Yemisi Izuora
The service sector in Nigeria dominated sectoral growth performance for most part of the year 2024.
However, despite the intense macroeconomic headwinds in 2024, the Nigerian economy exhibited resilience on account of Gross Domestic Product (GDP) performance which grew at 2.98 per cent in the first quarter, 3.19 per cent in the second quarter and 3.46 per cent in the third quarter.
It is predicted to close the year at about 3.6 per cent which is at par with International Monetary Fund (IMF) forecasts for GDP growth for the sub-Sahara Africa which is 3.6 per cent and better than global GDP forecast of 3.2 per cent.
In an analysis by the Director and Chief Executive Officer of the Center For The Promotion Of Private Enterprise (CPPE) Dr. Muda Yusuf, in Q3 2024, the financial services sector outperformed other sectors with a growth performance of 32 per cent.
In the analysis tagged ‘NIGERIA 2024 ECONOMIC REVIEW AND 2025 OUTLOOK Gross Domestic Product [GDP] Performance” the Insurance grew by 19.8 per cent road transport grew by 17.9 per cent and rail transportation 19.7 per cent.
However, real sector growth remained subdued during the year with agriculture posting a GDP growth of 1.14 per cent and manufacturing, 0.92 per cent in the third quarter of 2024.
Yusuf, observed that the Air Transport, Quary & Minerals, Petroleum Refining and Textile sector remained in recession as at third quarter of 2024.
The implication is that sectors with high job creation potentials and prospects for economic inclusion are still struggling.
This situation needs to be reversed to fix the current high unemployment and reduce poverty.
The huge disparities in the growth of financial services and the rest of the economy are a reflection of the growing decoupling of the financial services sector from the real economy.
Yusuf, said that it also exemplifies the failure of the financial intermediation role of the financial services sector in the Nigerian economy.
“It is a significant dysfunctionality in the economywhich deserves the urgent attention of policy makers. The current reality is that investing in financial instruments has become much more profitable than investing in the real economy.
“The risk is also very low.This is not consistent with our economic aspirations as it is a major disincentive to real sector investment. There is a need for appropriate policy measures to correct the huge disparity in the profitability betweenthe real economy and the financial economy. There is also a progressive crowding out of the real economy in the financial markets.” he said.
From a structural perspective, the CPPE Director, said the non-oil sector continues to dominate the economic space with the sector contributing 94.43 per cent of the country’s GDP in Q3 2024, while the oil sector contributed 5.57 per cent.
However, the economy is characterized by a paradox of the oil sector contributing an estimated 90 per cent of foreign exchange earnings while the non-oil sector accounts for about 10 per cent.
This is according to the economist is a structural shortcoming in our economy which needs to be addressed as sectors that contribute hugely to GDP have no corresponding contribution to foreign exchange earnings.
However, he noted that the non-oil sector contribution to revenue had improved markedly in recent times which is a reflection of the enormous productivity and competitiveness challenges of the non-oil sector of the Nigerian economy.
The policy implication is that more should be done to fix the challengesof productivity and competitiveness of the non-oil sector of the economy.
Most of these challenges are the structural issues, infrastructural challenges, funding constraints, regulatory issues and the general macroeconomic headwinds, he said.
Speaking in forex review and outlook, Yusuf, recalled that at the close of the year, official exchange rate [NFEM] was N1,537 up from an average of N1,455.59 in January 2024 and N907.1 in December 2023.
However, from July to December 2024, the rate had largely stabilized.
The moderation in exchange rate volatility was informed by the series of regulatory reforms and the periodic intervention by the Central Bank in the forex market.
Meanwhile the balance of outlook for the exchange rate in 2025 is on the upside based on sustained improvement in foreign reserves which is currently in excess of $40 billion dollars, improvement in accretion to reserves on the back of improved inflows from the IMTOs and diaspora remittances, improved capacity of the CBN to moderate rate volatility through periodic intervention in the forex market and the positive impact of the $2 billion Euro Bond proceeds on reserves.
There are also expectations of improved Impact of the successful domestic dollar bond of $500 million, successful clearance of legacy forex obligations of about $7 billion by the CBN and Import substitution effect of the Dangote and Port Harcourtrefineries with the consequential easing of demand pressure on the forex market as well as gradual recovery of non-oil export sector and implications for forex inflows.
Meanwhile he observed that high inflationary pressure was a major concern in 2024 with November inflation peaking at 34.2 per cent.
This situation caused increase in the cost of living with consequential effect of aggravation of the poverty situation, elevated cost of operations and cost of production for businesses and significant erosion of profit margins of many businesses as additional costs could not be transferred to consumers because of weak purchasing power of consumers.
It also elevated the risk of loan defaults and high project costs across all sectors of the economy, with many cases of abandoned projects resulting from unforeseen cost escalation.