The Nigerian economy sustained its positive growth path for the third consecutive quarter in Q3-23. According to the recently released GDP report by the National Bureau of Statistics (NBS), the domestic economy grew by 2.54% y/y (Q2-23: +2.51% y/y). We highlight that the growth in the quarter was marginal, reflecting the impact of the high production costs induced by the FX devaluation in the period amid the improvement in the oil sector. The GDP print is 41bps lower than Cordros’ estimate (+2.95% y/y) and 35bps lower than Bloomberg’s median consensus (+2.89% y/y) estimate. Analysing the breakdown provided, we note that the oil sector contracted by 0.85% y/y (Q2-23: -13.43% y/y) while the non-oil sector grew slower by 2.75% y/y (Q2-23: +3.58% y/y). On an attribution basis, the Services, Agriculture and Industries sectors contributed 2.08%, 0.38% and 0.08%, respectively, to GDP growth.
Oil sector improves but remains in the negative territory
The oil sector improved in Q3-23 as the government’s unrelenting efforts to curb oil theft and vandalism have enhanced crude oil production levels. For context, crude oil production increased by 20.8% y/y to 1.45mb/d (Q2-23: 1.22mb/d). Further in our analysis, data from the NUPRC showed that crude oil production increased significantly across the Bonny (+405.0% y/y), Brass (+179.3% y/y), Forcados (+212.4% y/y), Bonga (+25.0% y/y), Escravos (+19.9% y/y), and Odudu (+16.3% y/y) production terminals in Q3-23. Notwithstanding, crude oil production remains below pre-pandemic levels, signaling the lingering challenges of (1) crude oil theft and pipeline vandalism, (2) shutdown of flow stations for pipeline leakage repairs, terminal maintenance, and flare management, and (3) inadequate contributions from licensed Oil Marginal Fields (OMF). Overall, while the sector growth is still negative, we highlight that it contracted to its softest decline in fourteen quarters (Q3-23: -0.85% y/y | Q2-23: -13.43% y/y).
Non-oil sector’s growth momentum slows further
The non-oil sector expanded at a slower pace, growing by 2.75% y/y (Q2-23: +3.58% y/y) as currency pressures witnessed in the period weakened the sector’s performance. As a result, Services sector GDP growth settled at 3.99% y/y (Q2-23: +4.42% y/y), undermined by the slow growth across the ICT (+6.69% y/y vs Q2-23: +8.60% y/y), Trade (+1.53% y/y vs Q2-23: +2.41% y/y), and Real estate (+1.90% y/y vs Q2-23: +1.87% y/y) sub-sectors. However, the Finance & Insurance sub-sector grew by 28.21% y/y in Q3-23 (Q2-23: +26.84% y/y), supported by increased credit creation as the FX liberalisation implemented in the period triggered the revaluation of FCY loans. Elsewhere, the Manufacturing sector (+0.48% y/y vs Q2-23: +2.20% y/y) recorded slower growth in the quarter, driven by the heightened production costs worsened by rising energy costs and currency pressures. Elsewhere, the Agriculture sector grew by 1.30% y/y (Q2-23: +1.50% y/y) as persistent insecurity in the food-producing belt of the country, higher input costs and rainfall deficit continued to hamper activities in the sector.
We expect the economy to grow by 2.74% y/y in Q4-23
Given the recent improvement in Nigeria’s crude oil production levels, we are optimistic that the oil sector will return to positive territory in Q4-23, more so that the base in the corresponding period of the prior year was low. We expect crude oil production to settle at 1.41mb/d in Q4-23 (prior estimate: 1.53mb/d), translating to an oil GDP growth of 14.93% y/y. Likewise, we expect the non-oil sector growth to settle in the positive territory, and expand by 2.19% y/y in Q4-23, in line with our growth expectations across the Service, Manufacturing, and Agriculture sectors. Overall, we expect growth to print 2.74% y/y in Q4-23 and revise our 2023E growth forecast to 2.54% y/y (Previously: 2.92% y/y).
