February 28, 2023/United Capital Research
According to the National Bureau of Statistics (NBS), Nigeria’s real Gross Domestic Product (GDP) grew by 3.5% y/y in Q4-2022, following a 2.3% y/y growth in the previous quarter. The increase was driven by the services sector, which recorded a growth of 5.7% y/y and contributed 56.3% to aggregate GDP. Overall, in FY-2022, the Nigerian economy slowed to 3.1% from the 3.4% growth recorded in 2021 as growth in the agriculture and industry sectors contracted in 2022.
On a sectoral level, the oil sector contracted by -13.4% y/y in the period compared to -8.1% y/y in Q4-2021. It extends into the sector’s 11th consecutive quarter of contraction, underpinned by perennial concerns of oil theft and pipeline vandalism, In addition to years of underinvestment in upstream infrastructure. This is despite oil production rising to 1.34mbpd in the quarter (vs 1.2mbpd in Q3-2022). Conversely, the non-oil sector grew by 4.4% y/y (vs 4.7% y/y in Q4-2021). The sector’s contribution to GDP rose through the year, from 93.4% in Q1 to 95.7% in Q4-2022. However, rising energy costs in the quarter, high inflation and lingering supply chain issues slowed industrial activity, even as the services sector grew.
Following a year of modest economic growth in 2022, we retain our upbeat expectations for the Nigerian economy with the upsides for strong GDP figures in 2023. Although the recent cash crunch will cut output in Q1-2023, we expect a rebound in the following quarter as cashless payment systems are adopted. Overall, we project a modest rebound in the oil sector. This is as oil production outlook has brightened in recent months following the Nigerian National Petroleum Limited (NNPC) efforts to uncover illegal pipelines. For the non-oil sector, we anticipate strong growth across the major sub-sectors. We forecast expansion in the industrial sub-sector, given the government’s huge CAPEX spending in 2023 (N6.5tn, which is 30.0% of total expenditure). In the Agriculture sector, legacy issues around insecurity, farming methods and route-to-market will continue to be significant roadblocks to rapid growth. Also, we retain our positive outlook for the services sector. Thus, we project a base case economic growth of 2.5% y/y and bull case for 3.7% y/y growth for 2023. For comparison, the IMF projects the country to grow at 3.2% in 2023.
