The insurance sector grew by 19.8 percent in the third quarter of 2024 (Q3 2024), enhancing the financial services sector growth that outperformed other sectors by 32 percent.
The service sector in Nigeria dominated sectoral growth performance for most part of 2024.
The Nigerian economy, however, exhibited resilience on account of Gross Domestic Product (GDP) performance which grew at 2.98 percent in the first quarter (Q1 2024), 3.19 percent in the second quarter (Q2 2024), and 3.46 percent in the third quarter (Q3 2024), despite the intense macroeconomic headwinds in 2024.
It is predicted to close the year at about 3.6 percent, which is at par with International Monetary Fund (IMF) forecasts for GDP growth for the sub-Sahara Africa which is 3.6 percent and better than the global GDP forecast of 3.2 percent.
In an analysis, the Director and Chief Executive Officer of the Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, acknowledged that in Q3 2024, the financial services sector outperformed other sectors with a growth performance of 32 percent.
Tagged: “Nigeria 2024 Economic Review and 2025 Outlook Gross Domestic Product (GDP) Performance,” he stated that the Insurance sector grew by 19.8 percent; road transport grew by 17.9 percent, and rail transportation by 19.7 percent.
However, the real sector growth remained subdued during the year with agriculture posting a GDP growth of 1.14 percent and manufacturing, 0.92 percent in the third quarter of 2024.
He noted that the Air Transport, Quary & Minerals, Petroleum Refining, and Textile sectors remained in recession as of the third quarter of 2024.
According to him, the implication is that sectors with high job creation potentials and prospects for economic inclusion are still struggling, and 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 reflect the growing decoupling of the financial services sector from the real economy; it also exemplifies the failure of the financial intermediation role of the financial services sector in the Nigerian economy.
Dr Yusuf said: “It is a significant dysfunctionality in the economy which deserves the urgent attention of policymakers. 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 inconsistent with our economic aspirations as it is a major disincentive to real sector investment.
“There is the need for appropriate policy measures to correct the huge disparity in the profitability between the real economy and the financial economy. There is also a progressive crowding out of the real economy in the financial markets.”
The CPPE director said from a structural perspective that the non-oil sector continues to dominate the economic space, contributing 94.43 percent of the country’s GDP in Q3 2024, while the oil sector contributed 5.57 percent.
“However, the economy is characterised by a paradox of the oil sector contributing an estimated 90 percent of foreign exchange earnings while the non-oil sector accounts for about 10 percent.” This, 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.”
He observed that the non-oil sector’s contribution to revenue had improved markedly in recent times, which reflects the enormous productivity and competitiveness of the non-oil sector of the Nigerian economy.
The policy implication is that more should be done to fix the challenges of productivity and competitiveness of the non-oil sector of the economy.
“Most of these challenges are structural issues, infrastructural challenges, funding constraints, regulatory issues and the general macroeconomic headwinds,” he said.
Delving into forex review and outlook, Dr Yusuf observed that at the close of the year, the 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 stabilised.
He said 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 over 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 bond proceeds on reserves,” he further stated.
Dr. Yusuf said: “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 Harcourt refineries 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.”
He observed that high inflationary pressure was a major concern in 2024 with November inflation peaking at 34.2 percent.
This situation caused an increase in the cost of living with the consequential effect of aggravation of the poverty situation, the 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,” Dr. Yusuf highlighted.
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