Nigeria: 3Q16 GDP – Oil’s decline masks pick-up in non-oil
The oil sector’s deeper decline in 3Q16 was expected by us, as attacks on oil facilities heightened in the period. This masked the non-oil sector’s improvement to zero growth following two quarters of contraction. While we expect FX restrictions to have weighed heavily on growth in 4Q16, we expect them to be mitigated by a shallower contraction in the oil sector, due to a low base effect. For this reason, we maintain our -1.4% growth forecast for 2016. We project a recovery to 0.5% in 2017, mainly on the assumption that we will see a pick-up in public capex spending compared with FY16.
Financial services end the non-oil sector’s decline
Nigeria’s non-oil sector saw zero growth in 3Q16, following YoY contractions of 0.2% and 0.4% in 1Q16 and 2Q16, respectively. Crop production – the economy’s anchor – grew by a faster 4.9% in 3Q16, vs 3.3% a year earlier. Financial services led the non-oil sector’s emergence from negative growth. The sector grew for the first time this year, by 2.8% in 3Q16, following 13.2% contractions in both 1Q16 and 2Q16. This corresponds with stronger credit growth in 3Q16, in naira terms, to 21% in September vs 6% a year ago, on the back of naira depreciation. The small transport sector also saw an improvement to modest 0.7% growth in 3Q16, following a 5.3% contraction in 2Q16. Its recovery was led by road transport. Conversely, air transport – where a couple of foreign players suspended operations due to FX shortages – saw its decline deepen.
Oil’s decline deepens
The intensification of attacks on oil facilities explains the sharp 22% YoY contraction in the oil & gas sector in 3Q16, vs growth of 1.1% YoY in 3Q15. Oil production dropped to 1.63mn b/d in 3Q16, vs 2.15mn b/d a year earlier.
FX restrictions weigh heavily on the economy
The naira depreciated by 60% vs the dollar in 3Q16, to NGN315/$1 on the interbank market. However, FX restrictions persisted, and the interbank market became increasingly fragmented and opaque. We think this explains the continued decline of some key non-oil sectors, including trade, manufacturing and construction. Trade contracted for the first time this decade, by -1.4% YoY in 3Q16 (vs 4.4% YoY a year ago). This reflects traders’ inability to import merchandise, resulting in a decline in goods handled. Construction is undermined by low public investment – the federal government has only spent 20% of its FY16 capex target. Manufacturers can only get a fraction of the FX needed to import inputs and capital equipment.
Outlook hinges on FX policy and the Niger Delta
We expect a shallower contraction of c. 1.0% YoY in 4Q16, mainly because of a low base for the oil sector, which contracted by 8.3% YoY in 4Q15 vs growth of 1.1% YoY in 3Q15. Our 2017 growth forecast of 0.5% is partly premised on a pick-up in public investment in 2017, on the back of foreign loans that have started to come through (e.g. $600mn in early November from the African Development Bank). FX restrictions and militant attacks on Niger Delta oil facilities are the biggest risks to our growth outlook.
Nigeria: 3Q16 GDP – Oil’s decline masks pick-up in non-oil
The oil sector’s deeper decline in 3Q16 was expected by us, as attacks on oil facilities heightened in the period. This masked the non-oil sector’s improvement to zero growth following two quarters of contraction. While we expect FX restrictions to have weighed heavily on growth in 4Q16, we expect them to be mitigated by a shallower contraction in the oil sector, due to a low base effect. For this reason, we maintain our -1.4% growth forecast for 2016. We project a recovery to 0.5% in 2017, mainly on the assumption that we will see a pick-up in public capex spending compared with FY16.
Financial services end the non-oil sector’s decline
Nigeria’s non-oil sector saw zero growth in 3Q16, following YoY contractions of 0.2% and 0.4% in 1Q16 and 2Q16, respectively. Crop production – the economy’s anchor – grew by a faster 4.9% in 3Q16, vs 3.3% a year earlier. Financial services led the non-oil sector’s emergence from negative growth. The sector grew for the first time this year, by 2.8% in 3Q16, following 13.2% contractions in both 1Q16 and 2Q16. This corresponds with stronger credit growth in 3Q16, in naira terms, to 21% in September vs 6% a year ago, on the back of naira depreciation. The small transport sector also saw an improvement to modest 0.7% growth in 3Q16, following a 5.3% contraction in 2Q16. Its recovery was led by road transport. Conversely, air transport – where a couple of foreign players suspended operations due to FX shortages – saw its decline deepen.
Oil’s decline deepens
The intensification of attacks on oil facilities explains the sharp 22% YoY contraction in the oil & gas sector in 3Q16, vs growth of 1.1% YoY in 3Q15. Oil production dropped to 1.63mn b/d in 3Q16, vs 2.15mn b/d a year earlier.
FX restrictions weigh heavily on the economy
The naira depreciated by 60% vs the dollar in 3Q16, to NGN315/$1 on the interbank market. However, FX restrictions persisted, and the interbank market became increasingly fragmented and opaque. We think this explains the continued decline of some key non-oil sectors, including trade, manufacturing and construction. Trade contracted for the first time this decade, by -1.4% YoY in 3Q16 (vs 4.4% YoY a year ago). This reflects traders’ inability to import merchandise, resulting in a decline in goods handled. Construction is undermined by low public investment – the federal government has only spent 20% of its FY16 capex target. Manufacturers can only get a fraction of the FX needed to import inputs and capital equipment.
Outlook hinges on FX policy and the Niger Delta
We expect a shallower contraction of c. 1.0% YoY in 4Q16, mainly because of a low base for the oil sector, which contracted by 8.3% YoY in 4Q15 vs growth of 1.1% YoY in 3Q15. Our 2017 growth forecast of 0.5% is partly premised on a pick-up in public investment in 2017, on the back of foreign loans that have started to come through (e.g. $600mn in early November from the African Development Bank). FX restrictions and militant attacks on Niger Delta oil facilities are the biggest risks to our growth outlook.
we shall see,this govt have only 2yrs to turn things around,and this is this year and next year to do any thing,in the later quarter of 2018, to convienced Nigerians,they meant good for Nigeria,by this later quarter of 2018,this engine or grabbing power and wrestling power from apc will be in gear.it’s possible those in opposition will most likely get into some alliance to drive this apc from power.ex-president obasanjo have already proposed to form his own political party.because this govt have not perfomed in any way,some times God tests us,by giving us temptation,if you fail,god will reward,if you passes God will tell you “my Son you have done good,i will reward you in your world”
Now apc is seiged by internal personal bickering.a house that is divided will not stand.i think obasanjo had several meeting with president buhari,and obasanjo recent utterance is about unemployment,especially gradute unemployment and sound education in Nigeria, not only in africa ,so did Mrs Iwela, the former finance minister under johnathan in jazerra,she said the same on graduate unemployment.
Now this present govt have no excuse for failure or performance,in other wordTHIS GOVT HAVE NO REASONS FOR NIGERIA TO SLIDE FURTHER INTO RECESSION SINCE THE BEGINNING AND THE END OF JULY AND AUGUST OF THIS YEAR.
I WISHES ALL OF THEM AN EARLY CHRISTMASS, to the presidency,the ministry of finance and it’s minister and my best friend cbn governot Godwin