A major development that caught our attention this week is the report of the Q3’19 GDP performance published by the Nigerian National Bureau of Statistics (NBS) earlier on Friday. Contrary to our projection of a 2.05% y/y growth and most analyst consensus of 2.10% y/y, Nigeria’s GDP growth in Q3 printed at 2.28% y/y as against 2.12% y/y (revised) in Q2’19 and 1.81% in the corresponding period of 2018. In nominal terms, this translates to a real GDP size of N18.70 trillion as against N17.05 trillion in Q2’19 and N18.31trillion in Q3’18.
Probing into the data critically, our analysis revealed that the GDP rally was mainly driven by the non-oil sector, while the oil sector performance came in dismally. The non-oil GDP growth came in at 1.85%y/y as against 1.64%y/y in the previous quarter and 2.32%y/y in the corresponding period of 2018. This was impacted by improved growth in two of the three non-oil sub-sectors – Agriculture (which printed at 2.28% vs 1.79% in Q2’19) and Industries (which printed at 3.21% vs 2.84% in Q2’19), save for Services sector which recorded weak expansion of 1.87% as against 1.94% in the previous quarter.
In addition, we noticed expansion in major non-oil sub-sectors such as Road Transport (20.18% as against 8.21% in Q2’19), Coal Mining (32.19% from 7.63% in Q2’19), Cement (6.87% as against 1.58% in Q2’19), Agriculture (2.28% from 1.79% in Q2’19), and Air Transport (15.23% against 12.31% in Q2’19). These could be attributed to accelerated commercial activities ahead of end of the year festive period and religious pilgrimage exercise (Road and Air Transport), improved government monitoring of the natural resources sector (Coal Mining), release of over N600bn by the federal government for capital projects (Cement) and the joint effect of the harvest season and land borders closure which positively impacted the patronizing of homegrown food items (Agriculture).
It is worthy to also note that the Financial & Insurance sub-sector of the Services industry grew by 1.07% as against a contraction of -2.24% in Q2’19. This could be attributed to improved growth of the Financial Institutions (0.61% as against a contraction of -3.52% in Q2’19) on the back of various reforms by the apex regulator (CBN) to increase cash flow to the real sector.
On the other hand, the expansion of the oil component of the GDP came in low at 6.49% y/y, as against 7.17% y/y in Q2’19, but much better than the contraction of -2.91% in the corresponding period of 2018. This could be attributed to the sustained decline in global crude oil demand amid weak growth, triggered by the Sino – U.S. trade tension and other regional concerns.
As such, the fall in the average price of Nigeria’s crude oil grade (Bonny Light) to $61.11 (from $66.77 in Q2) weigh on revenue generated, despite the increase in production from 5.36mbpd in Q2’19 to 5.53mbpd in Q3’19.
We expect the release of more funds for capital budget implementation, continued monetary and fiscal sector reforms, and characteristic high end of the year demand to drive stronger growth in Q4. As such, we projected a 2.40% growth in Q4’19.