May 26, 2023/Coronation Research
The latest national accounts released by the National Bureau of Statistics (NBS) show that GDP grew by 2.3% y/y in Q1 ’23 compared with 3.5% y/y in Q4 ’22. Meanwhile, on a q/q basis, it contracted by -15.7%, reflecting slower economic activity compared with the preceding quarter. The moderation in growth can be largely attributed to the impact of the naira scarcity (especially, in the informal sector) amid elevated production costs.
For Q1 ’23, the oil sector contracted by -4.2% y/y (marking the twelfth consecutive contraction in the sector) compared with -13.4% y/y recorded in Q4 ’22. We note that Bonny light declined by -2.2% q/q to USD81/b at end-March ’23. Based on data from the NBS, average crude oil production in Q1 ’23 was 1.51mbpd vs 1.34mbpd in the previous quarter and 1.49mbpd in Q1 ’22.
The improvement in crude oil production can be partly attributed to the sustained efforts by the FGN towards tackling crude oil theft and vandalism. Industry sources suggest that increased oil production was recorded across select terminals in Q1 ’23. They include Bonny, Brass, Qua Iboe, Forcadoes Escavros, and Odudu.
The non-oil economy grew by 2.8% y/y vs 4.4% y/y recorded in the previous quarter. The key drivers include manufacturing, banking and finance, real estate and ICT. Agriculture contracted by -0.9% y/y compared with a growth of 2.1% y/y recorded in the preceding quarter. The contraction can be partly attributed to the cash crunch which compelled farmers to dispose of harvests at discounted prices. Other factors such as the elevated prices of farm inputs, insecurity (especially in food-producing states), as well as storage and logistics difficulties, continue to impact the sector.
Agriculture accounted for 26.5% of total GDP in Q1 ’23. Crop production remains the sector’s major driver, accounting for 89.9% of agriculture GDP and grew by 1.9% y/y. The forestry and fisheries segments grew by 1.3% y/y and 0.9% y/y respectively, while the livestock segment contracted by -2.9% y/y.
Following the recapitalization of the Bank of Agriculture (BOA) by the FGN in May ‘23, N5bn worth of loan facility has been allocated to livestock farmers across the country. The funds, if disbursed efficiently could revitalize this segment, as well as reduce the protracted conflicts between crop farmers and herders as ranching would be prioritized. We understand that c.20,000 farmers have registered under the scheme.
The manufacturing sector grew by 1.6% in Q1 ’23 vs 2.8% y/y recorded in Q4 ’22. The slowdown in growth can be partly attributed to fx liquidity constraints and higher borrowing costs. At its last meeting, the MPC hiked the policy rate by +50bps to 18.5%. This implies that the cost of funds for manufacturers would remain elevated in the near term. Within the sector, the food, beverages, and tobacco segment grew by 3.9% y/y, accounting for 50.6%
of total manufacturing GDP in Q1 ’23. A cursory look at the recently released Q1 ’23 company results for select FMCGs highlighted that revenue grew but at a relatively slow pace, mainly driven by elevated cost of inputs as well as upticks in operating costs. Cement posted a growth of 1.6% y/y.
For the full economic note, please click here
