the country, there is no way we can’t have slow growth. I don’t want to be a prophet of doom, but things are not working, if things are working, definitely it will affect all the economic parameters and fundamentals. The slow growth we witness, we should thank God for it.

“A formidable way of measuring growth is via GDP. In order for us to get our priorities right, all things factored in parameters of GDP must be working well.

“Government should be careful and do better for the country. I wonder the kind of legacy this present government would tell others they’ve achieved.

“In summary, the slow growth in GDP is as a result of the fundamentals like inflation, slow economic activities accumulated to the slow growth.

“If government is doing well, economic activities will do well, but in this case things are not going well. Inflation is eating deep into productivity sector; there is no productivity.”

Challenges of oil sector, Nigeria’s mainstay, have posed threats recently to key economic indices.

Among this have been decline in revenue and its allocation. The October revenue allocation among the Federal, States, and Local government councils had suffered decline.

The Federation Account Allocation Committee (FAAC) shared a total sum of N736.782 billion from the October 2022 Federation Account Revenue to the Federal Government, states and local government councils.

This was contained in a communiqué issued at the end of the Federation Account Allocation Committee (FAAC) meeting for November 2022.

The N736.782 billion total distributable revenue comprised distributable statutory revenue of N417.724 billion, distributable Value Added Tax (VAT) revenue of N213.283 billion, Exchange Gain revenue of N5.775 billion and N100.000 billion Augmentation from Non-oil Revenue

In October 2022, the total deductions for cost of collection was N33.555 billion and total deductions for transfers, savings and refunds was N186.749 billion.

The balance in the Excess Crude Account (ECA) was $472,513.64.

The communiqué confirmed that from the total distributable revenue of N736.782 billion; the Federal Government received N293.955 billion, the State Governments received N239.512 billion and the Local Government Councils received N177.086 billion. The total sum of N26.228 billion was shared to the relevant States as 13 per cent derivation revenue.

Gross statutory revenue of N622.270 billion was received for the month of October 2022. This was lower than the sum of N825.710 billion received in the previous month by N203.440 billion.

From the N417.724 billion distributable statutory revenue, the Federal Government received N206.576 billion, the State Governments received N104.778 billion and the Local Government Councils received N80.779 billion. The sum of N25.591 billion was shared to the relevant States as 13 per cent derivation revenue.