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Nigeria’s GDP overview in Q1, 2019: focus on major economic activities

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Nigeria’s Gross Domestic Product (GDP) grew by 2.01%(year-on-year), in real terms, in the first quarter of 2019. Compared to the first quarter of 2018, which recorded real GDP growth rate of 1.89%, the Q1 2019 growth rate represented an increase of 0.12% points. However, relative to the preceding quarter (fourth quarter of 2018), real GDP growth rate declined by –0.38% points (See figure 1).

It is worth noting that general elections were held across the country during the first quarter of 2019 and this may have reflected in the strongest first quarter performance observed since 2015. Aggregate GDP stood at   N31,794,085.85 million in nominal terms.

This aggregate was higher than in the first quarter of 2018 which recorded N28,438,604.23 million, representing a year on year nominal growth rate of 11.80%. The aggregate was, however, lower than in the preceding quarter of N35,230,607.63 million, by –9.75%. The nominal GDP growth rate in Q1 2019 was higher than the rate recorded in Q1 2018 by 2.54% points. For further analysis, the Nigerian economy can be classified broadly into the oil and non-oil sectors.

The Oil Sector

In the first quarter of 2019, average daily oil production stood at 1.96million barrels per day (mbpd), lower than the average daily production of 1.98mbpd recorded in the same quarter of 2018 by -0.02mbpd but higher than the fourth quarter 2018 production volume by 0.05mbpd. (Figure2).  The level of oil output during the quarter was the highest recorded over the past one year and the second highest since mid-2017.

Real GDP growth in the oil sector was –2.40% (year-on-year) in Q1 2019 indicating a decrease by –16.43% points relative to the rate recorded in the corresponding quarter of 2018. Growth decreased by –0.79% points when compared to Q4 2018 which was –1.62%.  Quarter-on-Quarter, the oil sector recorded a growth rate of 11.60% in Q1 2019. The Oil sector contributed 9.14% to total real GDP in Q1 2019, down from figures recorded in the corresponding period of 2018 but up compared to the preceding quarter, where it contributed 9.55% and 7.06% respectively. 

The Non-Oil Sector

The non-oil sector grew by 2.47% in real terms during the reference quarter.  This was 1.72% points higher compared to the rate recorded in the same quarter of 2018 but -0.23% points lower than the fourth quarter of 2018. During the quarter, the sector was driven mainly by Information and communication technology. Other drivers were Agriculture, Transportation and Storage, Trade and Construction. In real terms, the nonoil sector contributed 90.86% to the nation’s GDP, higher than recorded in the first quarter of 2018 (90.45%) but lower than the fourth quarter of 2018 (92.94%).

Mining & Quarrying

The Mining & Quarrying sector consists of Crude Petroleum and Natural Gas, Coal Mining, Metal ore and Quarrying and other Minerals sub-activities. This sector grew, in nominal terms, by –20.09% (year on year) in Q1 2019. Quarrying and other minerals exhibited the highest growth rate of all the sub-activities at 137.41% followed by coal activity at 57.36%. However, Crude Petroleum and Natural gas remains the main contributor to the sector with a weight of 99.10%. Comparing Q1 2019 against the Q1 2018 and Q4 2018 revealed that nominal GDP growth rate declined by –102.92% and –10.69% points respectively. The Mining & Quarrying sector contributed 9.90% to aggregate GDP in the first quarter of 2019, lower than the contributions recorded in Q1 2018 (at 13.85%) but higher than the 6.83% recorded in the preceding quarter. 

In real terms, the Mining and Quarrying sector grew by –2.31% (year-on-year) in the first quarter of 2019. Compared to the   first and last quarters of 2018, this represented a decline of –16.41% points and –1.07% points respectively. Quarter on quarter, growth rate recorded was 9.87%. The contribution of Mining and Quarrying to real GDP in the quarter under review stood at 9.21%, lower than the rate of 9.62% recorded in the corresponding quarter of 2018, though higher than the 7.23% recorded in the fourth quarter of 2018. 

Agriculture

Four sub-activities make up the Agricultural sector: Crop Production, Livestock, Forestry and Fishing. sector grew by 22.58% year-on-year in nominal terms in Q1 2019, showing an increase of 16.78% points from the same quarter of 2018. Compared to the preceding quarter, the nominal GDP growth rate was about 4% points higher. Crop Production remains the major driver of the sector. This is evident as it accounted for 85% of agriculture GDP. Quarter on quarter, growth stood at –25.27%. Agriculture contributed 19.11% to nominal GDP during the  quarter, higher than the recorded contribution in the first quarter of 2018 but lower than recorded in the fourth quarter.  

In real terms, the agricultural sector grew by 3.17% (year-on-year) in the first quarter of 2019, an increase of 0.17% points compared to the corresponding quarter of 2018, and 0.72% points compared to the preceding quarter. During the quarter, the sector contributed 21.91% to real GDP, higher than the contribution in the first quarter of 2018 (21.66%) but lower than the fourth quarter of 2018 (26.15%).

Manufacturing

The Manufacturing sector comprises of thirteen activities:   Oil Refining; Cement; Food, Beverages and Tobacco; Textile, Apparel, and Footwear; Wood and Wood products; Pulp Paper and Paper products; Chemical and Pharmaceutical products; Non-metallic Products, Plastic and Rubber products; Electrical and Electronic, Basic Metal and Iron and Steel; Motor Vehicles and Assembly; and Other Manufacturing.

In the first quarter of 2019, nominal GDP growth in the Manufacturing sector was recorded at 36.45% (year-on-year), or 27.52% points higher than the rate recorded in the corresponding period of 2018 (8.93%), and 2.88% points higher than in the preceding quarter. Quarter on quarter, manufacturing sector recorded a growth rate of 1.09%. The sector’s contribution to nominal GDP during the quarter was 11.32%, higher than its contribution in both the first quarter (9.28%) and the fourth quarter (10.11%) of 2018.

Real GDP growth in the manufacturing sector was 0.81% in the first quarter of 2019 (year on year). This was lower than in the same quarter of 2018 by –2.59% points, and the preceding quarter by –1.54% points (Figure 6). On a quarter-on-quarter basis, the growth rate stood at –4.62%. In terms of its contribution, the sector accounted for 9.80% of real GDP in Q1 2019, lower than the 9.91% recorded in the first quarter of 2018 but higher than the 8.86% recorded in the fourth quarter of 2018.

Construction

The Construction sector grew by 66.99% in nominal terms (year on year) in the first quarter of 2019, an increase of 58.02% points compared to the rate recorded in the same quarter of 2018. This was also higher when compared to the rate recorded in the preceding quarter. On a quarter on quarter basis, nominal growth was recorded at 10.62%. Construction contributed 6.17% to nominal GDP in the first quarter of 2019, higher than the 4.13% contribution a year earlier, and the 5.03% contributed in the fourth quarter of 2018.

The real growth rate of the construction sector in the     first quarter of 2019 stood at 3.18% (year on year), or 4.71% points higher than the rate recorded a year earlier. Relative to the preceding quarter, there was an increase of 1.13% points. Quarter on quarter, the sector grew by 1.36% in real terms. By contribution, the construction sector accounted for 4.09% of real GDP in the first quarter of 2019, higher than its contribution of 4.04% in the same quarter of 2018, and the 3.48% contribution recorded in the preceding quarter.

Trade

 In the first quarter of 2019, the nominal year on year growth in Trade services stood at 4.82%. This indicates an increase of 6.94% points when compared to the first quarter of 2018, and 0.40% points when compared to the fourth quarter. The quarter on quarter growth rate was –11.23%.  Trade’s contribution to nominal GDP in the first quarter of 2019 was 16.96%, lower than the contribution in the same quarter in 2018, and lower than the preceding quarter’s contribution, recorded at 17.24%.

In real terms, the year on year growth rate for Trade services stood at 0.85%, which is 3.42% points higher than the rate recorded the previous year, and –0.17% points lower than in the preceding quarter. Quarter on quarter, growth stood at –11.80%. In real terms, Trade’s contribution to GDP was 16.87%, lower than the 17.07% it accounted for in the previous year, but higher than the 16.50% recorded in the fourth quarter of 2018.

Finance and Insurance

The Finance and Insurance Sector consists of the two activities: Financial Institutions and Insurance, which accounted for 84.76% and 15.24% of the sector in real terms respectively in Q1 2019. 

The financial services sector grew at –3.96% in nominal terms (year on year), with the growth rate of Financial Institutions as –5.64% and Insurance recording a nominal growth rate of 6.61% in Q1 2019. The sector growth rate was, however, slower than that in Q1 2018 by –17.78% points, and –5.50% points than in the preceding quarter. Quarter on quarter, growth was 2.56%. The sector’s contribution to aggregate nominal GDP was 3.23% in Q1 2019, lower than the 3.76% it represented the previous year, but higher than the contribution of 2.84% recorded in the preceding quarter.

In real terms, growth in this sector was estimated at –7.60%, lower by –20.90% points compared to the rate recorded in Q1 2018, and by –5.83% compared to the preceding quarter. Quarter on quarter, growth in real terms stood at 1.90%.  The contribution of Finance and Insurance to real GDP stood at 3.21% during the quarter, which is lower than its contribution of 3.55% recorded in the first quarter of 2018, although higher than 2.72% recorded in Q4 2018.

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Nigeria

Nigeria’s economy to experience higher growth if liquidity can be unlocked

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“Unlocking Liquidity will restore growth and stability for Nigeria,” Ayo Teriba, Economist and CEO, Economic Associates.

If Nigeria is to achieve sustainable economic growth and stability in its economy, unlocking liquidity must be given top priority.

Dr. Ayo Teriba, an economist and CEO, Economic Associates, made explained this point at the Q2, 2019 one-day quarterly conference on Nigeria’s economic outlook in Lagos.

He decried the fact that Nigeria was at the low end of the liquidity ladder in Africa, arguing that the situation had to be addressed urgently.

Liquidity he pointed out was critical to increasing the nation’s external reserves that serve as a buffer against shocks in commodity prices.

One of the ways he believed Nigeria could improve its liquidity, is by attracting capital inflows, which was important considering the revenue challenges of the government.

In the evolving race for global liquidity, Teriba made a strong case for the alignment of policies to strengthen liquidity.

According to him, “The Federal Government is focused on growth, while the Central Bank of Nigeria is concerned about stability. There is no express concern about liquidity”.

He was of the view that liquid markets are about making sure that there are buffers against shocks, and for Nigeria, having more capital inflows was important than outflows.

Speaking further Teriba identified the various options for unlocking liquidity in the economy, which include;

Privatization: Which implies partially selling its equity across all State-Owned Enterprises, SOEs to retain a minority stake. (Brownfield Foreign Direct Investment Inflow)

Liberalization: This implies the development of idle land and building and unbundled infrastructure projects. (Greenfield Foreign Direct Investment Inflow).

Commercialization: Getting rental income from wholesale leasing of idle lands and buildings.

Securitization: This suggests securitization of future income streams from all financial and non-financial assets.

Teriba called for a strategic reform of revenue generation in the federation and across all tiers of government.

The economist stressed the need for Nigeria to move beyond exports, taxes and debts towards rental income and equity. He stressed that Nigeria had a lot to gain from securitizing its assets.

Some of the assets he identified for the government to consider are the following;

Corporate Assets: Which are government wholly-owned or majority equity holdings in State-Owned Enterprises, SOEs.

Financial Assets: Which represent the government’s minority equity holdings in Joint Ventures and other companies

Tangible Non-Financial Assets: Taking the steps of commercializing and securitizing idle lands and buildings, amongst other assets.

Giving further insight on capital flows, he identified foreign direct investment, FDI and Remittances as the major types that Nigeria should utilize.

He gave an example of Saudi Arabia that has developed a privatization plan worth $ 100bn, which will bolster the liquidity of the Gulf nation.

Dr. Teriba also referenced the Liberalization and Privatization plans of India, that has positioned the densely populated nation, as one of the leaders in FDI.

The CEO of Economic Associates was of the strong view that Nigeria needs a robust strategy to attract more foreign investments to compensate for lost export revenues.

In an interactive session with participants, he called on Nigeria to explore how it can leverage the Diaspora remittances, noting Africa was one region that had a challenging environment for remittances. Currently has a foreign reserve of approximately $45bn which can triple within a year, if it prioritizes unlocking liquidity through the various capital inflow options available.

Coming into 2019, considering various views on FX stability and expected calmness in the polity post-election had revealed an improvement in economic growth over the year. Notably, growth was projected to be anchored on stronger performance in the non-oil sector as the lower investment in the oil sector– save for the addition of the Egina oil field – amidst shut-ins at key oil exporting pipelines will result in slower growth in the oil sector and by extension a much slower contribution to overall GDP. Notwithstanding, the optimism of stronger contribution from the non-oil sector, has boosted the impact of the innovative programmes by key industry players in the ICT on the overall subsector growth. Reflecting the improved activity in the ICT subsector in Q1 19, coupled with recovery in both the Agriculture and manufacturing sectors, economists expect a much robust growth in GDP over 2019 by 20bps to 2.2% YoY (FY 18: 1.9% YoY).

Starting with the harbinger of growth, some economists retain their surmise on most sub-sectors in the nonoil territory with slight changes to services – driving a nonoil sector growth of 1.8% YoY (FY 18: 2.1% YoY). While some made an upward adjustment to the growth assumption for ICT subsector, the high base of growth in the prior year, the lull in the real estate and slower growth of credit creation in financial services is expected to constrain the rate of growth for the overall services sub-sector. In the ICT subsector, the upward projection to the assumption emanated largely from the now telling impact of the innovative customer acquisition programs. For financial services, notwithstanding the recent policies aimed at enhancing private sector lending – there are not much traction, as banks remain cautious in growing their risk assets. Lastly, there’s a believe that activities in real estate sector would remain muted given its oversupplied state. That said, activities in services is expected to expand modestly by 1.7% YoY (FY 18: 3% YoY).

On Agriculture, there is an optimistic view of a recovery in crop production due to favorable weather and government intervention aimed at curbing ongoing conflict in the northern region. On the government intervention, the RUGA (rural grazing area) settlement program was recently proposed, which requires each state to provide lands for the herders to grow their cattle. Though the program was suspended due to kickbacks from various states, there are positivity on some form of concession by the State government given the critical nature of the sector. Further buttressing the point is the ongoing discussions on a peace pact between the Zamfara state government and armed bandits in a bid to improve farming activities in the state. That said, economists expect the sector to grow by 3.2% YoY (FY 18: 2.3% YoY).  Elsewhere, while the general elections slowed activities in the manufacturing sector, some economic pundits see some traction in the sector beyond Q1 2019. Further upside would be payment of the minimum wage approved at the start of the year and successful implementation of the presidential order to clear the Apapa gridlock which had been a strain on producers over the last two years due to difficulty in transporting raw materials. That said the manufacturing sector is expected to grow by 2.13% YoY.

In the oil sector, it was highlighted at the start of the year that the plausible risk to crude oil production would be the resumption of militant attacks during the first quarter of 2019 should the electoral process get violent. With militant attacks out of sight, there is no impending risk to overall production asides minor pipeline leakages. Asides that, additional 200,000bpd capacity from Egina oilfield which resumed operations in January further supports the stance of increased production. For context, while NNPC is yet to provide any data on Nigeria’s oil production this year, the channel checks with external sources reveals that actual production touched 2mbpd (condensates inclusive) in April. That said, it is expected average oil production to print at 2.04mbpd – 6.4% higher than the prior year. Thus some economists suggest that the Nigerian economy will experience a 2019 growth estimate of 2.2% as against an initial prediction of 2% as a result of improvement in both the oil and non-oil sector.

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