The National Bureau of Statistics published the Q4’19 and FY’19 GDP report earlier today. According to the report, GDP growth in Q4’19 surprised positively, as it grew by 2.55% (consensus estimate: 2.40%). The 2.55% GDP growth stood as the highest growth recorded since Q3’15.
The major story about the higher-than-expected GDP growth was driven by strong growth in the financial sector output. The financial sector output grew by 20% year-on-year in Q4’19. We attribute the growth to the increased business activities in the form of increased loan growth. Notably, we see the development as a manifestation of the ongoing efforts of the Central Bank of Nigeria to drive private sector lending. In our view, we believe that the policies aimed to boost credit in the economy had a positive impact on the financial sector output.
The other GDP growth drivers in Q4’19 were the telecommunications and information services sector (+10.26%), crop production sector (+2.52%), crude petroleum and natural gas (+6.36%), and food & beverages sector (+2.17%). The telecommunications and information services sector remains the sector with the highest contribution to overall GDP in Q4’19.
GDP Growth Crosses The 2% Mark In FY’19
On an annual basis, the Nigerian economy expanded for the 3rd consecutive year to 2.27%, driven by output growth in the telecommunications & information services (+11.41% which contributes 10% to total GDP), crop production (+2.51% which contributes 23% to total GDP), crude petroleum and natural gas (+4.59% which contributes 9% to total GDP), food, beverages & tobacco (+2.17% which contributes 4% to total GDP), financial institutions (+2.40% which contributes 2.88% to total GDP), and road transport (+11.24% which contributes 1% to total GDP).
However, on the flip side, major drags to the GDP were the trade sector and the real estate sector. The trade sector declined by 0.38% in FY’19. The decline in the trade sector output is attributed to the sustained border closure in the economy. On the other hand, we attribute the decline in the real estate sector to weak macroeconomic fundamentals. Some of the bottlenecks in the real estate sector include high vacancy rate resulting from weak disposable income and consumer purchasing power, amid high unemployment.
Increased Production Capacity Drives Oil GDP
Despite a contraction of 1.46% in Q1’19, Oil GDP grew by 4.59% in FY’19 from 0.97% in FY’18. We attribute the growth to increased production capacity during the period. In FY’19, the average daily production of crude oil stood at 2.00mn barrels per day from a daily average of 1.92mn barrels per day in FY’18. In our view, we think that the increase in the daily production of crude oil is related to the Total floating, production, storage and offloading unit used to develop the Egina field, thus resulting in higher production during in FY’19.
The non-oil sector grew by 2.06% in FY’19, from 2.00% in FY’18. But for a relatively stronger Q1’19 non-oil GDP output, there was a decreasing trend in the non-oil output growth rate. Hence, we believe that much of the GDP growth in FY’19 resulted from a rebound in oil revenue. The declining trend in non-oil output growth rate suggests that there are bottlenecks to the real sectors of the economy. Notably, the manufacturing sector output growth rate slowed to 0.77% in FY’19 from 2.09% in FY’18. We attribute the slowdown in the manufacturing sector growth to weak fiscal policies, relatively harsh operating environment, poor power supply, and infrastructural challenges; all of which possibly had an impact on output growth in the manufacturing sector.
The construction sector also recorded a slowdown in output growth from 2.33% in FY’18 to 1.81% in FY’19. Resulting from the border closure policy, the trade sector declined by 0.38% in FY’19 from a negative growth of 0.63% in FY’18. The transportation and storage sector also recorded a slowdown in output growth from 13.91% in FY’18 to 10.73% in FY’19.
However, output growth in the information and telecommunications sector (+11.08% in FY’19 from +9.65% in FY’18) supported the non-oil sector output growth. In addition, the financial institution’s sector grew by 2.40% in FY’19 from 1.41% in FY’18.
The actual GDP performance beat our estimate slightly, Our FY’19 GDP forecast of 2.24% was 3 basis points lower than the 2.27% actual GDP growth reported. Although the Nigerian GDP grew by its highest figure since Q3’15, we yet note that the economic growth is below the estimated population growth of c.2.60%. The implication of a GDP growth below the population growth rate is a lower GDP per capita and a lower standard of living.
In FY’20, we forecast a GDP growth of 2.40%. The drivers of our GDP forecast include:
i. Early passage and improved implementation of the 2020 budget
ii. Stable crude oil production
iii. Relatively stable crude oil prices compared to the 2020 budget benchmark
iv. Stable exchange rate
v. A possible effect of increased private sector lending.
The risks to our forecast are:
i. Lower-than-expected revenue generation by the Federal Government
ii. Unfavourable crude oil prices in the global market.