Sustained positive growth, but most key sectors are lagging

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Friday February 18, 2022 / 09:02 / by FDC Ltd / Header image credit: NBS/FDC

Nigeria’s real GDP growth beat most analysts’ expectations, rising 3.98% in the fourth quarter, bringing the annual growth rate to 3.4%. The CBN had estimated a growth rate of 3.1%, while the IMF predicted 2.6%. The annual growth rate is higher than population growth of 2.6%. This means that GDP per capita will increase for the first time in many years.

This impressive fourth-quarter GDP expansion was largely due to base effects, harvesting activity and easing COVID restrictions. A breakdown of the report showed that 18 of the 46 activities tracked by the NBS grew, 23 slowed while 5 contracted. The agricultural sector, which contributes 27% of GDP and employs more than 45% of the active population, jumped by 3.58%, almost double compared to the previous quarter (1.22%). The sector was boosted by favorable weather conditions and a bumper main cocoa crop. It is estimated that Nigerian cocoa exports could reach 280,000 metric tons in 2021. This growth of 3.58% is despite huge post-harvest losses and disruptions due to conflicts among herders.

However, a major concern is that some key sectors of the economy are deteriorating. The oil sector, which is a major source of government revenue and foreign exchange earnings, contracted by 8.06%. The country has failed to take advantage of higher oil prices as it struggles to increase production due to persistent operational challenges. In addition, the unavailability of foreign exchange, logistical constraints and declining consumer incomes have limited the growth of manufacturing and trading activities. The sustained positive growth trajectory and the marginal decline in inflation could propel an increase in interest rates at the MPC meeting next month.


Oil sector growth still in negative territory

Oil sector growth of -8.06% remained negative but was slightly better than the previous quarter of -10.73%. This lackluster performance can largely be attributed to lower oil production. Oil production fell to 1.5 mbd in Q4’21 from 1.57 mbd in Q3’21. This was due to a slowdown in drilling activities and sabotage of the pipeline.

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Sector performance – 18 expanded, 23 slowed and 5 contracted

Of the 46 activities tracked by the NBS, 18 grew, 23 slowed and 5 contracted. While the agricultural sector benefited from the year-end harvest, growth in the trade and manufacturing sector was limited by the unavailability of foreign exchange, logistical constraints and declining consumer purchasing power.

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Outlook and impact

We expect the positive growth momentum to continue over the coming quarters. However, real GDP growth in the first quarter of 2022 could slow to 2.5% due to weak aggregate demand and the start of the planting season. The MPC will meet next month to determine its monetary policy stance. Sustained positive growth and marginally falling inflation will embolden MPC hawks. The committee had maintained the status quo 27 times over the past 3 years.

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