Tax Hikes, Rising Costs Drive Decline In Nigeria’s Air Travel

0

LAGOS – Experts have linked Nigeria’s decline in air travel activity to weakening con­sumer demand caused by higher ticket prices following recent tax adjustments and increased operational costs facing domestic airlines.

Nigeria’s economy posted stronger growth in the first quarter of 2026, with the services sector, telecommunications, finance, transportation and construction emerging as the key pillars supporting the country’s gradual economic recovery amid persistent inflationary pressures and elevated interest rates.

Fresh analysis of the latest national accounts released by the National Bureau of Statistics (NBS) showed that the economy expanded by 3.89 percent year-on-year in Q1 2026, an improvement from the 3.13 percent recorded in the cor­responding period of 2025.

The performance reflects im­proving business activity across critical non-oil sectors and a mod­est rebound in oil sector output, reinforcing expectations that Nigeria may sustain stronger economic momentum through the rest of the year.

However, the aviation seg­ment remained under pressure, as air transportation contract­ed by 7.62 percent year-on-year, worsening from the 0.81 percent contraction recorded in Q1 2025.

The latest data indicate that the non-oil sector remained the dominant driver of growth, ac­counting for about 96 percent of total economic output during the quarter. Non-oil GDP grew by 3.94 percent year-on-year, slight­ly higher than the 3.31 percent recorded in Q1 2025.

Oil sector growth also im­proved to 2.57 percent from 1.97 percent a year earlier, supported by improved production levels and firmer crude oil prices.

Sectoral analysis showed that services remained the stron­gest-performing broad sector of the economy, expanding by 4.31 percent year-on-year, ahead of industry at 3.50 percent and ag­riculture at 3.15 percent.

Within the services sector, in­formation and communications retained its position as Nigeria’s fastest-growing major economic activity, recording a robust 10.98 percent expansion in Q1 2026 compared with 7.40 percent in the same period of last year.

The sector has now sustained growth for 33 consecutive quar­ters, underlining its resilience despite broader macroeconomic challenges affecting households and businesses.

Analysts attributed the sus­tained expansion largely to con­tinued growth in mobile telecom­munications services, rising data consumption, increased digital transactions and the deepening role of technology in commerce and financial services.

The telecommunications in­dustry has increasingly become one of the economy’s most de­pendable growth anchors, par­ticularly as businesses and con­sumers continue to shift toward digital platforms.

Finance and insurance emerged as the second-fastest growing sector, recording 8.54 percent growth in Q1 2026, al­though slower than the excep­tionally strong 15.03 percent growth achieved in Q1 2025.

Analysts said the sector con­tinued to benefit from Nigeria’s elevated interest rate environ­ment, driven by the tight mone­tary policy stance adopted by the Central Bank of Nigeria (CBN) in its effort to curb inflation and stabilise the foreign exchange market.

Higher interest rates have boosted banks’ earnings through improved yields on government securities and expanded interest income margins, helping sustain profitability across the financial services industry.

However, experts noted that while the banking sector has continued to benefit from tight­er monetary conditions, per­sistently high borrowing costs may gradually constrain private sector credit growth and invest­ment activities if maintained over a prolonged period.

Transportation and storage ranked as the third-fastest grow­ing sector during the quarter, posting 7.41 percent year-on-year growth compared with 14.08 per­cent in Q1 2025.

Growth within the sector was primarily driven by stronger ac­tivity in road transport, which ex­panded by 9.64 percent, alongside rail transportation growth of 6.03 percent.

Industry operators attributed the growth to increased move­ment of goods across the country, rising commercial activities and continued investments in trans­port infrastructure.

The construction sector also delivered a strong performance, expanding by 6.38 percent year-on-year during the period.

The growth was largely sup­ported by ongoing federal and state governments infrastructure projects, as well as sustained pri­vate sector investments in com­mercial real estate and residen­tial housing developments.

Construction activity has in­creasingly become an important channel for economic stimulus as public sector capital spending and urban expansion continue to support demand for cement, steel and other building materials.

Manufacturing completed the list of the five fastest-growing sec­tors in the first quarter, recording growth of 3.29 percent compared with 1.69 percent in Q1 2025.

The improvement in man­ufacturing output was driven largely by stronger activities in cement production and the food, beverage and tobacco segment, which expanded by 11.53 percent and 4.10 percent, respectively.

Industry analysts said the sec­tor’s performance suggests that some manufacturers are gradu­ally adapting to the difficult oper­ating environment characterised by high energy costs, currency volatility and elevated financing expenses.

Nonetheless, they warned that inflationary pressures, weak consumer purchasing power and infrastructure bottlenecks remain major constraints to stronger industrial growth.

The agricultural sector, al­though slower than services and industry, maintained positive growth momentum at 3.15 per­cent, reflecting continued resil­ience in food production despite insecurity challenges in some farming regions and rising pro­duction costs.

Economic analysts believe the broader Q1 performance in­dicates that Nigeria’s economy is gradually stabilising after years of volatility caused by foreign exchange instability, inflationary shocks and weak oil production.

The improved GDP numbers also align with recent policy re­forms aimed at restoring mac­roeconomic stability, improving investor confidence and strength­ening fiscal revenues.

Analysts expect the current growth momentum to continue over the remaining quarters of 2026, with non-oil activities likely to remain the principal growth engine.

The outlook for the oil sector is also seen improving further amid stronger global crude oil prices driven partly by renewed geopolitical tensions in the Mid­dle East.

Higher oil prices could pro­vide additional fiscal revenues for the government and support foreign exchange earnings, al­though analysts caution that Nigeria must still address struc­tural challenges limiting crude production capacity.

In addition, economists expect increased fiscal spending ahead of the 2027 general election cycle to stimulate domestic demand and economic activity across several sectors.

Historically, pre-election spending in Nigeria has often boosted liquidity within the econ­omy through increased govern­ment projects, campaign-related expenditures and infrastructure interventions.

Combined with ongoing re­forms in the banking, energy and infrastructure sectors, analysts believe these factors could help sustain moderate economic ex­pansion through 2026.

Based on current trends, ana­lysts maintained a full-year GDP growth forecast of 4.3 percent for 2026, reflecting optimism that stronger non-oil performance and improved oil sector activity will continue to offset lingering macroeconomic risks.

However, they warned that sustaining stronger growth would require continued efforts to tame inflation, stabilise the naira, improve power supply, strengthen security and deep­en structural reforms capable of attracting long-term invest­ment.

For policymakers, the latest GDP report presents encourag­ing signs that economic reforms may be beginning to yield mea­surable results.

Yet, economists insist that translating headline growth into improved living standards, low­er unemployment and reduced poverty remains the country’s biggest challenge.