Making sense of the Q3 2024 GDP numbers, By Uddin Ifeanyi

In the past one year, the path that most Nigerians have traversed has been uphill — across every dimension of their lived experience. As the cost of living has risen abruptly, incomes have fallen precipitously. Consequently, standards of living have declined. With businesses suffering huge losses of custom, marginal operations have been shuttered. The unemployment rate has risen – even under the revised method of accounting for unemployment. The ranks of the impecunious have grown. And a middle class experiencing a rapid erosion in its ranks, struggles to still be socially relevant. Imagine, then, the surprise, when the National Bureau of Statistics (NBS) reported, two weeks ago, that “Nigeria’s Gross Domestic Product (GDP) grew by 3.46% (year-on-year) in real terms in the third quarter of 2024. This growth rate is higher than the 2.54% recorded in the third quarter of 2023 and higher than the second quarter of 2024 growth of 3.19%.”

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Against the available body of anecdotal evidence, therefore, the fact of the Nigerian economy’s performance seems out of step with popular experience. What are the possible reasons for this? The NBS estimates the figures for the economy’s growth by measuring what the value add of the different players in the economy — grouped into 46 industry sectors — are. In addition, the resulting output figure is arrived at by excluding inputs and/or intermediate use of resources from what the different economic entities produce. Remove subsidies (for example, to foreign exchange users and to folks who buy petrol) from this and add taxes (including the value added tax), and you have the basis of the bean counters’ computation of the numbers for GDP growth in the third quarter.

According to these numbers, “The performance of the GDP in the third quarter of 2024 was driven mainly by the services sector, which recorded growth of 5.19% and contributed 53.58% to the aggregate GDP.” Obviously, traditional sectors of the economy — agriculture and manufacturing, for instance — continue to tread water. Moreover, the services sector’s growth was not due to improvements in the performance of restaurateurs, retailers, and telecommunications companies, for example. Instead, the financial services sector (up 30.83%) was the fastest-growing sector in the economy in the three months to the end of September 2024. Unsurprisingly, growth last quarter did not drive job creation at all. Indeed, of the 46 sectors of the economy that the NBS tracks, 10 shrank, and 21 decelerated. Only 15 grew.

Put this way, the popular sense of the economy’s performance is not completely out of kilter with the official measure. We need only to approach the calculation of GDP by calculating how and how much different sectors of the economy spend to get a better take on this. On this measure, inflation has wiped out consumer spending, and the depletion of consumer spending has made business investments redundant. Ordinarily, both these effects should portend negative outcomes for the output of the economy. For not only are people not buying as much as they used to, but the frequency of their purchases is also down. It is also the case that businesses are no longer investing in new capacity, while downsizing existing operations.

Government, on the other hand, continues to spend, buoyed by bank lending. The “crowding out of the private sector” argument, which is readily marshalled against governments borrowing extensively from the domestic economy hardly holds in this case — businesses have no bankable projects to borrow against. Additionally, on the back of reforms to the foreign exchange market, and improved output in the oil and gas sector (an exclave of the economy whose performance has little or no bearing on labour conditions), net exports are northward bound.

If so, the financial services sector supported much of domestic output growth in the third quarter, isn’t this because the sector lent healthily to the government? While this causal effect may explain the September quarter’s output figures, it simultaneously raises questions about the sustainability of this growth model. Of course, there is the possibility that government spending will eventually feed through to improved productivity and hence better economic growth. But given the lag between such productivity-enhancing spending and when positive outcomes begin to manifest, chances are that, at some point in the not-too-distant future, the gloom that is the current condition of the average Nigerian will be reflected in the official numbers on the economy’s performance.