Nigeria’s Q4 GDP data showed that a poor performance in the oil sector was more than offset by a continued rebound in the non-oil economy. While we think that some of the headwinds facing the economy will subside in the coming months, the recovery will probably remain sluggish.
Oil and non-oil sectors diverge as economy rebounds
- Nigeria’s Q4 GDP data showed that a poor performance in the oil sector was more than offset by a continued rebound in the non-oil economy. While we think that some of the headwinds facing the economy will subside in the coming months, the recovery will probably remain sluggish.
- Figures released today showed that Nigeria’s GDP grew by 0.1% y/y in Q4, following a 3.6% y/y contraction in Q3. (See Chart 1.) The outturn was stronger than our forecast for GDP to drop by 0.6% y/y as well as the Bloomberg consensus estimate for a 1.9% y/y fall. Over the year as a whole, GDP fell by 1.9% – its worst performance since at least 1991.
- The breakdown points to a large divergence in the performance of Nigeria’s oil and non-oil sectors. The oil industry’s struggles intensified in Q4. An OPEC+ deal weighed on oil output, pushing down production volumes from an average 1.67mn bpd in Q3 to 1.56mn bpd in Q4. This translated into a sharper fall in oil GDP, from a 13.9% y/y drop in Q3 to a 19.8% y/y plunge in Q4.
- Weakness in the oil sector was more than offset by a continued rebound in the non-oil sector. (See Table 1.) The agriculture sector, which makes up more than a quarter of the economy, posted particularly strong growth of 3.4% y/y in Q4. And despite nation-wide protests in October 2020 and a resurgence of COVID-19 cases in December, the recovery in sectors hit hardest by containment measures – like retail trade, transport and hospitality – carried on in Q4. But the manufacturing industry remained weak.
- Looking ahead, some of the economy’s headwinds will probably ease. A second wave of the coronavirus appears to be subsiding and Nigeria is set to receive its first batch of vaccines at the end of February. OPEC+ quotas are scheduled to increase in Q2, which will support the struggling oil sector.
- That said, the recovery is likely to remain subdued. Widespread vaccine roll-out is unlikely in the near term, which will keep a lid on non-oil activity. And even with higher OPEC+ quotas, oil output will remain very low compared to pre-pandemic levels. We have pencilled in GDP growth of 3.5% this year.
Chart 1: Nigeria GDP (% y/y) |
 |
Source: NBS, Capital Economics |
Table 1: Nigeria GDP (% y/y) | |||||||
GDP | Oil | Non-oil | Agriculture | Wholesale & Retail Trade | Manufacturing* | Financial Sector | |
Q1 2020 | 1.9 | 5.1 | 1.5 | 2.2 | -2.8 | 0.9 | 20.8 |
Q2 2020 | -6.1 | -6.6 | -6.1 | 1.6 | -16.6 | -7.7 | 18.5 |
Q3 2020 | -3.6 | -13.9 | -2.5 | 1.4 | -12.1 | -0.4 | 3.2 |
Q4 2020 | 0.1 | -19.8 | 1.7 | 3.4 | -3.2 | -0.5 | -3.6 |
Sources: NBS (*Note: Excludes oil refining) | |||||||
Virág Fórizs, Africa Economist, virag.forizs@capitaleconomics.com