Nigeria’s economy returns to positive growth, real GDP increased 0.8% in FY’17

The Nigerian economy continued its recovery as real GDP expanded by 1.9% y/y in Q4’17 (Q4’16:-1.7% y/y), faster than the 1.4% y/y recorded in Q3’17. This was mainly driven by a modest rebound in the non-oil sector and increased oil production despite a soft moderation by 6.5% quarter on quarter to 1.91 million barrels per day. This is the highest quarterly growth recorded since Q4’15.

In FY’17, the real GDP slightly expanded 0.8% y/y, partially recovering from the negative growth of -1.5% y/y in FY’16. This was mainly driven by the oil sector which expanded by 4.7% in 2017, and increased non-oil output. The increase in oil production was influenced by a ceasefire deal brokered by the FG with the Niger Delta militants, while the rebound in oil prices was driven by the oil production cuts agreement reached by members of the Organisation of the Petroleum Exporting Countries (OPEC) and its allies, notably Russia.

Overall, growth remains weak in Nigeria, and the well-being of the average Nigerian barely improved if we consider a faster population growth rate of 2.7%.

Non-Oil Sector: Back to positive growth, but still fragile

The non-oil sector recorded a positive growth of 1.4% y/y in Q4’17 (Q3’17: 0.76% y/y), the highest in 8 quarters, due to continued growth in agriculture, and a return to positive growth in the manufacturing and the services sectors. In full year terms, non-oil GDP increased 0.4% y/y in FY’17 (Q4’16: -0.2% y/y), still considerably weaker than pre-recession levels. The strong finish in Q4’17 ensured an increased contribution of the non-oil sector to GDP at 92.83% (Q3’17: 89.9%).

The positive growth in non-oil GDP were driven by improvements in some key components of the non-oil sector. Agriculture expanded by a faster 4.2% y/y in Q4’17 (Q3’17: 3.0% y/y), mainly driven by a strong increase in crop production due to improved harvests. On annual basis, agriculture output moderated to 3.4% y/y in FY’17 (FY’16:4.1% y/y).

The manufacturing sector improved in Q4’17, increasing by a negligible 0.1% y/y (Q3’17: -2.8% y/y) due mainly to higher output in the food and beverage (2.1% y/y), and textile, apparel and footwear (1.6% y/y) segments. This is likely as a result of increased consumer expenditure during the festive season. On annual basis, manufacturing output improved at -0.2% y/y in FY’17 (FY’16: -4.3% y/y), though still considerably weaker than pre-oil crash levels.

In the services sector, output expanded by a soft 0.1% y/y in Q4’17 (Q3’17:-2.6% y/y), supported partly by a faster expansion in finance and insurance (0.2% y/y), trade (2.0% y/y) and construction (4.1% y/y). The growth in trade is likely a reflection of continued FX stability and increased household spending during the festive season. For Information and communication which contributes over 10% to GDP, output improved modestly, but remained negative at -1.4% y/y.

Outlook: stable oil output and increased spending to boost growth

We estimate an increase in real GDP to 2.2% in FY’18, supported by broad stability in macroeconomic fundamentals and ongoing reforms in the business environment. We expect continued stability in agriculture output and increasing oil production to drive economic growth, subject to calmness in the Niger Delta and global adherence to production quotas of OPEC. Hence, stable oil exports would lead to further accretion in Nigeria’s external reserves, ensuring availability of foreign exchange. Furthermore, increased government and pre-election spending could spur a broad based improvement in non-oil sector output, due to a positive impact on demand, although this is at the risk of further inflationary pressures.

The 2019 elections however poses major significant risks to Nigeria’s growth in 2018. Risks may manifest through increased insecurity, and policy uncertainty and instability that may lead to foreign investors taking profits by the end of the year. We also expect investments to peak by H2’18 and decline until 2019 after elections and announcement of winners.

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