Five key takeaways from Nigeria’s Q1 2023 GDP report

Article Summary

• Nigeria’s GDP grew by 2.31% in Q1 2023, lower than the previous quarter and the same period in 2022.
• Naira scarcity and the central bank’s naira swap policy contributed to the slowdown in GDP growth.
• Agriculture sector contracted for the first time in 29 quarters, while air transport and financial institutions experienced growth. Oil and gas sectors have been in prolonged contraction.

The latest data from the National Bureau of Statistics indicates Nigeria’s Gross Domestic Product (GDP) grew by 2.31% year-on-year in real terms in the first quarter of 2023.

This compares to a 3.52% real GDP growth rate recorded in the previous quarter and 0.8% lower compared to the 3.11% recorded in the corresponding period of 2022.

The Statistics Bureau blamed the slowdown in GDP growth rate on the naira scarcity which occurred in the first quarter of the year as the central bank refused to back down on its naira swap policy.

Five key takeaways from the latest GDP

There was a lot to chew on from the latest GDP data for the first quarter of the year. For example, at 2.31% we are nearly back to the levels we were in the third quarter of 2022 when we last recorded a growth rate below 3%.

We also picked out 5 key revelations from the GDP report we believe are worth noting.

Currency Stability: The naira scarcity experienced during the first quarter of 2023, which contributed to the slowdown, highlights the importance of currency stability.

• The adverse effects of the cash crunch emphasize the need for a stable and accessible currency system that supports businesses and facilitates economic transactions.
• This also suggests that despite the significant gains recorded in the area of fintech and cashless banking, the Nigerian economy is still heavily dependent on cash for transactions.
• The naira scarcity also buttresses just how significant the informal market is to the overall state of the economy.

Agriculture Sector is struggling: The contraction in the agriculture sector and the lower contribution of the industry sector indicate potential weaknesses despite trillions of naira in targeted interventions to enhance their performance and maximize their contribution to the GDP.

• The agriculture sector recorded its first loss under the Buhari administration or in the last 29 quarters (2016 – 2023 Q1).
• The contraction is also due to the naira scarcity which affected the distribution of farm produce across the entire country.

Air Transport is on a tear: The double-digit growth rate recorded in the Air Transport sector has been sustained since 2021.

• In the first quarter of this year, the sector reported a GDP growth rate of 19.45% as Nigerians return fully to air travel.
• The sector recorded a double-digit growth rate every year since 2021 (19.7%) and 2022 26.2%. The sector fell into a recession due to Covid in 2019 and contracted by a massive 36.9%.
• The sector is yet to fully recover to its pre-covid value of N83.5 trillion when adjusted for inflation. However, it is on track to achieve this growth rate in 2023.

Financial Institutions: The growth rate in the financial services sector has been one of the most consistent since covid-19 growing at a double-digit growth rate.

• In the first quarter of 2023, the sector recorded a GDP growth rate of 24.5%. The full-year GDP growth rate for the sector has recorded 13.34%, 10.53%, and 17.24% in 2020, 2021, and 2022 respectively.
• In terms of nominal GDP the sector is now valued at about N6 trillion in 2022 and N1.9 trillion in the first quarter of 2023, which when annualized is around N7.7 trillion.
• This highlights the rise in the fintech revolution currently being experienced in the sector as hundreds of billions of naira continue to be invested in the sector.

Prolonged contraction: The oil and gas sectors have been contracting since the first quarter of 2021 to eke out any growth.

• Crude Oil production in Nigeria is stuck at an average of 1.5 million barrels per day far from the 2 million barrels per day recorded before Covid-19.
• Whilst the sector contributes less than 5% of total GDP, it remains one of the major drivers of economic growth in the country, especially for exchange rate stability.
• The crude oil sector has been contracting since the first quarter of 2020 when Covid-19 broke.
• Oil refining has been contracting since the first quarter of 2021 and will likely remain in a negative GDP growth rate until the third quarter of this year when the Dangote refinery comes on stream.