The recently released Q2-22 GDP report by the National Bureau of Statistics (NBS) showed that Nigeria maintained its positive growth trajectory for the seventh consecutive quarter after the COVID-19-induced decline in Q2-20 and Q3-20. Precisely, real GDP grew by 3.54% y/y in Q2-22 (Q1-22: +3.11% y/y), primarily driven by the non-oil sector (+4.77% y/y vs Q1-22: +6.08% y/y), which remains the overall growth engine.
Meanwhile, the oil sector (-11.77% y/y vs Q1-22: -26.04% y/y) maintained its decline for the ninth consecutive quarter, given the existing factors hampering crude oil production. The growth outturn is 5bps and 64bps higher than Cordros’ (+3.49% y/y), and Bloomberg’s median consensus (+2.90% y/y) estimates, respectively. That said, we revise our growth estimate for Q3-22 upward to 2.90% y/y and expect the 2022FY growth to settle at 3.01% y/y.
Oil Sector Continues to Battle its Worst Performance in Decades
Unsurprisingly, the oil sector maintained its contraction for the ninth consecutive quarter in line with the lingering production challenges exacerbated by ;
- rising oil theft & vandalism,
- International Oil Companies (IOCs) divestments, given the challenging business environment and the shift to cleaner energy sources, and
- the lagging impact of age-long infrastructure decay. Accordingly, the oil sector contracted by 11.77% y/y in Q2-22 (Q1-22: 26.04% y/y) as crude oil production (including condensates) settled at 1.43mb/d (Q1-22: 1.49mb/d). Notably, we highlight that crude oil production decline was significant across the Bonny (-74.9% y/y), Brass (-26.3% y/y), Qua Iboe (-19.2% y/y), Egina (-13.1% y/y) and Forcados (-10.1% y/y) production terminals/streams. The highlighted production terminals contributed 40.6% to crude oil production in Q2-22.
Non-Oil Sector Maintains its Impressive Run, Albeit Slowly
Experts at Cordors Capital say the non-oil sector remains the overall growth engine, maintaining its impressive run even as it slowed compared to the prior quarter. In our opinion, the sustained non-oil sector’s growth was underpinned by the;
- sustained growth in telecoms subscribers,
- reopening of more land borders for trade,
- sustained fiat-led interventions and
- commercial banks’ expansion of their loan books amid the sustained improvement in the economy. Consequently, the ICT, Trade, Finance & Insurance, and Transportation sub-components primarily drove the non-oil GDP growth.
Decomposing the GDP by broad sectors, we highlight that Industries (-2.30% y/y vs Q1-22: -6.81% y/y) maintained its contraction for the sixth consecutive quarter. Simultaneously, the growth in the Agriculture sector (1.20% y/y vs Q1-22: 3.16% y/y) slowed expectedly, while Services growth settled at 6.70% y/y (Q1-22: 7.45% y/y).
Outlook – Modest Growth Expected in Q3-22
Oil GDP: As observed in the past few quarters, we do not expect the country’s crude oil production to breach the OPEC+ quota (1.83mb/d as of August), given the nature of the challenges hampering output. Accordingly, we expect crude oil production to settle at 1.35 mb/d. If we factor in condensates, we expect crude oil production to print 1.46 mb/d, translating to a negative growth estimate of 7.01% y/y.
Non-Oil GDP: We expect the growth momentum in the non-oil sector to be maintained, albeit at a slower pace. For us, the sector’s performance will be supported by sustained slow growth across Agriculture, Manufacturing and Services. Hence, we project that the non-oil sector will grow by 3.70% y/y.
Agriculture: In Q3-22, we expect crop production to increase, supported by the seasonality effect of the harvest season in September. We also expect the sector to continue to benefit from CBN’s interventions. However, we expect the persistent security challenges across the country to undermine the sector’s output. Accordingly, we estimate that the agriculture sector will grow by 1.50% y/y in Q3-22.
Services: We expect the Services sector to continue to be supported by ICT, Trade, Real estate, and Finance & Insurance. Notably, though still in its infant phase, we believe the Payment Service operations will also serve as a potential upside for a sustained stellar Telecoms sub-sector’s growth. Overall, in the absence of any significant shock, we expect the Services sector to grow by 5.14% y/y.
Manufacturing: We expect the lingering cost and currency pressures to underpin a moderate growth in the Manufacturing sector even as consumer demand remains resilient. Elsewhere, we expect the cement sub-sector to support the Manufacturing sector given our expectations of higher demand compared to Q2-22, which was characterised by high rainfall that slowed down construction activities. Thus, we forecast a 2.78% y/y growth in the manufacturing sector in Q3-22.
On a balance of factors, we project the economy will grow by 2.90% y/y in Q3-22 and expect the 2022FY GDP growth to settle at 3.01% y/y.
