Nigeria’s best performing sectors in Q3
Nigeria’s gross domestic product (GDP) grew by 4.03 percent in real terms in the third quarter of 2021, showing sustained growth over the last four quarters since the exit from the 2020 recession.
A breakdown of the data by the National Bureau of Statistics (NBS) showed that the oil sector of the Nigerian economy marked its sixth consecutive period of contraction in the third quarter of 2021, thanks to poor crude oil production capacity.
Despite the sustained bullish trend in the international oil market, Nigeria’s oil sector failed to ride on the gains to exit recession as it contracted by 10.73 percent year-on-year in the third quarter of 2021, as analysed from the data by NBS.
Average crude oil production in Q3 2021 was 1.57 million barrels per day (mbd), 6.0 percent below the average production in Q3 2020 and 0.27mbpd below the 2021 budget assumption. Meanwhile, the average Brent crude oil price increased 76.0 percent from 43$pb in Q3 2020 to 76$pb in Q3 2021, partly responsible for the $6billion year-to-date growth in the foreign reserves to $41.4billion.
“The non-oil sector accounted for 92.5 percent of the GDP and has shown impressive resilience (3.7% average growth) in the last four quarters, offering greatest sustainable growth potential,” Niyi Yusuf, Managing Partner at Verraki said.
Analysis of a recent report by Verraki which highlighted the economic sectors that have remained resilient in the past four quarters, and the implications for businesses and policymakers revealed that the Agriculture, Construction, ICT Services, Real Estate, Food, Beverage & Tobacco and Cement topped the gainers’ chart.
“Businesses that operate in these resilient sectors also have great potential for non-linear sustainable growth. These sectors must be supported with policies that ease market frictions, attract private capital and promote entrepreneurial capabilities,” Yusuf said.
The ICT recorded 6.1 percent YoY real growth in Q3 2021. The sector has shown impressive resilience in the last four quarters with an average real growth of 5.1percent, as analyzed from the report by the Lagos-based company.
A review of the industry showed that as of September 2021, 191 million active telephony subscribers was reported in Africa’s most populous nation. With a teledensity of 99.9 percent, the country’s broadband penetration stood at 40 percent, with 76 million active subscriptions.
The opportunities in the Nigerian ICT sector, according to Verraki, are enormous because technology is a necessary input in the production process across virtually all economic sectors and offers great potential for the country’s economic growth.
The Real Estate sector expanded by 10 percent YoY in Q3 2021 and has sustained a positive quarterly YoY growth trend since Q1 2021, except for Q4 2020 when it declined by 0.8 percent.
Real quarterly growth in 2021 has averaged 7.7 percent, following increased activities in the residential, construction, and industrial segments of the real estate market as the pandemic restrictions ease.
The Nigerian real estate sector is valued at N8.5 trillion by Verraki and is forecasted to sustain a growth trajectory as stakeholders scale private and public investment to address the over 20 million housing gap in Nigeria.
“The country must now review the Land Use Act 1978 with emphasis on housing delivery as opposed to land ownership. This should be accompanied by the elimination of institutionalized bureaucracies involved in land acquisition and perfection of land title,” Yusuf said, adding that commercial banks, mortgage finance institutions and regulators need to urgently work out a framework to reduce and keep effective mortgage finance interest rates to about 10 percent.
With a 7 percent average real growth in the last four quarters, Nigeria’s construction sector expanded by 5.7 percent in the third quarter of this year, contributing a total of 3.22 percent (3.21% in Q3:2020) to the real GDP. Estimated at 16 Trillion, the sector’s performance has been driven by the increase in private infrastructure projects in the country, annual increases in capital expenditure by the President Buhari-led administration amongst other factors.
According to industry players, opportunities beckon in the sector as stakeholders make efforts to address the over $1.5trillion infrastructure gap in the country, from insufficient road network to housing for low-income earners.
“Given the proven linkages between the construction sector and other economic sectors, policymakers must promote increased public and private investment in infrastructure. A good start will be the dutiful implementation of the Integrated Infrastructure Master Plan (2020-2043) which targets a USD150 billion annual investment in infrastructure projects over the mid-term (2021 -2025),” Verraki said.
Food, Beverage & Tobacco
The sub-sector accounts for 37 percent of the total manufacturing sector output in Nigeria, and 5 percent of the country’s GDP. The sector expanded by 5.0 percent YoY and 14.6 percent QoQ respectively in Q3 2021, with 4.3 percent average growth every quarter since Q1 2020.
Driven largely by the country’s favourable demographics and the consumption behaviours of Nigerians, the sector holds great potential for the country’s manufacturing sector and employment creation.
Verraki believes that the African Continental Free Trade Area (AfCFTA) offers great prospects for the Nigerian Food, Beverage & Tobacco sector as the coming open borders set a new page for intra-African trade.
It, however, stated that “policymakers must urgently address the challenges of poor infrastructure (especially electricity and transport), access to credit (especially for SMEs), access to foreign exchange, streamlined ports operations and bureaucracy.”
The cement sector which accounts for 18.0 percent of manufacturing output in Nigeria and 2.0 percent of the country’s GDP was also one of the top performers in the reveal period as it grew by 4.1 percent YoY in Q3 2021 and has sustained a positive (3.1% average) quarterly growth in 2021.
The impressive performance in Q2 and Q3 2021 is connected to the reopening of economic activities in Nigeria and other west African markets. This is also evident in the financial performance of the three major players in the cement industry, Dangote Cement, Lafarge and BUA Cement which grew 9-months 2021 sales revenue by 34.2 percent, 21.9 percent and 19.0 percent respectively.
Looking ahead, Yusuf of Verraki said the sector remains promising as government spending on capital projects continues, amidst increased demand from the real estate sector.
According to the partner, a policy must position the sector for healthy competition through the elimination of entry barriers, whilst allowing market forces to achieve cost-reflective (lower) equilibrium price and output.
The agriculture sector grew by 7.9 percent YoY in nominal terms in Q3 2021 (compared to 13.5 percent recorded in Q3 2020). Real growth in the sector has declined progressively from 3.4 percent in Q4 2020 to 1.2 percent by Q3 2021.
“Understandably, quarterly growth in crop production (which accounts for 89% of agriculture output) has declined from a recent peak of 22.5% in 2020 Q1 to 7.6% in Q3 2021,” Yusuf said.
Meanwhile, agriculture accounts for 35 percent of employment in Nigeria and is the dominant source of livelihood for over 99 million rural people in the country with the most population in Africa.