In line with expectations by Economy watchers, Nigeria’s economy consolidated on the tepid recovery in Q1-21, with the recently released GDP report showing that economic activities expanded by 0.51% y/y (Q4-20: +0.11% y/y). The outturn is 43bps below our estimate (0.94% y/y) and 39bps below Bloomberg’s median consensus estimate (+0.90% y/y), with the largest variance stemming from a sharper than expected growth moderation in the Telecommunications sub-sector.
Sifting through the breakdown provided, we highlight that the Oil sector declined by 2.21% y/y (Q4-20: -19.76% y/y) while the Non-oil sector grew slowly by 0.79% y/y (Q4-20: +1.69% y/y). Our attribution analysis shows that the GDP growth in the quarter was primarily driven by Agriculture and Industries, which contributed 0.50% and 0.22%, respectively. The growth in both sectors helped to neuter the negative contribution of the Services (-0.21%) sector to the GDP growth rate.
The Oil sector is gradually bouncing back from the trough in 2020
Faced with a high base in the corresponding period of last year, we had expected Oil GDP to continue its double-digit decline in Q1-21. Contrary to our expectations, the sector surprised positively as it declined moderately by -2.21% y/y in Q1-21 (Q4-20: -19.76% y/y). We highlight that oil production (including condensates) averaged 1.72mb/d in Q1-21 (Q4-20: 1.56mb/d).
Ordinarily, the OPEC+ agreement of January 2021 allowed Nigeria to produce 1.52mb/d crude oil (ex. condensate) in Q1-21. However, this did not materialise as infrastructural challenges at some of the country’s production terminals (Forcados and Qua Iboe) led to a decline in crude oil production during the review period. For evidence, OPEC’s data showed that Nigeria’s crude production ex-condensate declined by 20.6% y/y to 1.43mb/d in Q1-21. Thus, relative to Q4-20 levels, we estimate that condensate production expanded by 170kb/d (or 141.7%) to 290kb/d in Q1-21 and by 7.4% on a year-on-year basis, mostly coming from the Agbami field.
Telecoms propels the Non-oil sector’s growth
As stated earlier, the Non-oil sector expanded by 0.79%, primarily driven by the sustained growth in the Information and Communication sector (6.47% y/y vs Q4-20: 14.95% y/y). However, we note that this is the first time since Q1-20 (7.65% y/y) that the sector is posting a single-digit growth and the lowest since Q1-18 (1.58% y/y). We believe the reason behind this is the impact of the regulatory directive from NCC halting new SIM registrations, leading to a deceleration in the growth of the Telecommunication sub-sector (7.69% y/y vs Q4-20: 17.64% y/y). Elsewhere, the support from the federal government partly offset the impact of persistent security challenges on the Agriculture sector, as the sector grew albeit at a slower pace by 2.28% y/y (Q4-20: 3.42% y/y), reflecting the moderate growth in crop production (+2.31% y/y vs Q4-20: +3.68% y/y). Besides, activities within the Manufacturing sector (+3.40% y/y) turned positive after three consecutive quarters of decline, mirroring improved aggregate demand despite lingering FX challenges amidst structural bottlenecks.
We expect the economy to grow by 3.37% in Q2-21
Firstly, we expect the Oil sector to return to growth in Q2-21, on account of improved crude oil production based on the latest OPEC+ production agreement, which allows Nigeria to reduce the magnitude of its allocated production cut to 0.29mb/d in May and 0.28mb/d in June compared to an average of 0.31mb/d in Q1-21. Accordingly, we forecast crude oil production (including condensates) of 1.83mb/d in Q2-21, translating to a 1.10% y/y growth in oil GDP. Elsewhere, we expect Non-oil GDP growth to strengthen to 3.60% y/y in Q2-21, driven by the Service and Agriculture sectors. Overall, we expect growth to settle at 3.37% y/y in Q2-21 and revised our 2021FY growth to 2.63% y/y (Previously: 2.75% y/y). [Coutesy: Cordross]
