February 24, 2023/InvestmentOne Report

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• The Nigerian economy maintained positive performance for the ninth straight quarter according to the recently released Gross Domestic Product (GDP) report by the National Bureau of Statistics. Specifically, the economy expanded by 3.52% y/y in real terms in the last quarter of 2022, compared to 2.25% y/y in Q3 of the same year. On a year-on-year basis, the growth recorded was 46bps lower than 3.98% y/y growth seen in the corresponding period of 2021 due to unintended consequences emanating from the naira redesign, high inflationary pressure, lingering fuel scarcity, security challenges and other macroeconomic headwinds limiting growth potential.

• In line with recent trend, the oil sector remained in contraction in Q4 2022, however there was an improvement as negative real growth rate stood at 13.38% y/y, better than 22.67% y/y recorded in the previous quarter. Furthermore, annual growth rate in the oil sector was negative at 19.22% y/y compared to the negative growth rate of 8.30% in 2021 as daily oil production volume was below potential for most part of 2022 despite the gradual improvement in recent months.
• On the bright side, the non-oil sector stayed resilient to neutralize the contraction posted in the oil sector. Accordingly, the non-oil sector grew by 4.44% y/y in real terms, 17bps higher than 4.27% printed in the previous quarter, marking the ninth consecutive quarter of growth in the sector. However, the growth rate recorded in the period under review was 29bps lower than the 4.73% seen in the same period in 2021. The non-oil sector contributed 95.66% in real terms to total GDP in Q4 2022, above 94.34% and 94.81% in the prior quarter and the same period in 2021.
• Worthy of note is the naira redesign which has become a major talking point in Nigeria since it was announced by the Central Bank of Nigeria (CBN) on 26 October 2022. After the old notes ceased to be legal tender, Nigerians have suffered hardship due to scarcity of the new notes with the populace having to spend several hours on long queues to get cash as the CBN aim to drive a cashless policy in the Nigerian economy.
• Going forward, we envisage a continuous but moderate growth in the Nigerian economy which should be substantially supported by non-oil sector – especially the ICT and financial services sector as we expect the renewed drive towards cashless policy to bolster activities in those sub-sectors. Also, we expect the oil sector to gradually improve on the back of measures in place by the government to tackle theft and other stumbling blocks triggering underperformance in the oil sector. However, we posit that impediments such as high inflation, tighter financial conditions, insecurity issues and currency depreciation pose notable threat to economic growth.