May 24, 2018/InvestmentOne Report
Low Base Effect Supports GDP Growth
The National Bureau of Statistics released the Q1 2018 GDP report, which can simply be summarized as a case of the same song and dance. The overall GDP numbers printed at 1.95% y/y, with growth recorded in both the oil and non-oil sectors at 14.77% y/y and 0.76% y/y respectively (versus 11.20% y/y and 1.45% y/y respectively in Q4 2017). Even though the oil sector contributed only 9.61% to total GDP in Q1 2018 it remained the main driver of economic output. Growth in the oil sector can largely be attributed to the improved state of oil production in Q1 2018 with output averaging 2.0million barrels per day (mbpd) in Q1 2018, versus 1.75mbpd in Q1 2017.
Apathetic Non-Oil Sector Growth
The main cause of concern comes from the benign growth of the non-oil sector. Although the sector grew by 0.76% y/y in Q1 2018, it was however 70basis points (bps) lower than Q4 2017 readings. One of the main drivers of growth in the non-oil were Agriculture (3.00% y/y), which represented 22% of total GDP in Q1 2018, although the pace of growth slowed compared to Q4 2017 (4.23% y/y).
Industrial Sector to the Rescue
Nonetheless, GDP output saw support from strengthening growth in the Industrial sector in Q1 2018 (24% of GDP and expanded by 6.86% y/y). Crude Petroleum and Natural Gas production was the largest contributor to growth (14.77% y/y) despite being less than 10% of total GDP in Q1 2018. Crop production came in second with 3.45% y/y, followed by Financial Institutions (12.58%) and Food, Beverage and Tobacco production (5.46%).
Going forward, we highlight the effect of the low base effect of Q1 2017 on the Q1 2018 growth numbers. The major driver of which was the upswing in crude oil production could wane off in H2 2018, as oil production had already picked up to 1.87mbpd which is very similar to the current rate of production levels at 2.0mbpd (including condensates) as at April 2018. This figure would further be impacted by what appears to be a temporary closure of the Trans-Forcados pipeline in May 2018 for repairs, which could take off 250,000 – 400,000bpd from production. We also highlight the potential effect that the OPEC’s cap at 1.8mbpd (excluding condensates) may have on the production levels and growth in the sector, especially with Seplat’s on drilling five new wells in 2018. Oil refining on the other hand remains a major issue in the country and the historically volatile performance could eventually weigh in on output in Manufacturing subsector and consequently, the Industrial sector.
In conclusion, while these GDP numbers point to continuous expansion in economic activities, the oil sectors contribution remains the main driver of GDP. The torpid growth rate of non-oil sector remains a huge concern. Two lessons we learnt from the recession that plagued the economy from Q1 2016 â Q1 2017 were:
I. The need to diversify economic drivers/government revenue and
II. Bridging the infrastructural deficit. From the figures above, it appears we are still not where we should be yet and while the GDP numbers are positive, it is really uninspiring.