Sunday, December 16, 2018 3:36:21 PM- Nigerian Stock Exchange.

  Q3’17 GDP: Oil sector keeps economy above water


Nov 21 (Lagos) - Nov 21 (Lagos) - Registering at 1.4% y/y, Nigeria’s Q3’17 GDP growth came in below Vetiva and Consensus estimates of 2.5% and 1.5% respectively, albeit above the growth recorded in Q2’17 (0.7% y/y) and Q3’16 (-2.3% y/y). 

Consequently, ytd economic growth stands at 0.4% vs. -1.5% in 9M’16, showing the tepidness of Nigeria’s economic recovery. Particularly, recovery has also been concentrated in the oil sector (up 25.9% y/y in Q3’17) compared to non-oil sector growth of -0.8% during the quarter.

Notably, whilst Nigeria’s underlying economy has been flat in the past two years, the volatility has primarily come from the oil sector amidst sizable fluctuations in oil volumes in recent times.
Nigeria’s economy expanded by 11% y/y in nominal terms in Q3’17, helped by a 9% y/y increase in average prices (as measured by the GDP deflator). 

On a positive note, the GDP deflator recorded a marginal q/q price reduction, the first since Q3’15, indicating that Nigeria’s inflation woes are receding.

Dark days are a memory as oil volumes climb

Buoyed by stronger quarterly average production of 2.03 mb/d (Q3’16: 1.61 mb/d), the oil sector expanded 26% y/y in the quarter to lift Nigeria’s GDP. Q2’17 oil sector GDP growth was also revised to 4% (previous: 2%) after the National Bureau of Statistics raised its Q2’17 oil production estimate from 1.84 mb/d to 1.87 mb/d. 

The outlook for the oil sector is more positive than it has been since 2015, and with October production estimated at 2.03 mb/d, we expect growth to remain resilient here. There is still considerable output upside (2018 Budget benchmark: 2.3 mb/d) although we are cautious about the likelihood of reaching this mark given the renewed threats from militants in the Niger Delta and Nigeria’s possible inclusion in any future OPEC output cut. 

The health of the industry should be supported by higher oil prices – Qtd average: $59/bbl vs. 9M’17 average: $53/bbl. Overall, analysts at Vetiva Capital Management Ltd in Victoria Island estimate FY’17 growth of 6% for the sector (2017 average production: 1.91 mb/d).

The size of Nigeria’s upstream crude industry hit a quarterly record of N 3,250 billion in Q3’17 (FY’16: N 5,367 billion), recovering quickly from a recent low of N 888 billion in Q1’16. This growth in nominal GDP has been spurred by the impact of Naira depreciation, a recovery in domestic oil production, and a recent rally in global crude oil prices.

reporting for on Tuesday, Nov 21 2017 from Lagos, Nigeria
Source - analysts at Vetiva Capital Management Ltd in Victoria Island. All views, opinions, forecast and targets expressed in this article are those of analysts at Vetiva Capital Management ltd in V.I. 

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