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The Multiplier Effects of Sabotage

Proshare

Wednesday, November 23, 2016 9:29 AM /FBNQuest Research

The NBS has released the national accounts for Q3 2016 to show negative growth of -2.2% y/y (after -2.1% the previous quarter). Contraction for the third successive quarter had been widely flagged, not least by the federal finance minister.

Our own expectation was -1.7% y/y, based in part on the semi-official narrative that oil production had hit its low in June and July.

The NBS commentary puts crude output at 1.63 mpbd in the third quarter, compared with 1.69 mbpd in the second and 2.11 mbpd in the first. The data tell rather different oil and non-oil stories.

Although oil’s contribution to constant price GDP declined further to just 8.2% in Q3, the impact of the sector’s latest contraction (of -22.0% y/y) is felt more broadly through linkages across the economy. Some estimates of the indirect oil economy range up to 50% of GDP.

An obvious priority for the FGN is to tackle the sabotage and insecurity in the Niger Delta. It has little choice but to make concessions for the sake of peace.

In stark contrast, the non-oil economy was flat y/y in Q3. (In fact, it expanded fractionally.) Among the few encouraging highlights, agriculture expanded by a solid 4.5% y/y while finance and insurance enjoyed a turnaround from -10.8% y/y the previous quarter to 2.6%.

The FGN has a major role to play in economic recovery on the fiscal side. Construction again contracted by 6% y/y, and stands to benefit from the planned acceleration in capital releases to spending ministries.



Looking ahead to the Q4 data, the base effects are positive for the oil sector.

Additionally, we should expect a small seasonal boost to household consumption, the squeezing of personal incomes notwithstanding, and a token return to positive territory for GDP as a whole.

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