Finance and Insurance Sectors Achieve 26% Year-on-Year Growth to Boost GDP in Q1 2023
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Loading... - Amos Victor
- 30 May 2023
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In spite of Nigeria's challenging business environment, the finance and insurance sectors experienced a notable 26% year-on-year (YoY) increase in real Gross Domestic Product (GDP) growth during the first quarter of 2023. The growth in these sectors amounted to N949.11 billion, surpassing the N781.98 billion recorded in the corresponding quarter of 2022, as reported by the National Bureau of Statistics (NBS).
According to the NBS, the finance and insurance sector comprises two subsectors: financial institutions and insurance companies operating within the country. Analysts have attributed the significant increase in online transactions during this period to the Central Bank of Nigeria's (CBN) currency swap policy, which positively influenced the contributions of finance and insurance to the real GDP outcome.
In November 2022, President Muhammadu Buhari officially unveiled the newly redesigned naira denominations of N1000, N500, and N200, introduced by the CBN. The CBN Governor, Godwin Emefiele, expressed the bank's commitment to transforming Nigeria into a cashless economy. He emphasized that the deadline of January 31, 2023, for the exchange of old notes would not be extended. This development prompted many Nigerians to adopt electronic payment channels for their transactions.
The policy resulted in a surge of online transactions, with the Nigeria Inter-bank Settlement System (NIBSS) reporting a 298% increase in e-payment transactions during Q1 2023, totaling N135 trillion compared to N34.04 trillion in Q1 2022. This surge reflected the impact of the cash scarcity on Nigerians' payment habits.
The NBS report highlights that the finance sector concluded Q1 2023 at N870.82 billion, up from N696.87 billion in Q1 2022. However, the insurance sector experienced a slight decline from N85.11 billion in Q1 2022 to N78.3 billion in Q1 2023. Collectively, the contributions of finance and insurance to the real GDP reached 5.35% in Q1 2023, showing an increase of 0.84% points compared to the 4.51% contribution recorded in Q1 2022, and a 1.40% points increase compared to the 3.95% recorded in Q4 2022.
Dr. Afolabi Olowookere, Managing Director/Chief Economist at Analysts Data Service and Resources Limited, attributed the growth in the finance and insurance sectors to the substantial rise in online transactions during the period. Mr. Tajudeen Olayinka, CEO of Wyoming Capital and Partners, highlighted that while the financial services sector contributed 5.35% to the first-quarter GDP, the noteworthy growth rate between Q1 2023 and Q1 2022 was 21.37% (24.96% for the financial services sector excluding insurance). However, he noted that this aggressive growth in the sector, driven by the increased use of online and internet banking due to cash scarcity, did not have a significant positive impact on the overall economy, as the GDP growth rate slowed down to 2.31% during that quarter.
According to the NBS report, "The finance and Insurance Sector consists of the two subsectors, Financial Institutions and Insurance, in which the former accounted for 91.75% and the latter 8.25% of the sector respectively in real terms in Q1 2023. As a whole, the sector experienced a 22.37% growth rate in nominal terms (year-on-year), with the growth rate of Financial Institutions at 25.99% and a -7.25% growth rate recorded for Insurance. This overall rate was lower than that of Q1 2022 by 9.91% points and lower by 0.21% points compared to the preceding quarter. The quarter-on-quarter growth stood at 12.55%."
Festus Adenikinju, a member of the Monetary Policy Committee of the CBN from the Department of Economics, University of Ibadan, expressed concerns regarding the realization of the projected staff output growth of 2.64% in Q1 2023. He cited the challenges associated with the implementation of the currency redesign policy and fuel shortages in some parts of the country in January and February 2023. Adenikinju believed that the currency redesign policy had significant negative impacts on the economy, as both aggregate demand and aggregate supply were constrained. The informal sector and small and medium enterprises (SMEs) were particularly affected by the significant withdrawal of cash from the economy and widespread failures of online banking transactions. He suggested that the MPC should wait to evaluate the net effects of these cash withdrawals on the economy and prices before considering any additional rate hikes.
