The recently released Q2-24 GDP report by the National Bureau of Statistics (NBS) showed that Nigeria’s economic activities remained robust as the real GDP grew by 3.19% y/y in Q2-24 (Q1-24: +2.98% y/y). Notably, the improvement was primarily driven by the expansion in the oil sector (+10.15% y/y vs Q1-24: +5.70% y/y), while the non-oil sector growth (+2.80% y/y vs Q1-24: +2.80% y/y) stalled. Additionally, while the Manufacturing (+1.28% y/y vs Q1-24: +1.49% y/y) and Services (+3.79% y/y vs Q1-24: +4.32%) sectors slowed, the Agricultural (+1.41% y/y vs Q1-24: +0.18% y/y) sector improved.
Oil Sector Sustains Positive Momentum for Three Consecutive Quarters
The oil sector maintained its positive trajectory primarily due to the FG’s unrelenting effort to curb crude oil theft and pipeline vandalism, the development and integration of new oil fields, and fewer terminal shut-ins. The sector grew by 10.15% y/y in Q2-24 (Q1-24: +5.70% y/y | Q2-23: -13.43% y/y) underpinned by a lower base in the corresponding quarter in the previous year. Particularly, average crude oil production output settled at 1.41 mb/d in Q2-24 compared to 1.22 mb/d in Q2-23.
A breakdown of the data provided by the Nigerian Upstream Regulatory Commission (NUPRC) showed that the Bonny (+40.1% y/y), Qua Iboe (+17.1% y/y) and Forcados (+3.9% y/y) terminals primarily contributed to the increased crude oil production in Q2-24 relative to Q2-23. Overall, crude oil production (including condensates) averaged 1.49 mb/d in H1-24 (H1-23: 1.37 mb/d). Notwithstanding, we highlight that the headwinds in the Nigerian oil sector such as (1) infrastructure decay (2) reduced investment in existing terminals and (3) International Oil Companies (IOC) exit from Nigeria’s major oil assets continue to subdue domestic oil production below pre-COVID levels (Q1-20: 2.17 mb/d).
Non-oil Sector Growth Stalls in Q2-24
The non-oil sector maintained positive growth in Q2-24, expanding by 2.80% y/y, consistent with the growth rate recorded in Q1-24 (+2.80% y/y | Q2-23: 3.58% y/y). The sector performance was weighed by the slower growth in the Manufacturing (+1.28% y/y vs Q1-24: +1.49% y/y) and Services (+3.79% y/y vs Q1-24: +4.32%) sector even as the Agricultural (+1.41% y/y vs Q1-24: +0.18% y/y) subsector improved.
Outlook – GDP Growth to Slow to 2.84% y/y in Q3-24
Oil GDP: While we acknowledge the sustained efforts by the FG in ensuring higher crude oil output, we envisage the sector will remain pressured by the lingering impact of (1) infrastructure decay, (2) insecurity, and (3) low investment in the sector primarily underpinned by the exit of international oil companies (IOCs). Consequently, we project oil production to average 1.52 mb/d (crude oil: 1.32 mb/d, condensates: 200,000b/d) in Q3-24 relative to the 1.41 mb/d in Q2-24. Overall, we estimate growth in the oil sector to remain positive but slow to 4.83% y/y in Q3-24 (Q2-24: +10.15% y/y | Q3-23: -0.85% y/y) mainly due to a high base (Q3-23: 1.45mb/d) in the corresponding period.
Non-Oil GDP: We expect the growth momentum in the non-oil sector to be maintained, albeit at a slower pace. The sector’s performance will be supported by moderate growth across Agriculture and Manufacturing sectors amid an anticipated slowdown in the Services sector. Hence, we project that the non-oil sector will grow by 2.73% y/y in Q3-24.
Agriculture: While we think persistent security challenges and high input cost will continue to undermine the sector’s output over the short to medium term, we expect crop production to increase, partly supported by the seasonality effect of the September harvest season. Additionally, we envisage the sector will continue to benefit from the government’s direct interventionist policies. Accordingly, we estimate the agriculture sector will grow by 1.47% y/y in Q3-24.
Services: The Services sector is anticipated to maintain a positive trajectory in the near term. However, we foresee a moderation in growth compared to Q2-24 levels mainly due to a moderation in Finance & Insurance and the ICT subsectors amid a slight increase in the Trade subsector. This anticipated moderation in the Finance and Insurance subsector growth is expected to be primarily influenced by the CBN’s tight monetary stance, which is likely to limit credit creation. Thus, we forecast the Finance and Insurance sub-sector to slow to 26.84% y/y in Q3-24.
At the same time, we anticipate a slower increase in mobile subscriptions, lowering growth in the ICT subsector to 5.10% y/y in Q3-24. Furthermore, while we expect a slight improvement in trade, we project growth to remain subdued, reflecting tight financial conditions and weak consumer demand. As a result, we estimate the Trade sub-sector to grow by 1.09% y/y in Q3-24. Overall, we project the Services sector to grow by 3.71% y/y in Q3-24.
Manufacturing: Although we anticipate a slight improvement from the previous quarter, the manufacturing sector’s performance is expected to remain weak. This will be due to existing challenges, including high production costs exacerbated by (1) high energy prices, (2) elevated borrowing costs, and (3) naira depreciation. Consequently, we expect the manufacturing sector to grow by 1.45% y/y in Q3-24.
On a balance of factors, we now project real GDP to settle at 2.84% y/y in Q3-24, with the full-year growth settling at 3.00% y/y in 2024FY (2023FY: +2.74% y/y).
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