Based on the recently released GDP report by the National Bureau of Statistics (NBS), Nigeria’s economy maintained its positive growth trajectory in Q1-24, growing by 2.98% y/y (Q4-23: +3.54% y/y). We highlight that the heightened inflationary pressure, naira devaluation and tight monetary conditions subdued the growth, muting the impact of the low base from the corresponding period last year. Further out, the oil sector growth remained positive but slowed to 5.70% y/y in Q1-24 (Q4-23: +12.11%), while the non-oil sector growth moderated to 2.80% y/y (Q4-23: +3.07% y/y). On an attribution basis, the Services, Agriculture, and Industries sectors contributed 2.47%, 0.46% and 0.04%, respectively, to GDP growth.
Oil sector Maintains Positive Growth in Q1-24
The oil sector sustained its positive growth for the second consecutive month in Q1-24, albeit at a slower pace, growing by 5.12% y/y (Q4-23: +12.11% y/y | Q1-23: -4.21% y/y). We highlight that the slowdown was due to a modest improvement in domestic oil production compared to the corresponding period last year (1.57 mb/d vs Q4-23: 1.55 mb/d | Q1-23: 1.51 mb/d). Whilst the Federal Government intensified its effort to curb oil theft, we highlight that other existential factors, such as infrastructure decay and IOC divestments, continued to subdue oil production below historical production levels. Further analysis of data from the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) revealed that crude oil production increased at the Bonny (+94.3% y/y) and Forcados (+10.5% y/y) terminals, while it declined across the Brass (-10.3% y/y), Qua Iboe (-8.7% y/y), Escravos (-9.9% y/y) and Odudu (-9.6% y/y) terminals.
High Inflationary Pressure Subdue Non-oil Sector Growth
The non-oil sector grew at a slower pace, recording a 2.80% y/y (Q4-23: +3.07%) growth rate in Q1-24. The slowdown can be attributed to subdued consumer demand, as persistent price pressures lowered real income. We also highlight that currency constraints and tight financial conditions weighed on productivity. Disaggregating the performance, the Agricultural sector grew slowly by 0.18% in Q1-24 y/y (Q4-23: +2.10% y/y | Q1-23: -0.90% y/y), largely due to low output given the below-average planting activities induced by the high input costs and reduced access to farmlands given the heightened level of insecurity in the food-belt region. On the other hand, growth in the Manufacturing sector edged higher to 1.49% y/y (Q4-23: +1.38% y/y | Q1-23: +1.61% y/y) but remained weak as high borrowing costs and currency weakness continued to weigh on manufacturing activities.
Nevertheless, the Services sector remained resilient, largely driven by impressive growth in the Finance and Insurance sector (+31.24% y/y vs Q4-23: +29.78% y/y). The stellar performance in the Finance sector can be linked to the CBN’s enforcement of the 65% loan-to-deposit ratio (LDR) for deposit money banks (DMBs) and the depreciation of the naira, both of which facilitated banks’ asset expansion. However, the Information and Communication (ICT) sector slowed to +5.43% y/y (Q4-23: +6.33% y/y | Q1-23: +10.32% y/y), reflecting the impact of the blockage of SIMs on total mobile subs following the NIN-SIM linkage directive by the Nigerian Communication Commission (NCC). Furthermore, the Trade sector slowed to 1.23% y/y (Q4-23: +1.40% y/y | Q1-23: +1.31% y/y), primarily due to weaker consumer demand.
Oil Sector to Account for Most of the Growth in Q2-24
Whilst the oil sector has underperformed recently, we are optimistic that domestic oil production will remain considerably above the previous year’s level. For clarity, we expect domestic oil production to average 1.50mb/d in Q2-24 (Q2-23: 1.23mb/d), pushing the oil sector growth higher to 22.95% in Q2-24. On the other hand, we believe that high inflation, financial constraints, and currency depreciation will continue to weigh on the non-oil sector, further lowering growth in the non-oil sector to +2.70% y/y. Accordingly, we expect the GDP growth to print 3.80% y/y in Q2-24 and project an average growth of 3.20% in 2024E. However, we highlight that our GDP estimate does not factor in domestic oil refining, which could potentially result in a higher growth print than estimated.
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