February 29, 2024/Cordros Report
According to the recently released GDP report by the Nigerian Bureau of Statistics (NBS), the domestic economy maintained its growth trajectory for the third consecutive quarter as real GDP grew by 3.46% y/y in Q4-23 (Q3-23: +2.54% y/y). The growth outturn is 72bps higher than Cordros’ estimate (+2.74% y/y) and 106bps higher than Bloomberg’s median consensus (+2.40% y/y) estimate. The Q4-23 tally brings the 2023FY full-year growth to 2.74% y/y (2022FY: +3.10% y/y). We highlight that the growth print was supported by the rebound in the oil sector (Q4-23: +12.11% y/y vs Q3-23: -0.85% y/y) after 14 consecutive quarters of negative growth and an improvement of activities in the non-oil sector. Predictably, the non-oil sector maintained positive growth in Q4-23, settling at 3.07% (Q3-23: +2.75% y/y). The outturn was primarily driven by the improved growth rate in agriculture (Q4-23: +3.07% y/y vs. Q3-23: +2.75% y/y) and manufacturing (Q4-23: +1.38% y/y vs. Q3-23: +0.48% y/y) sectors, while the services sector growth was flat at 3.98% (Q3-23: +3.99% y/y).
Oil Sector Growth Rebounds After 14 Consecutive Quarters of Contraction
The growth in the oil sector returned to the positive region in Q4-23 after 14 consecutive quarters of negative growth, synchronizing neatly with the FGN’s unrelenting effort to curb crude oil theft and pipeline vandalism. The sector grew by 12.11% y/y in Q4-23 (Q3-23: -0.85%), recording its highest print since Q1-18 (+14.02% y/y). We highlight that the improvement was primarily driven by increased crude oil production volumes in Q4-23 (1.53 mb/d vs. Q3-23: 1.43 mb/d | Q4-22: 1.35 mb/d) due to a combination of factors, including (1) fewer terminal shut-ins and (2) the aforementioned efforts in curbing crude oil theft and pipeline vandalism. A breakdown of the data provided by the Nigerian Upstream Regulatory Commission (NUPRC) showed that the Forcados (+44.1% y/y), Bonny (+37.6% y/y), Bonga (+5.3% y/y) and Qua Iboe (+1.4% y/y) terminals primarily contributed to the increased crude oil production in Q4-23 relative to Q3-23. Overall, crude oil production (including condensates) averaged 1.46 mb/d in 2023FY (+5.8% y/y vs 2022FY: 1.38 mb/d).
Non-oil Sector Remained Resilient on Growth in Key Sectors
The non-oil sector grew stronger in Q4-23, increasing by 3.07% y/y relative to +2.75% y/y in Q3-23. We attribute the growth print to the impact of (1) commercial banks’ credit creation, (2) increased trading activities due to end-of-year festivities in the period, and (3) the harvest season in the agriculture sector.
Outlook – Low Base Effect & Higher Crude Oil Production to Support Growth
Oil GDP: Considering the recovery in Nigeria’s crude oil production with data from the NUPRC showing that aggregate crude oil production (including condensates) increased for the second consecutive month by 5.9% m/m to 1.64mb/d in January (December 2023: 1.55mb/d), we expect that the increased crude oil production volume will be sustained in the near term. The FGN’s effort to combat crude oil theft and pipeline vandalism is expected to curb frequent operational shutdowns in the oil industry. Therefore, we expect oil production to average 1.58mb/d (crude oil: 1.45mb/d, condensates: 130,000b/d) in Q1-24. However, we expect a slower growth print in Q1-24 following the high statistical base in Q1-23 – a higher crude oil production of 1.51 mb/d in Q1-23. Hence, we project a slowdown in the non-oil sector growth to 4.64% in Q1-24.
Non-Oil GDP: We anticipate that the non-oil sector will remain subdued in the near term, given the persistent increase in domestic prices, currency pressures and supply shocks induced by heightened insecurity in the food-producing region. Based on the preceding, we project that the growth of the non-oil sector will moderate to 2.77% y/y in Q1-24.
Agriculture: Despite the potential limitations posed by the planting season and heightened conflict and displacement in the food-producing belt on agricultural output in the short term, we maintain the view that the favourable statistical base effect from last year (Q1-23: -0.90%), attributed to the adverse impact of cash shortages on farming activities, will underpin growth in Q1-24. Hence, we estimate that the agricultural sector will grow by 2.54% y/y in Q1-24.
Services: The services sector is anticipated to maintain a positive trajectory in the near term. However, we foresee a moderation in growth compared to Q4-23 levels. This deceleration in the services sector growth is expected to be primarily influenced by a slower rate of expansion in the financial services sub-sector. We highlight that the recent surge in growth within the financial services sub-sector (2023FY: +17.24% vs. 2022FY: +28.86%) can be attributed to revaluation gains supported by the devaluation of the official exchange rate. Although we expect this trend to persist in Q1-24, we also anticipate that the CBN’s regulations on banks’ net foreign assets and the appreciation of the naira towards its fair value will temper revaluation gains. Consequently, we forecast the financial services sector to print 16.27% y/y in Q1-24.
Simultaneously, currency pressures, increased borrowing costs, and subdued demand stemming from declining consumer real income are expected to hinder growth in the Trade sector. Nevertheless, we believe that a lower statistical base in Q1-23, attributable to the impact of the cash crunch, will bolster a higher growth rate of 2.57% y/y in the Trade sub-sector. Moving to the ICT sub-sector, we anticipate that the rise in mobile subscriptions will sustain robust growth in the industry. Overall, we project the services sector to grow by 3.72% y/y in Q1-24.
Manufacturing: We expect growth in the manufacturing sector to remain subdued in Q1-24. We acknowledge the ongoing challenges faced by manufacturers, including the increased costs of imported raw materials underpinned by the naira depreciation, high energy costs, and stringent financial conditions. Therefore, we estimate a 1.79% y/y growth for the manufacturing sector.
Having modelled our expectations across the oil and non-oil sectors, we now project real GDP to settle at 2.88% y/y in Q1-24, with the full-year growth settling at 3.29% y/y in 2024FY (2023FY: +2.74% y/y).
