May 25, 2023/InvestmentOne Report

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• The latest Gross Domestic Product (GDP) report released by the National Bureau of Statistics (NBS) for the first three months of the year revealed that the Nigerian economy remains resilient and in positive territory despite major headwinds affecting households and business activities in recent months. According to the report, real GDP expanded by 2.31% y/y, lower than the 3.11% y/y and 3.52% y/y growth rate recorded in Q1 2022 and Q4 2022, respectively. The slower growth rate in the period under review can be largely attributed to the several cash scarcity that ensued from the Naira redesign policy which adversely affected businesses, particularly in the informal sector and across the broad economy. We opine that the elevated inflationary pressures shrinking household income and tighter financial conditions may have also contributed to the subdued growth.
• Although the oil sector remained in contraction in the first quarter of the year, there was an improvement as negative real growth printed at 4.21% y/y in Q1 2023, better than 26.04% y/y and 13.38% y/y recorded in Q1 2022 and Q4 2022, respectively. Also, oil production volume recorded noticeable increase in the quarter as average daily crude oil production came in at 1.51 million bpd, higher than 1.49mbpd recorded in the corresponding period in 2022 and above the fourth quarter of 2022 average production volume of 1.34mbpd.

• In the non-oil sector, growth rate in Q1 2023 stood at 2.77% y/y in real terms, below 6.08% y/y seen in the corresponding quarter of 2022 and 4.44% y/y printed in the fourth quarter of 2022. The sector contributed 93.79% to total GDP in the period under review which was higher than 93.37% contribution made in Q1 2022 but lower than 95.66% recorded in Q4 2022. We highlight that the performance observed in the non-oil sector was underwhelming and below potential due to the cash crush which led to disruptions in business activities and in some cases liquidation as traders and others involved in the informal sector could not survive without the availability of cash payments.

• We believe that the contraction in the Trade sector was more pronounced due to the informal nature of the sector which exacerbated the effects of the cash crunch on trading activities. However, the Finance and Insurance sector experienced significant growth (21.37% y/y in Q1 2023 vs 11.61% y/y in Q4 2022) which could have stemmed from the high interest rate environment amid efforts to from the Central Bank of Nigeria to tame inflation running high in recent months.

• Going forward, we maintain our expectation of continuous growth in the Nigerian economy, albeit at a moderate pace given macroeconomic challenges such as persistent inflationary pressure, tighter financial conditions, and insecurity issues across the Nation. Furthermore, we expect the upgrade in the oil sector to support growth overall GDP growth in the coming months as the Federal Government intensify efforts to tackle oil theft to increase oil         production volume, whilst we also envisage a recovery in the non-oil sector as the effects of the cash scarcity subsides.