Culled—Proshare

May 31, 2017/FSDH Research

The Q1 2017 Gross Domestic Product (GDP) figures that the National Bureau of Statistics (NBS) released on Tuesday May 23, 2017 show that the Nigerian economy is on its way out of recession. According to the NBS, the GDP contracted by 0.52%, the lowest level of contraction recorded in the last five quarters.

The contraction was mainly due to the decline recorded in Mining and Quarrying, and Trade sectors which countered the recovery in the Non-Oil sector of the economy.

The Nigerian economy entered into a recession in Q2 2016 following two consecutive quarters of GDP contraction.

The economy contracted further in Q3 2016 and Q4 2016. Thus, the Nigerian economy contracted by 0.67%, 1.49%, 2.34% and, 1.73% in Q1, Q2, Q3 and Q4 2016 respectively (based on revised figures by the NBS).

The following factors pushed the Nigerian economy into a recession: drop in crude oil price and production, foreign exchange shortages, non-payment of workers’ salaries in the public sector, low electricity generation and low investors’ confidence in Nigeria.

The Oil GDP contracted by 11.64% in Q1 2017 compared with the contraction of 17.70% recorded in Q4 2016 and 4.81% recorded in Q1 2016.

The Non-Oil sector of the economy grew by 0.72% in Q1 2017 compared with a contraction of 0.33% and 0.18% in Q4 and Q1 2016 respectively.

The growth in the Non-Oil sector was driven by increased activities in Crop Production, Information and Communication, Manufacturing, Transportation and Other Services.

The Non-Oil sector contributed 91.10% to the GDP in Q1 2017, while the Oil sector contributed 8.90%. The Services sector remains the largest sector of the Nigerian economy, accounting for 55.45% of the GDP as at Q1 2017.

This is followed by Industries sector, which contributed 23.21% to the GDP as at Q1 2017. Agriculture accounted for 21.35% of the GDP as at Q1 2017.

The Water Supply, Sewage, Waste Management and Remediation sector recorded the highest growth rate of 12.63% in Q1 2017, followed by the Arts, Entertainment and Recreation sector at 11.67%.

However, Agriculture recorded the highest weighted growth rate of 0.72% in Q1 2017 followed by the Information and Communication sector with a weighted growth rate of 0.34% as at Q1 2017.

Our analysis of the recent developments in the Nigerian economy indicates that the economy is likely to be out of the current recession between Q2 2017 and Q3 2017.

Our review of the Purchasing Managers Index (PMI) shows that production activities are already picking up in Nigeria.

The policy of the Central Bank of Nigeria (CBN) to increase the supply of foreign exchange is partly responsible for the expansion in the PMI.

We also expect this initiative to boost trade activities going forward, which is an important component of the country’s GDP, representing 17.78%.

The improvement in the crude oil production and the expectation that the crude oil price will remain above $50/b should also lift the Oil GDP.