| Nigeria Economy |    1286 VIEWS  |
| Nigeria Economy | |
| 1286 VIEWS | |
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| PROSHARE | |
| PROSHARE | |
Wednesday,
May 27, 2020 / 03:06 PM / By Comercio Partners / Header Image
Credit: BusinessDay
Overview
The National Bureau of Statistics (NBS) released
Q1-2020 GDP data which reflected a growth of 1.87% in real terms against 2.10%
recorded in the same period in 2019. This is probably indicative of the 3.4%
contraction predicted by the IMF for FY-2020. Oil sector growth settled at
5.04% YoY vs 6.36% YoY in Q4-2019. Overall growth performance was weighed down
by the non-oil sector (1.87% YoY vs 2.55% YoY in Q4-19), which fell to the
lowest point since seven (7) quarters. The decline in output can be attributed
to the impact of the global health crisis which has led to a plunge in internal
economic activities and a significant slowdown in international trade. Hence,
global demand for crude oil also reduced with a significant drop in oil prices.
In comparison with Q4-2019 GDP data, Q1-2020 is lagging by -0.68%.
Oil Sector
The Oil
sector grew by 5.06% YoY reflecting an improvement in crude oil production as
estimated by NBS to be 2.07mb/d in Q1-2020 (vs 1.99mb/p in Q1-2019). However,
the sector's contribution grew by 0.1bps to 10% in the reference period when
compared to Q1-2019. The growth in the sector can be attributed to the
sustained stability in the Niger Delta as well as new output from the EGINA FPSO.
Nevertheless, we highlight that there were some reported cases of shutdowns
across the Trans Forcados, Bonny, and Brass terminals, owing to repairs and
maintenance.
The Non-Oil Sector
The non-oil sector grew at a slower pace in real terms
by 2.06% in the reference period compared to 2.47% in Q1-2019. Growth in the
sector was subdued by sluggish performance in Trade, Real Estate Services,
Administrative and Support Services, Public Administration and Professional,
Scientific and Technical Services. However, during the quarter, services (1.57%
vs 2.41% Q1-2019), agriculture (2.20% vs 3.17% Q1-2019) and manufacturing
(0.43% vs 0.81% Q1-2019) all grew at a slower pace. The fastest-growing sectors
were the ICT (9.99% vs 9.48% Q1-2019) and finance & insurance (20.79% vs
-7.60% Q1-2019).
The agricultural sector recorded a 2.20% growth in
Q1-2020 from 3.17% in the same period in 2019. Crop production declined to
2.38% (3.26% in Q1-2019). Fishing and forestry increased (2.38%, 1.49% and
1.71%). Livestock production slowed down to 0.63%. The sector contributed
21.96% to overall output growth slightly higher than 21.89% for Q1-2019. Data
printed from the sector suggested that the sector is resilient amidst reported
cases of banditry in food-producing states and seasonality effect.
The
Manufacturing sector, on the other hand, posted slower growth from 0.81% in
Q1-2019 t0 0.43% in Q1-2020. Underlying reasons could be the competition in the
space and the low purchasing power of consumers as inflation bites hard amidst
border closure, FOREX restrictions as well as reduced international trade as a
result of supply chain disruption caused by the coronavirus. Financial
institutions grew by 24% as reflected in loan book expansion across the sector.
Hence, we reinforce the fact that proactive structural reforms are needed to
unlock productivity in the economy. Strangely enough, the real sector
(agricultural & manufacturing) didn't feel the impact.
Analyst Opinion
The uncertainty due to the Coronavirus outbreak has
shadowed prospects for growth in 2020. OPEC's oil supply deal with coalition partners
is expected to provide some support to crude prices. Recall, Nigeria had over
84 million barrels of unsold crude oil as estimated by Bloomberg in April while
some production companies have been forced to shut down operations for
maintenance and repair reasons. However, the number of unsold crude oil is
likely to decline in coming months, given the gradual easing in lockdown
globally.
We expect the non-oil sector to contract in the near
to medium term on the back of challenging business environment Also, tight
consumer wallet is expected to slow down trade activities thereby weighing on
overall output growth. The non-manufacturing PMI index in March indicated a
contraction in the services sector, as it fell to a 3-year low of 49.2 points
amidst contraction in new orders, employment level and inventories. The PMI
survey was likely carried out before the lockdowns were imposed, so we expect
PMI reading to significantly worsen in the coming months. However, we expect
the magnitude of overall decline to be mitigated by sustained but slower growth
in the telecommunication sector. The agricultural sector is expected to grow at
a much slower pace while displaying resilience. But disruption of farm output
supply chain might worsen the scenario.
Given
the foregoing, we expect Nigeria's economy to slip into a mild recession before
the end of the year.
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