ICT: Just the One Sector in Strong Growth Mode

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Thursday, November 26, 2020 / 10:41 AM / by FBNQuest Research / Header Image Credit: Tech Cabal

 

From the latest national accounts we have put together a chart to highlight the best performing sectors of the economy in Q3'20. We exclude those that represent less than 1% of constant price GDP and remind our readers that the data series is not seasonally adjusted.

 

The sad conclusion is that only one sector (information and communications) has achieved healthy growth over the past three quarters. This is a common trend across emerging and frontier markets. Telecoms, which account for close to 85% of the sector, expand across the population and into less urbanized areas. New technology such as the provision of banking services on mobile phones has a (near) universal appeal, particularly if it is competitively priced. Additionally, telecoms are boosted by lockdowns because working from home increases demand for voice and data products. The practice is likely to remain popular whenever we emerge from life with Covid-19.

 

The growth of the financial and insurance sector has fallen back heavily in Q3, to just 3.2% y/y. Our theory is that the monthly increases in the loan books of financial institutions have slowed now that most banks have reached the minimum threshold of 65% for the loans to deposits ratio.

 

The earlier robust increases were the result of pressure from their regulator (the CBN) and not because their risk appetite had grown. Priorities could change now that returns on FGN paper have crashed. Financial institutions comprise close to 90% of the sector.

 

Construction took a huge hit in the lockdown, which largely coincided with Q2, and has made a small recovery with the reopening of building projects.

 

The same can be said of manufacturing, which contracted again in Q3 but at the slower rate of -1.5% y/y (vs -8.8%).  Food, beverages and tobacco, its largest sub-sector, expanded by 5.6% y/y (and 13.3% q/q). There was an element of playing catch-up to produce those essential goods for which unfulfilled orders had accumulated during lockdown.

 

Nigeria has a broad-based economy in the sense that petroleum does not dominate the productive base. That said, much of its agriculture is inefficient, its manufacturing does not generally produce to international standards and it has just one services sector in expansion and innovation mode (information and comms). We see the return of positive GDP growth in Q2'21 and perhaps in Q1 but we struggle to see growth at a rate to transform incomes.

 

Top performing sectors (%chg; y/y)

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Source: National Bureau of Statistics (NBS), FBNQuest Capital Research


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