Economic downturn hits manufacturers, oil, services firms

CBN logoEconomic crunch is biting manufacturers, oil and gas firms as well as services-rendering companies in Africa’s most populous nation whose growth tumbled in the third quarter of 2022.

The Nigerian Gross Domestic Product Report Q3 2022 released by the National Bureau of Statistics on Thursday showed that the economy grew by 2.25 per cent (year-on-year) in real terms in the third quarter of 2022 as against 4.03 per cent reported in the same period of 2021.

According to the nation’s statistics body, the decline was attributable to the base effects of the recession and the challenging economic conditions that impeded productive activities.

Hence, the Nigerian economy slowed by 1.78 per cent between the third quarter of 2021 and the corresponding period of 2022.

In the quarter under review, aggregate GDP stood at N52.255tn in nominal terms, which was higher than N45.113tn reported in the third quarter of 2021.

However, real growth (not nominal) is the true reflection of the economy as it makes room for inflation adjustment.

The Nigerian economy is classified broadly in terms of oil and non-oil sectors.

Based on the NBS report, the oil sector is facing a myriad of challenges.

Real growth of the oil sector was –22.67 per cent (year-on-year) in Q3 2022, indicating a decrease of 11.94 percentage points relative to the rate recorded in the corresponding quarter of 2021.

Growth also decreased by 10.91 percentage points when compared to Q2 2022, which was –11.77 per cent.

Quarter-on-quarter, the oil sector recorded a growth rate of -1.80 per cent in Q3 2022. 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.

This is a red flag for a sector that accounts for 60-70 per cent of the country’s revenue and 80 per cent or more for its foreign exchange earnings.

However, the non-oil sector grew by 4.27 per cent in real terms. This rate was lower by 1.18  points compared to the rate recorded same quarter of 2021 and 0.50 per cent lower than the second quarter of 2022.

The sector was driven mainly by information and communication (telecommunication); trade; transportation (road transport); financial services and insurance (financial institutions); agriculture (crop production) and real estate, accounting for positive GDP growth.

“In real terms, the non-oil sector contributed 94.34% to the nation’s GDP in the third quarter of 2022, higher than the share recorded in the third quarter of 2021, which was 92.51% and higher than the second quarter of 2022 recorded as 93.67%,” NBS noted.

Manufacturers, others struggle

But manufacturers were not so lucky.

Real GDP growth in the manufacturing sector in the third quarter of 2022 was -1.91 per cent (year-on-year), lower than the same quarter of 2021 and slower than the preceding quarter by 6.20 percentage points and 4.91 percentage points respectively.

The real contribution to GDP in the 2022 third quarter was 8.59 per cent, lower than the 8.96 per cent recorded in the third quarter of 2021 and lower than the 8.65 per cent recorded in the second quarter of 2022.

Similarly, electricity, gas, steam and air conditioning supply grew by -3.07 per cent in the third quarter of 2022. This was 46.21 per cent lower than the 43.14 per cent growth rate recorded in the corresponding quarter of 2021,.

Hence, the sector was unable to support manufacturers and other critical players in the economy within that quarter.

“The contribution of this sector to real GDP in the third quarter of 2022 was 0.38%, lower than the 0.40% recorded in Q3 2021. Moreso, the figure in 2022 was lower than the 0.69% recorded in Q2 2022.”

Services other than human health, financial, insurance, education, administrative support, among others, grew by -2.67 per cent (year-on-year) in Q3 2022. This growth was lower by 3.40 per cent than the growth recorded in the same period of the previous year, and lower by 5.72 per cent points from Q2 2022.

Oil theft

In terms of oil and gas sector, the elephant in the room is lower production fuelled by theft, which has hurt revenues and stalled progress, according to experts.

Nigeria now ranks seventh on Organization of the Petroleum Exporting Countries’ crude oil production list, according to the organisation’s Monthly Oil Market Report for November, which examined oil production performance in October.

Nigeria’s output was a mere 1.014 million barrels per day in October, ranking seventh after Saudi Arabia, United Arab Emirates, Kuwait, Iraq, Angola and Algeria.

Nigeria’s production was 1. 014mb/d in October,  but Angola produced 1. 051mb/d;  Algeria, 1.060mb/d; Kuwait, 2.811mb/d; UAE, 3.188mb/d;  Iraq, 4.651mb/d; and Saudi Arabia, 10. 957mb/d.

Nigeria used to rank fifth, with countries such as Angola and Algeria behind it in terms of crude oil production.

The Group Chief Executive Officer of the Nigeria National Petroleum Company Limited, Mele Kyari, recently alleged that stolen crude oil products were being stored in places of worship such as churches and mosques.

“When we say we are losing several 700,000 barrels of crude oil per day, we mean it. This is opportunity loss. There is no company that will produce oil and then you lose 80 per cent of that and continue to produce the oil,” he said.

“So, we deliberately shut down the pipelines whenever we see these infractions getting to a limit that we cannot manage. That means as we speak to today, we know, for sure, there’s at least 700,000 barrels that we could have produced that we can’t because we cannot guarantee the safety of the pipeline,” Kyari disclosed.

Though the number is widely debated, it does not obliterate that oil theft is hurting productive activities in the sector.

Chairman and Chief Executive of Oilserv Limited, Engr. Emeka Okwuosa, advised the Federal Government to employ modern technologies and methodologies in solving the pipeline vandalism problem currently bedeviling the country’s oil and gas sector.