Macro Review and H2 2018 Outlook – Nothing But Oil


Nigeria’s growth prospects, investor and business sentiment continued to be swayed by the performance of the nation’s oil sector despite the administration’s intentions to diversify revenues away from the commodity.

Nonetheless, sentiments were boosted by the surprising surge in Brent oil prices, which hit a four year high of US$80/barrel, averaging US$71/barrel in H1 2018 (18% above our average forecast). High oil prices and the rise in oil production (14% year-on-year in Q1 2018) although volatile, were key drivers of 1.95% year-on-year (y/y) increase in Nigeria’s GDP in Q1 2018.

Macro Review and H2 2018 Outlook - Nothing But Oil - Brand Spur

Higher oil prices and production levels were also supportive of the increase in the nation’s trade balance, which jumped 221% y/y to N2.17trillion in Q1 2018, the highest in fourteen consecutive quarters. This occurred despite the jump in total imports (+8.04% y/y in Q1 2018) possibly due to the high cost of petroleum products. We suspect there was also an increase in volume to meet local demand on the back of the scarcity experienced towards the end of Q4 2017.

Macro Review and H2 2018 Outlook - Nothing But Oil - Brand Spur

While oil was the main driver of the improvement in the trade balance, there was a 237% y/y surge in non-oil exports to N578billion in Q1 2018, on the back of the increase in exportation of vehicle, aircraft and vessel parts. However, crude oil and other oil products accounted for 87% of total exports in Q1 2018.

The growth in economic activities currently lags behind our projection of 2.5% in FY 2018 partly due to uninspiring growth in the non-oil sector (0.76% y/y in Q1 2018). Despite Nigeria being an oil economy, higher oil prices have not trickled into increased consumer demand due to double-digit inflation as well as the backlog of salary and pension arrears owed by numerous states and debt estimated at N2.7trillion owed to contractors by the government. As indicated by the Central Bank of Nigeria’s Consumer Confidence Index, consumer sentiment still remains weak although better than 2017.

More concerning is the likelihood that oil production levels may not rise significantly above 2million barrels per day in H2 2018, meaning we are likely to see real growth in the oil sector slow. This could drive down the nation’s GDP growth in the absence of a noteworthy rebound in the non-oil sector (90% of GDP as at Q1 2018).

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