GDP report signals gradual recovery for Nigeria’s economy

… Q4 GDP of -1.3% less severe than Q3

… Oil GDP contraction slows

There are indications that the downward spiral of the Nigerian economy is slowing down.

Even though Nigeria’s gross domestic product (GDP) fell by 1.5 percent in 2016 in the lastest GDP figures released by the National Bureau of Statistics (NBS) , largely due to lower oil revenues, however digging behind the headline numbers shows positive signs of growth momentum beginning to build into 2017.

The NBS figures released yesterday, show that Nigeria’s GDP contracted on an annual basis for the first time in 25 years.

Nigeria, Africa’s largest economy, slid into recession in the second quarter of 2016 as a slump in crude prices hammered the country’s public finances. Crude sales make up two-thirds of government revenue.

But fourth-quarter GDP shrank by 1.3 percent, the NBS said less than the -2.24 decline in the third quarter of the same year.

“This decline was less severe than the decline recorded in the previous quarter, of -2.24 percent, but was nevertheless lower than the growth rate recorded in the final quarter of 2015, of 2.11 percent. Quarter on quarter, real GDP increased by 4.09 percent, which partly reflects seasonal factors, as well as a rise in the general price level,” the NBS said in the report.

The oil sector declined by 12.38 percent year-on-year in the quarter, the report showed.

However, compared to the third quarter of 2016, oil GDP contraction slowed sharply.

“Between third quarter and the fourth quarter, the decline in the oil sector slowed from -22 percent to -10 percent. That’s 10 percent growth and it is very significant,” Bismarck Rewane, CEO of Economics Consulting firm, Financial Derivatives Company (FDC) said.

The non-oil sector also fell only by 0.33 percent in the fourth quarter, the NBS said.

“The very shallow contraction in non-oil GDP growth in fourth quarter 2016, raises hope of a more meaningful recovery in non-oil GDP in first quarter of 2017, buoyed both by improved budget spending and some improvement in dollar availability,” said Razia Khan, Chief Economist, Africa Global Research at Standard Chartered Bank, in a note sent to clients.

“We have not yet seen a sufficient turnaround in oil production, but even in fourth quarter last year, the extent of contraction had lightened. This is a good sign,” Khan said.

The Nigerian government, in a statement reacting to the GDP figures, said it was hopeful that
with the ongoing series of engagements with the oil-producing communities of the Niger Delta, the increased oil production output would be sustained.

“The new indices which showed an estimated negative growth rate of -1.51 percent for the full year 2016 as against the -1.8 percent predicted by the International Monetary Fund (IMF) reflect the slow-down in the economy for most of 2016 but also show that the recession may have bottomed out because of an improving trend in several key sectors, including agriculture and mining,” the Presidential Adviser on Economic Matters, Adeyemi Dipeolu, said.

The IMF forecasts the Nigerian economy will grow by 0.8 percent in 2017.

Oil production averaged 1.9 million barrels a day in the fourth quarter, compared with 1.6 million barrels a day in the third.

Analysts at Planet Capital said that the output figure portends well for the country as it means that that the economy picked up in the last quarter of 2016.

“Output levels will be positive in 2017. Our forecast is that GDP will grow by 1.2 per cent this year,” Planet Capital Analysts said.

“Even though the significant slowdown in the recessionary trend would suggest that the economy should be fully out of recession by the first quarter of this year, the foreign exchange challenges will offset whatever output gains that have been recorded.”

The analysts forecast that the Central Bank of Nigeria’s (CBN’s) intervention measures will be seen impacting the economy in the second quarter and the economy should begin to see positive developments from then.

Investment flows left Nigeria in droves as a severe dollar shortage and unorthodox CBN response to falling oil prices made the business climate challenging in Africa’s most populous country, leading to severe slide of the naira, the official currency.

The naira exchanged at N197 to the dollar towards the end of 2015 in the official market, but currently exchanges for N305 to the dollar.

The CBN said last week, it would increase the supply of foreign currency for Nigerians to pay school and medical fees at an exchange rate not more than 20 percent above the interbank market price.

Analysts see the move as a positive for GDP growth in 2017 as the premium between the black market naira -dollar rate and official rates collapse.

“I expect modest growth in 2017 subject to some risks. The oil sector that pushed the economy into recession is expected to grow, as quantity and price improve. I also expect that there will be less disruptive foreign exchange activities,” said Christian Orajekwe, Head of Research and Planning at Cordros Capital.

“Increased government borrowing will likely drive infrastructure spending and boost consumer spending power and there will be improved gas supply to the manufacturing sector, as militant attacks on gas facilities cease.”
As a share of the economy, the Oil sector represented 7.15 percent of total real GDP, compared to 8.06 percent in fourth quarter 2015 and 8.19 percent in third quarter of 2016.

The non-oil sector declined by -0.33 percent in real terms in the fourth quarter of 2016.

“Given that the growth rate was stronger than in the oil sector, the non-oil sector increased its share of GDP to 92.85 percent, from 91.94 percent in the fourth quarter of 2015.

The NBS said the sector that weighed on non-oil growth the most was Real Estate, which declined by -9.27 percent and contributed to –0.77 percent points to year on year growth in total real GDP.

“However, Manufacturing, Construction and Trade also made significant downwards contributions, ameliorated slightly by continuing strong growth in Agriculture (especially Crop Production),” the NBS stated.

For full year 2016, the non-oil sector declined by -0.22 percent in real terms, compared to a growth rate of 3.75 percent in 2015, a difference of 3.97 percent points.

 

PATRICK ATUANYA, ONYINYE WACHUKWU LOLADE AKINMURELE & INNOCENT UNAH