August 29, 2022/CSL Research
Based on the recently released Q2 2022 GDP numbers, Nigeria’s economy expanded by 3.54% in real terms in the second quarter of the year (Q2 2022), sustaining the positive growth for the seventh consecutive quarter and higher than that of Q1 2022’s GDP of 3.11%. The better performance in Q2 relative to Q1 was due to a lesser contraction in the Oil sector (-11.77% y/y) compared to that of Q1 2022 (-26.04% y/y). Again, growth was driven by the nonoil sector (+4.77% y/y) in Q2, while the oil sector remained uninspiring (-11.77% y/y).
The growth in the non-oil sector was driven by heavy-weight subsectors in the Services sector like trade (+4.51% y/y) and ICT (+6.55% y/y). Services sector continued to dominate with 57.35% contribution to GDP, followed by Agriculture (23.24%), and Industries (19.4%) while the Oil sector continued to lag at 6.33%. We believe the growth in the trade sector continues to reflect improved domestic demand. Also, the ICT sector growth of 6.55% was mainly supported by the telecommunications sector (+7.71% y/y) given the continued demand for data and digital services.
Contraction in the oil sector slowed to -11.77% in Q2 2022 from -26.04% y/y in Q1 2022 as crude oil production continued to decline, albeit, at a slower rate. The slower contraction was further reinforced by higher average price of crude oil. Brent improved to US$111.31/bbl. in Q2 2022 from US$97.86/bbl. in Q1 2022 and US$69.08/bbl.in Q2 2021.
The NBS pegged average daily oil production for Q2 2022 at 1.43mbpd, lower than of Q1 2022 at 1.49mbpd, and 1.61mbpd in Q2 2021. The uninspiring output was largely due to crude oil terminal maintenance, shutdowns, theft, and reduced investments. We note, however, that the Federal Government, in a bid to curtail pipeline vandalism and oil theft, has recently awarded pipeline surveillance contract to a former Niger Delta militant, Mr Government Ekpemupolo.
The passage of the PIB that should have incentivized investments into the sector appears ineffective considering the reintroduction of the subsidy regime which is contrary to the provisions of the Petroleum Industry Act (PIA).
The non-oil sector grew by 4.77% in real terms in Q2 2022, 1.31% lower than Q1 2022. Growth in the sector in the second quarter of 2022 was driven by Trade; Information and Communication (Telecommunication); Agriculture (Crop Production); and Financial Services and Insurance (Financial Institutions) and Manufacturing (Food, Beverage & Tobacco). The non-oil sector contributed 93.67% to the nation’s GDP in Q2 2022 in real terms. Growth in the agricultural sector settled at 1.20% in Q2 2022 compared to 3.16% in Q1 2022.
The Q2 2022 subdued output continues to reflect the persistent security challenges amidst the planting season in the period and its effect on food production in the country despite CBN’s monetary interventions. Still, we expect the sector to remain resilient through the year, receiving respite from CBN Agro interventions. Likewise, growth in the Manufacturing sector moderated to 3.00% y/y in Q2 2022 compared to 5.89% y/y in Q1 2022, although still resilient even as the negative impact of the oil refining subsector has continued to drag performance.
Overall, we note that a slower contraction in the oil sector partly influenced the Q2 2022 GDP growth number on the back of higher average crude oil prices despite lower production volumes. Hence, economic growth still remains fragile.
