Nigeria’s GDP growth drops for the 4th consecutive quarter. What does this mean for the property market?

Nigeria's GDP growth drops for the 4th consecutive quarter. What does this mean for the property market?

29th August, 2022

2 minutes, 35 seconds read

Since 2013, there has been very strong correlations between the Nigerian Bureau of Statistics (NBS)’s report on the performance of Nigeria’s GDP as a whole, and the real estate services and construction sector contribution. Typically, as in most economies, a growth in the overall economy influences a higher growth in the real estate services and construction sector. The same applies when the economy is in a period of recession. Since Q2:2021, Nigeria’s GDP had dropped by 13% Quarterly on an average, and because it has a different impact on Real Estate and Construction, it raises some concerns on how the sector is impacted. We assessed performances in the past and looked at expectations for the sector.  

The telecom deregulation/GSM introduction in the early 2,000s alongside the Banking reform in 2015 positioned Nigeria’s market for growth. 

With the establishment of the Decree 75 of 1992, the telecommunication industry in Nigeria saw massive liberalization that ushered in the creation of the Nigerian Communications Commission (NCC) and opened up the terminal end equipment market to competition and private sector involvement. The impact of this was the extinction of the NITEL regime, which was characterized by poor communication service. Although NITEL still retained its monopolistic rights, new players were able to come into the country and spurred phenomenal economic growth between 2,000 and 2005. This was further exacerbated by the introduction of the Global System for Communication (GSM) in 2001 which brought Econet (now Airtel) and MTN into the market.

In 2005, the Federal government in an attempt to reform the banking sector, introduced the Bank Consolidation Policy. In particular, it took steps to address safety, soundness, and accessibility in the banking sector, by lowering entrance barriers, liberalizing lending and savings rates, establishing an interbank foreign currency market, deregulating interbank lending, and privatizing a number of banks and financial institutions. This reform alongside the telecom deregulation stabilized the economy between 2005 through 2014 before the economy took a negative turn. To date, the Nigerian telecommunication and banking sector is now a significant economic driver for the country. The banking sector accounts for more than 34.2% of the entire market capitalization of the Nigerian Stock Exchange’s equity market (NSE).

 Data from the NBS depicts that even though sector contribution has been relatively stable, the growth rate is still low. In economics, nominal value is measured in terms of money invested in a sector. A real value is one that has been adjusted for inflation.

In terms of the performance of the Nigerian Real Estate and Construction sector in nominal terms, the sector has seen growth over the period, but the impact has historically been eroded by inflation. The 2016 recession and the COVID-19 pandemic further pushed the industry into a negative territory and has remained low ever since. 

While the future may look unexciting judging from the recent economic indices, technology is driving phenomenal growth. Additionally, we expect that the come-back rush will continue to provide an additional boost to construction GDP in the coming quarters. Like other conventional industries, real estate has not altered much in recent years, but the emergence of new ideas in the sector, there is no telling the growth potential. We are happy to see Nigerian businesses flourishing in the wake of the new technological wave and are leveraging technology to disrupt and enhance the way we buy, rent, sell, plan, construct, manage, and make choices on property investments.

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