August 27, 2021/CSL Research

Nigeria’s second-quarter GDP report by the National Bureau of Statistics (NBS) showed a 5.0% growth (Q1-2021: 0.5%). The performance was mainly driven by base effect in the non-oil sector, while the oil sector remained in contraction for the fifth consecutive quarter.  

Mixed performances were witnessed in the non-oil sector 

The non-oil sector remains the mainstay of the economy, as growth settled at 6.74%, the highest since Q3-2014. Analysing across the sub-sectors, growth in the services sector scaled to 9.3% from a negative of 0.4% in the prior quarter. The service sector growth was mainly supported by domestic trade sector growth (+22.5%, the highest historically) and growth in the real estate sector (+3.9%), with both sectors accounting for 21.9% of the economy. The output in both sectors was mainly driven by a low base and necessarily not an improvement in fundamentals.  

Growth in the ICT sector (+5.6%) is yet to return to the pre-pandemic level, as telecommunication subscriber growth declined by -2.3% q/q on a positive note, despite the country’s structural challenges and FX liquidity crunch, the manufacturing sector grew 3.5%, the highest growth rate since Q1-2015. The performance was largely driven by the increased credit to the sector (4.0%y/y) and continued CBN’s intervention in the sector.  

Finally, the Agric sector surprised negatively, as growth moderated to 1.3%, the lowest since 2018. While we understand the cyclicality of the sector, we think the unabated insecurity in the country continues to weaken output. Also, insights from Famine Early Warning Systems Network (FEWSNET) indicated that rainfall in Q2-201 was below average across most parts of the country, while farming activities were restricted due to the high cost of farming inputs, (including fertilizers and improved seeds), exacerbated by the persistent insecurity.

 

Figure 1:  Oil output                                                                                           Figure 2: Growth breakdown across non-oil sector

Oil sector output remains uninspiring  

Performance in the oil sector remains uninspiring, as growth weakened to -12.3% from -2.3% in Q1. The depressed output reflects lower oil production (1.6mb/d, down from 1.72mb/d in Q1) due to OPEC+ supply restrictions and low drilling activities, as rig count as estimated by OPEC declined to 5 from 11 in the prior year. Also, data obtained from NNPC showed that Nigeria’s cumulative oil output loss from terminal shut-ins in Q2-21 amounted to an average of 162.65kb/d with the most shut-ins occurring at the Forcados (45.83kb/d), Qua Iboe (24.62kb/d) and Sea Eagle (18.74kb/d) terminals. 

Outlook: GDP growth to moderate to 3.0% in Q3 Non-oil sector: For the third quarter of the year, we expect growth to maintain a positive trajectory, but at a slower pace. We maintain a positive outlook for the services sector, supported by the ICT sub-sector, as the ban lifted on SIM registration by the NCC should drive an improved telecommunication subscriber base. Furthermore, we expect gains from the re-opening of the borders and further normalization of economic activities to drive trade output. Overall, we expect the Services GDP to settle at 5.2%. 

Although the Agric sector remains resilient, supported by continued CBN Agro-interventions, our outlook is cautiously optimistic due to the incessant insecurity in food-producing regions of the country. As such, we expect Agric output growth of 1.7%.  

We expect a 3.4% growth in the manufacturing sector, supported by our expectation of improved FX supply emanating from IMF’s SDR allocation (US$3.45bn) to Nigeria and Eurobond issuance. Overall, we expect the non-oil sector growth to settle at 2.8% in Q3-2021. 

Finally, we project the Oil sector to return to growth in Q3-2021, the OPEC+ decision to gradually increase production by 0.4mb/d monthly starting August 2021 portends positively for Oil GDP in the coming quarters. This development is likely to be supported by the completion of routine maintenance operations across key terminals. Thus, we forecast crude oil production (including condensates) of 1.85mb/d in Q3-2021, translating to a 5.4% growth. Over subsequent quarters, we see more room for growth, supported by the low base effect from last year. Overall, we project the economy to grow by 3.0% in Q3-2021.

 

 

 Figure 3: Real GDP growth (oil & non-oil GDP)                                   Figure 4: GDP forecast for 2021