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The recently released Q2-21 GDP report by the National Bureau of Statistics (NBS) showed that Nigeria recorded the third consecutive quarter of growth as the low base effect from the prior year magnified the impact of the sustained reopening of the economy. Specifically, real GDP grew by 5.01% y/y in Q2-21 (Q1-21: +0.51% y/y), driven mainly by the non-oil sector (+6.74% y/y vs Q1-21: +0.79% y/y), which posted the highest growth since Q3-14 (+7.51% y/y). We believe the strong outturn in the non-oil sector was due to the impact of (1) favourable base effects from the prior year and (2) sustained reopening of the economy. Nonetheless, the economy remains 1.4% smaller than Q2-19 levels indicating that the economy is yet to recover from the impact of COVID-19 fully. The growth outturn deviated from our estimate (+3.37% y/y), with the variance stemming from a better-than-expected performance in the non-oil sector. We, therefore, revise our growth estimate for Q3-21 and 2021FY upward to 3.76% y/y and 2.68% y/y, respectively.
Terminal Shut-ins Continue to Constrain Oil Sector Performance
Like in Q1-21, infrastructural challenges at some of the country’s oil production terminals continue to compound the woes of the oil sector. Our analysis of the data obtained from the Nigerian National Petroleum Corporation (NNPC) showed that Nigeria’s oil output loss from terminal shut-in in Q2-21 amounted to an average of 162.65kb/d with the most shut-ins occurring at the Forcados (45.83kb/d), Qua Iboe (24.62kb/d) and Sea Eagle (18.74kb/d) terminals. Accordingly, Nigeria’s crude oil production excluding condensates (1.42mb/d) was below the threshold of 1.53mb/d (excluding condensates) based on the OPEC+ agreement. Overall, the oil sector contracted by 12.65% y/y (Q1-21: -2.21% y/y) – the fifth consecutive quarter of decline as oil production (including condensates) printed 1.61mb/d (Q1-21: 1.72mb/d).
Base Effect Underpins Solid Growth in Non-oil Sector
The non-oil sector posted a stellar performance, growing by 6.74% y/y compared to tepid growth of 0.79% y/y in Q1-21. However, we believe the strong growth was amplified by the low base from the corresponding period of last year when the institution of COVID-19 containment measures led to a significant decline in business activity, particularly in the contact-facing sectors. That said, we imagine that the sustained full reopening of the economy further buoyed activities in Services-oriented industries.