23 May

Analysis – Q1 GDP shows path to growth

This morning, the National Bureau of statistics (NBS) released its first quarterly report for 2017. The report revealed that Nigeria is still in a recession with Q1 2017’s growth rate of -0.52%, officially representing the fifth consecutive quarter of contraction for Africa’s largest economy. This was worse than SBM’s projection that Nigeria would be out of recession by the end of Q1. Nominal GDP (values not adjusted for inflation) for the quarter stood at ₦26.028 trillion (up from ₦22.235 trillion) in Q1 2016, resulting in a Year-on-Year (YoY)GDP growth of 17.06% which is significant. The positive which can be taken from the figure is that the haemorrhaging has stopped, thus clearing the path to growth.

The Oil sector continues to decline, recording a YOY real GDP growth rate of -11.64%. While the tensions in the Niger Delta may have eased up following negotiations with militant groups and the increase in the amnesty budget, the country is yet to get oil production up to projected levels. Q1 2017 oil production figure came in at 1.8mbpd compared to the 2.05mbpd recorded in the corresponding quarter of 2016, While 1.8mbpd represents the highest production levels for 2017, the slowness in Nigeria getting back to its peak production levels of 2.2 – 2.4mbd pose a significant risk as the country will be negotiating from a position of weakness if OPEC imposes production cuts as expected over the next few weeks.

Non-oil GDP had its best performance in four quarters, with a significant increase from 0.33% in Q4 2016 and -0.18% in the corresponding quarter of 2016 up to 0.72% in the Q1 2017 GDP report. The Non-Oil sector contributed 91.10% of the GDP, higher than the 89.98% share recorded in the corresponding quarter of 2016, but lower than the 93.25% recorded in Q4 2016. While agriculture is still in positive territory, we are concerned that it actually grew at a slower rate that usual in the quarter, although that may be due to seasonality. Other key sectors of the economy that are now back into positive growth, include construction, manufacturing, services, education, insurance, telecommunications and entertainment. These will be vital in pulling the rest of the economy out of recession.

While the figures show a return to growth in the near future, we are cautiously optimistic because of Nigeria’s population growth rate. The country’s population growth rate hovers around the 2.9% mark, and economic growth must double that for the country to move forward in relative terms. Given that the GDP figures for Q4 2016 were revised downward, it remains to be seen what the final figures for Q1 2017 will be. A lower than population growth rate of expansion still leaves room for a lot of social unrest, and this must be taken into consideration in any planning.