As Expected, Growth Starts to Slow

Muhammadu Buhari, President of Nigeria. Image Credit: mobile.twitter.com

November 25, 2022/CSL Research

Nigeria’s GDP grew 2.25% y/y in Q3 2022. The Q3 2022 growth rate was 1.78ppt lower than the 4.03% growth rate recorded in Q3 2021 and1.29ppt lower than 3.54% reported in Q2 2022. While the oil sector contracted by 22.67%, the non-oil sector grew by 4.27%.

Contraction in the oil sector worsened to -22.67% in Q3 2022 from -11.77% in Q2 2022 ascrude oil production continued to decline. The NBS pegged average daily oil production for Q2 2022 at 1.43mbpd, lower than of Q1 2022 at 1.43mbpd in Q2 2022. The uninspiring output was largely due to crude oil terminal maintenance, shutdowns, theft, and reduced investments.

The Oil sector contributed 5.66% to the total real GDP in Q3 2022, compared
with 7,49% in Q3 2021 and 6.33% in Q2 2022. The non-oil sector grew by 4.27% in real terms Q3 2022, 1.18ppts lower than the rate recorded same quarter of 2021 and 0.50%ppts lower than Q2 2022 non-oil sector growth of 4.77%. The slower growth in Q3 relative to Q2 was driven by contraction in the manufacturing sector to -1.91% compared with growth of 3.0% in Q2. Information and Communication (Telecommunication); Trade and Agriculture grew stronger in Q2 compared with Q3.

We had forecasted GDP growth will soften in H2 and we do not expect a better turn out in Q4. The oil sector is forecast to continue to contract. Production has remained low since the beginning of the year. Nigeria has been unable to maximize the surge in oil prices, as crude oil production has remained perpetually below the OPEC benchmark due to terminal shutdowns resulting from dilapidating infrastructure, oil theft and we do not expect significant improvement in Q4. Increasing focus on the elections, will likely dampen growth in the non-oil sectors.

The high cost of diesel, FX illiquidity and increased borrowing cost from the CBN’s continuous rate hikes is expected to put further pressure on the manufacturing sector amidst the continuous decline in consumer purchasing power. We also expect the impact of the floods to subdue growth in the agricultural sector.

Lastly, we note that the Financial Institutions’ GDP grew 12.03% in Q3 2022, albeit, slower than 20.06% in Q2 2022,while the Manufacturing sector’s GDP declined -1.91% in Q3 suggesting stronger growth in banking sector’s fee-based income.

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