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Household consumption is still the major demand driver of the 3.4 percent year on year real GDP (gross domestic product) growth recorded by Nigeria in 2021, a detailed analysis of the report released by the National Bureau of Statistics (NBS) has shown.
Indeed, the sector’s expenditure grew 19.36 percent and 7.3 percent in real terms during the third and fourth quarters of the year respectively, according to the GDP by expenditure approach for both quarters released by the NBS and analysed by Business A.M.
According to the report, Nigeria’s real GDP at basic prices in the third quarter of 2021 grew by 4.03 percent on a year-on-year basis showing a steady improvement from the 2020 economic downturn. The growth was across the board in the final three months of the year with a positive growth rate at 3.98 percent in real terms, showing that the economy has resurrected from the 2020 recession where there was a negative growth rate of -1.92 percent recorded, compared to the 2.27 percent in 2019 on an annual basis.
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As a result of the quarterly growth recorded at a gradual pace, Nigeria’s annual GDP growth in 2021 stood at 3.40 percent, an improvement from 2020. Compared to the third and fourth quarters of 2020, the performance in 2021 indicated an increase of 7.65 percent points and 3.87 percent points higher, respectively.
Without losing focus on the crux of the moment, the NBS report said the annual growth rate in real household consumption expenditure stood at 25.65 percent compared to -1.69 percent in 2020, while Government Consumption Expenditure recorded growth rates of -39.51 percent and -16.76 percent in Q3 and Q4 2021 respectively, year on year. Annual growth rate stood at -34.03 percent in 2021 compared to 61.58 per cent in 2020.
The final consumption expenditure of households consists of expenditure, including imputed expenditure, incurred by resident households on individual consumption goods and services and is calculated as a residual.
A detailed analysis of the report shows that the highest demand continues to emanate from household consumption, with a GDP share of 70 percent. Within this group, Non-Profit Institutions Serving Households (NPISH) contribution to broad GDP declined, as it now contributes less than the usual one percent. Also, disposable income was reported to have declined by -2.5 percent in FY 2021, and analysts infer that tax reforms introduced by the Finance Act 2020 contributed in part to the decline, while not ruling out the base effects in 2020 when fiscal stimulus provided income buffers to households.
Although government expenditure maintained its share of GDP at around six percent, in real terms, it was lower by 34 percent year on year with analysts saying the decline in government expenditure was mainly due to the high base effect. The combination of special fiscal interventions and supplementary expenditure in the wake of the pandemic pushed up government expenditure sharply in 2020.
However, when government expenditure gets isolated after declining 34 percent in real terms, real domestic demand, which typically comprises household consumption, investment expenditure and government expenditure in real terms, grew by an average of 15 percent year on year across constituents and in accordance with the NBS report.
In other headers, the report showed that private investment, which is also known as gross capital formation, reported an uptick by 4.7 percent year on year as it is believed this was driven by the resumption of previously shelved capital expenditure plans by private companies due to a more favourable economic outlook. Meanwhile, employee compensation during the third and fourth quarters of 2021 advanced 14.54 percent, and 11.79 percent, respectively, in real terms on a year-on-year basis. For 2021, the growth rate stood at 13.68 percent compared to 0.96 percent in 2020.
For the external sector, it was in a net-import position at the end of the year with nominal imports valued at N20.8 trillion, against exports at N18.9 trillion. The NBS report stated that the net exports recorded positive growth rates in the first two quarters of 2020 and shifted to negative growth rates in the third and fourth quarters of 2020 as well as the first three quarters of 2021, which is a departure from the trend in 2019. Meanwhile, net exports grew in real terms in the third and final quarters of 2021 by -38.27 percent and 1.35 percent, in that order, and on an annual basis, net exports grew by -55.77 percent in 2021 compared to -13.17 percent recorded in 2020.
Consequently, analysts are of the opinion that the net-import position reflects pent-up orders following the disruption to global supply chains in 2020.
Meanwhile, all heads are optimistic about a bounce-back of government expenditure and sustained growth in household consumption, but investments on the other hand should come in slightly weaker due to expected pre-election year tension.