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Nigeria’s 1.4% economic growth eludes non-oil sector

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A worrying decline in the non-oil sector, which is the largest contributor to the Nigerian economy, is muting excitement about the economy’s second expansion in seven quarters.
The non-oil sector, which contributes some 90 per cent to Gross Domestic Product (GDP), contracted by 0.76 per cent year-on-year in the third quarter, state-funded data agency, National Bureau of Statistics (NBS) said Monday, after publishing a full report that showed overall GDP expanded 1.4 per cent in the period.

The sector has snaked in and out of negative territory since 2016, growing for the first time after four straight quarters of contraction in the first three months of 2017, which was followed by expansion in the second quarter, before a decline in the third, according to data compiled by BusinessDay.
“Non-oil GDP weakness continues to reflect pass-through from weaker consumer discretionary income that have restricted production activities on the non-oil front despite on-going gains in the FX market,” said Tajudeen Ibrahim, head of research at Lagos-based financial advisory, Chapel Hill Denham.

“These concerns notwithstanding, resilience on the oil front supported overall GDP growth. As was the case in Q2-2017, this strong oil GDP growth mirrored a 26 per cent yearly surge in oil production to a six-quarter high of 2.03 million barrels per day in Q3,” Ibrahim said by email.

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The oil sector, on the other hand, rose 26 per cent year-on-year, aided by low base effect from Q3-2016, a period when the country’s crude production touched 1.61 mbpd following the frequent destruction of oil installations by aggrieved Niger-Delta militants who wanted a larger share of their region’s oil wealth.
Also, 2016 saw low Joint Venture production, due to FG’s inability to meet cash call obligations amidst depressed oil prices.
Five economists in a BusinessDay survey expect further macro improvement in the fourth quarter of 2017, but see real GDP growth at an average of 1.2 per cent for the full year.

“While we expect oil production volumes to remain strong in Q4-2017, we note that withdrawal of ceasefire by the Niger Delta Avengers and Niger Delta Revolutionary Crusaders is a key downside risk to higher oil GDP growth. We also expect further releases by the Federal Government to fund capital projects in the 2017 budget (N450 billion released so far) to support sustained economic recovery. We maintain our view that improved FX liquidity and increased FX supply to traders, small businesses, manufacturers & exporters are key factors for GDP growth in H2-2017,” Ibrahim said.

The third-quarter real GDP growth rate was far better than 0.72 per cent growth in the second quarter of this year and negative 0.91 per cent growth rate in the first three months of 2017.
However, nine sub-sectors posted weaker GDP growth rates during the period. These sub-sectors are post and courier services, oil refining, coal mining, financial institutions as well as telecommunications and information services. Others are “other manufacturing”, insurance, road transport, and motion pictures, sound recording and music production.

The post and courier services sub-sectors recorded lower economic activities to the tune of negative 44.64 per cent in the third quarter of 2017 which was better than negative 66.01 per cent growth rate in the second quarter of this year.
Furthermore, activities in the oil refining sub-sector were lower by 41.82 per cent reminiscent of the negative 18.36 growth the sub-sector posted in the first quarter of 2016.
Kayode Tinuoye, head of research, United Capital Plc attributed this development to low capacity utilisation in the oil refining sub-sector.

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“The combined capacity utilisation of the refineries in the country was abysmally low according to the NNPC report”, Tinuoye said.
“For August 2017, the three Refineries produced 95,548MT of finished petroleum products and intermediate product of 53,496MT out of 178,788MT of crude processed at a combined capacity utilization of 9.50% compared to 11.94% combined capacity utilization achieved in July 2017. The deprived operational performance is attributed to KRPC and PHRC downtime during the month under review. The ongoing revamping of the Refineries will enhance capacity utilization once completed,” NNPC Monthly Report August 2017 stated.

Coal mining activities were lower by 31.79 per cent, the first time in seven quarters. In the first and second quarters of this year, the sub-sectors posted growth of 19.28 per cent and 21.77 per cent respectively.
Shehu Sani, president, Miners Association of Nigeria attributed the negative growth to the lack of support for miners in the country.

“A country like Nigeria should have electricity generated from different sources based on comparative advantage. That was why we welcome the Federal Government’s coal to power initiative. However, the project should be cash-backed and banks should be willing to give loans to miners in Nigeria”, Sanni said.
The financial institution was another underperforming sub-sector as it posted negative 4.47 per cent growth in real terms, as against 13.75 per cent and 19.09 per cent growth in first and second quarters of 2017 respectively, a development that was attributed to weaker loan growth by banks.

“In the third quarter of 2017, loans growth was much weaker as banks did not inject much credit into the system,” Tinuoye said.
Analysis of macroeconomic data corroborated the assertion above.
During the period, credit to the private sector fell by 0.1 per cent quarter on quarter from N66.26 trillion by the end of the second quarter down to N66.19 trillion in the third quarter. Net domestic credit to the economy grew marginally by 0.31 per cent from N81.59 trillion in the second quarter to N81.84 trillion in the third quarter following a 2.06 per cent increase in credit to the government.