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Oil Sector Contraction Drags Nigeria’s GDP Down In Q1 2019

The National Bureau of Statistics (NBS) released Nigeria’s Q1-19 GDP numbers on Monday as Nigeria recorded an output growth of 2.01 percent year-on-year (y/y). However, oil sector contraction dragged down the GDP.

This is slower than the 2.38 percent y/y growth seen in Q4-18 but an uptick from the 1.89 percent y/y growth recorded in Q1-18.

Compared to the first quarter of 2018, which recorded real GDP growth rate of 1.89 percent, the Q1 2019 growth rate represents an increase of 0.12 percent points.

Furthermore, although output growth fell below the consensus expectation of 2.61 percent, it emerged as the strongest Q1 GDP growth since 2015.

The NBS said: “It is worth noting that general elections were held across the country during the first quarter of 2019 and this may have reflected in the strongest first-quarter performance observed since 2015.

“Aggregate GDP stood at N31.79 trillion in nominal terms. This aggregate was higher than in the first quarter of 2018 which recorded N28.44 trillion, representing a year-on-year nominal growth rate of 11.80 percent. The aggregate was, however, lower than in the preceding quarter of N35.23 trillion, by -9.75 percent.”

On an activity level scale, growth was buoyed by upticks in Information & Communications (+9.48%), Agric (+3.17%), Transportation & Storage (+19.5%) and Trade (+0.85%), among others.

However, the oil sector saw a contraction, dragging growth in the manufacturing sector.

Manufacturing GDP grew by 0.81 percent in Q1-19 as against the growth of 2.35 percent and 3.39 percent recorded in Q4-18 and Q1-18, respectively.

Oil refining majorly dragged the manufacturing sector as it contracted by a whopping -49.62 percent for the quarter compared to Q4-18 (up 33.6%) and Q1-18 (up 7.06%).

The oil sector’s performance was underwhelming as the growth rate fell to -2.40 percent y/y in Q1-19, representing 0.79 percent dip from -1.62 percent recorded in Q4-18 and a massive decline from 14.02 percent in Q1-18.

In terms of oil production, the NBS report showed that Nigeria produced 1.96mbpd over the quarter better than 1.91mbpd in Q4-18 and the highest since Q1- 2018.

The oil sector contributed 9.1 percent to aggregate GDP, an uptick from its 7.06 percent contribution in Q4-18 but lower than its contribution of 9.5 percent in Q1-19.

As an indicator of the price trend, average Brent prices declined 6.9 percent between Q4-18 and Q1-19 to settle at $63.8/b. From the foregoing, the growth rate of the oil sector in Q1-19 had been constrained by the confluence of lower prices and production.

However, the cement sub-sector recorded a positive growth of 2.81 percent during the quarter from 0.98% recorded in Q4-18, but the growth rate was slower when compared to Q1-18 (up 8.14%).

Growth in the food, beverage and tobacco segment also came in slower at 1.76 percent compared to the 2.22 percent and 5 percent in Q4-18 and Q1-18 which also contributed to the slow growth in the aggregate number for the manufacturing sector.

Overall, the manufacturing sectors contributed 9.8 percent to real GDP in Q1-19, 11bps lower when compared to Q1-18 and 0.94 percent higher against Q4-18.

Significantly, the non-oil sector of the Nigerian economy grew 2.47 percent y/y, a downtrend from 2.70 percent in Q4-18, but an uptick from 0.76 percent in Q1-19.

Notably, the sector saw a mixed performance across its major components. The agriculture sector grew 3.17 percent, which was its highest in five quarters. Yet, the industry’s sub-sector grew at a slower rate of 0.4 percent (from 0.95% in Q4-18 and 6.58% in Q1-19).

Also, although services sub-sector rose 2.41 percent (recovery from the -0.47% in Q1-18), it recorded a lower growth when compared to Q4-18 (2.90%).

The y/y recovery recorded in the services sector is traceable to the strong growth recorded in the information & communication sub-sector (+9.48% y/y).

Overall, the contribution of the non-oil sector to aggregate GDP settled at 90.86 percent, a marginal uptick from 90.45 percent in Q1-18 but a 2.08 percent decline from 92.94 percent in Q4-18.

Another bright side of the report was that the agricultural sector expanded 3.17% in Q1-19, back to its +5 year average after the crisis between farmers and herders dragged growth to below 2.0 percent in 2018.

The growth, according to analysts at United Capital, was because “crop production, which accounts for 85.0% of the total production in the sector during the quarter, remained the biggest growth driver in the sector as it grew by 3.27 percent in the quarter. Though, this is slower when compared to the 3.45 percent growth recorded in Q1-18”.

Going forward, the analysts are, however, optimistic that economic activities would pick up relative to half year 2019 and come within 2.3 percent – 2.5 percent growth.

“This is as we expect resilient growth in the agriculture sector to be sustained and majorly supported by faster growth in crop production and livestock activities.

“Growth in the manufacturing and construction sector should improve on the back of an expected improvement in consumer spending that is to trail the implementation of the new minimum wage and 2019 budget,” the analysts stated.