Nigerian GDP better than thought

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Nigeria's negative GDP improves to -3.6% Brandspurng
Civic Centre Road, Lagos, Nigeria | www.brandspurng.com

The World Bank recently published its Global Economic Prospects for January 2021, and we were surprised to find an estimate that Nigerian GDP had declined by 4.1%, year-on-year, during 2020. We think that this is too pessimistic. Recent data suggests that the Nigerian economy is stronger than this.

One factor that impresses us is the reduction in the rate of economic decline during Q3 2020. The headline GDP rate slowed to a negative 3.62% y/y in Q3 from 6.10% y/y in Q2.

Nigeria's negative GDP improves to -3.6% Brandspurng
Civic Centre Road, Lagos, Nigeria | www.brandspurng.com

And the rate of contraction in the non-oil economy slowed to a negative 2.51% in Q3 from 6.05% in Q2. In fact, the headline rate improved despite the inclusion of the Oil & Gas sector whose development worsened from negative 6.63% y/y in Q2 to negative 13.89% in Q3.

The rate of contraction was lower in Q3 than they had been for Q2 in the following three sectors (among the major sectors): Trade; Manufacturing; Real Estates. These account for 28.4% of GDP.

Two large sectors were still growing (and in fact did not go into recession last year). These were Agriculture (30.8% of GDP) and Telecoms (11.2% of GDP). They were not growing quite as quickly as they had been in Q2 but were growing nevertheless (Telecoms by 17.4% y/y/).

Gross Domestic Product 2016 – 2020

Nigerian GDP better than thought
Source: National Bureau of Statistics (NBS), Coronation Research, Q4 2020e is estimated by Coronation Research

In our model of Nigerian Q4 2020e GDP growth, we have made estimates for the top six sectors (Agriculture, Trade, Telecoms, Manufacturing, Oil & Gas and Real Estate) which together account for 79.1% of GDP. In essence, we expect the year-on-year performance of the economy in Q4 (NB 27.0% of annual economic activity takes place in Q4) to be close to that achieved in Q3.

The implied full-year performance of the economy in 2020 then comes to 2.9% lower than in 2019. A recession of 2.9% (or, at least, close to 3.0%) seems a reasonable outcome for 2020.

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This would contrast with the International Monetary Fund’s estimate of negative 4.3% y/y (though this estimate was published back in October) and the current World Bank’s estimate of 4.1%. Both institutions have an excellent track record of forecasting Nigerian GDP but, on this occasion, we believe they may be too gloomy.

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