A ‘Black Panther’ moment for Nigeria

We apologise if you are yet to see the movie. We hate spoilers too but the recent trends in Nigeria’s economic growth remind us of Black Panther. Keep reading and you’ll get the link.

The pace of economic growth picked up with data from the National Bureau of Statistics (NBS) reporting Nigeria’s GDP for Q4 2017 at 1.9% YoY, 80bps above our expectation of 1.1%. For us, while a growth in the quarter was widely expected, the drivers of growth –  which varied from consensus expectation of an oil-led growth – points to some positive on economic diversification and improvement in the productive sectors.

For context – in contrast to prior quarters wherein the oil sector led growth (a case of oil production recovery) – accelerated growth in Agriculture (4.2% YoY, Q3 17: 3.1%), recovery in Trade (2.1% YoY, Q3 17: -1.7%) and slower contraction in Services (-0.8% YoY, Q3 17: -3.1%) largely drove the overall economic growth in Q4 17. Accordingly, the non-oil sector (93% of GDP) returned to growth (+1.5% YoY) in the quarter from a contraction of -0.8% YoY in the third quarter. The foregoing, combined with oil sector growth of 8.4% YoY (Q3 17: 25.9% YoY), drove the faster growth of 1.9% YoY in Q4.

Consequently, 2017 economic growth prints at 0.8% YoY (estimate: 0.6% YoY).  Just like the film ‘Black Panther’ with near-record crowds descending on theatres across Nigeria, the growth picture in Q4 17 requires some cause to cheer, and also moderates the concern on fragility of economic recovery.

• Non-Oil Sector: Back from the brink. As earlier stated, non-oil sector recovered from the contraction in the prior quarter with support stemming mainly from Agriculture (Q4 17: 4.2% YoY). The growth reflects the main harvest season in which FEWSNET reported that harvest in the period was above average. For us, we perceive favorable weather, increased cultivated land and sustained focus of the FG on the sector via various support programs as key drivers for increased output during the quarter. Another support to the positive non-oil growth was trade, as it rose 2.1% YoY in Q4 17 following five consecutive quarters of negative growth. The rebound in trade was on the back of increased dollar availability, with sector overall contribution increasing to 16.8% (Q3 17: 15.9%).

Elsewhere, the services sector also saw a slower contraction of -0.3% (Q3 17: -1.1%) during the review period which stemmed from the ICT sector (Q4 17: -1.5%; Q3 17: -4.5%). Though data from the Nigerian Communications Commission revealed a downturn in industry voice calls (-7% YoY to 142 million active subscribers), mild growth in data services (YoY: 3% to 95 million subscribers) was able to tame its effect on the industry’s total output. Although oil refining remained in negative territory, losing -46.2% YoY, faster growth in food, beverage and tobacco (YoY: Q4 17: +2.2%; Q3 17: 0.6%) and Textile, Apparel and Footwear (YoY: Q4 17: +1.6%; Q3 17: 0.2 %) served as pillars in pushing the manufacturing sector back to a positive growth of +0.1% (Q3 17: -2.9%).

• Oil Output expanded at a slower pace: Relative to the double-digit growth (+25% YoY) reported in Q3 17, the pace of Oil growth slowed in Q4 17 (+8.4% YoY), reflecting a higher base in Q4 16 relative to Q3 16. According to NBS, oil production for the quarter averaged 1.9mbpd, +8.5% higher than 1.76mbpd.