Agriculture: Niger Delta peace spurs GDP growth

The National Bureau of Statistics (NBS) has released the GDP numbers for Q2-2017, with Nigeria’s real GDP for Q2-2017 improving 0.55% y/y, rebounding from 5-straight quarters of contraction amid policy reforms in the currency market, sustained peace in the Niger-delta region and improving business confidence.

The view of researchers at United Capital research is that the sustained growth in Non-oil GDP contributed significantly to the growth recorded in the economy in Q2-2017
“The non-oil sector sustained uptrend, growing 0.5% y/y in Q2-2016 after recovering 0.7% earlier in Q1-2017. Performance in Q2-2017 was 0.8% better than the -0.4% contraction recorded in the corresponding period of 2016.

Growth in the non-oil sector remained supported by continued improvement in agricultural (+3.0%), finance & insurance (+10.5%) and construction (+0.15%) activities, although performance of non-oil activities such as Trade (-1.6%), telecom (-1.9%) and real estate (-3.5%), which are also key contributors to aggregate output level, remained largely underwhelming. Nonetheless, the Non-oil sector’s contribution to GDP eased slightly to 91.1%, 9bps below the 91.2% in the corresponding quarter of 2016, and 36bps below 91.5% in Q1-2017.

Although Agric Sector GDP slowed to 3.0% y/y as fishing activities tumble 2.7% y/y, the Agriculture sector grew 3.0% y/y, slowing by 1.5% and 37bps when compared to performance in Q2-2016 and Q1-2017 respectively. This was traceable to a 2.7% decline in fishing activities as well as weaker growth in crop production which rose 3.2% in the period in contrast to 4.7% and 3.5% in Q2-2016 and Q1-2017 respectively, despite stronger performance in livestock (+2.3% y/y) and forestry (+3.9% y/y) activities. Agriculture GDP as a proportion of aggregate GDP, however, improved to 22.9% in Q2-2017 compared to 22.4%

Worthy of note is the rebound of Oil-GDP from a 6-quarter long recession, on the back of sustained peace in the Niger-Delta region, oil production averaged 1.8million barrels per day (mbpd) in Q2-2017, up 8.9% from 1.7mbpd in Q1-2017, albeit 10.7% below 2.05mbpd in Q2-2016. Accordingly, oil GDP rebounded 1.6% y/y, pulling out a 6-quarter long recession. Average contraction rate between Q1-2016 and Q1-2017 was 14.5% on a year-on-year basis.

Similarly, the oil sector’s contribution to real GDP also improved marginally to 8.9%, up 9bps from 8.8% in Q2-2016 and 36bps above 8.5% in the previous quarter.

Building on the recovery observed in Q1-2017, activities in manufacturing sector remained upbeat, as manufacturing sector real GDP further added 64bps, after growing 1.4% y/y in Q1-2017 when it recovered from an 8-quarter long recession.

This was clearly driven by sustained improvement in oil refining (+11.3%); food, beverage & tobacco (+2.7%); and textile, apparel & footwear (+20bps) activities which account for the largest portion of the sub-sector.

Undoubtedly, improved government efforts to shore up the productivity of local refineries amid increasing domestic productivity in processed food and textile space account for this positive development.

The researchers’ outlook on the recovery is to, however, stay sub-optimal, with an expectation that policy outlook will remain stable amid efforts to ensure recovery is sustained.
The United capital researchers had projected a relieved economy in line with the recently published GDP report where GDP was estimated to rise 0.6%, 1.3% and 1.1% in Q2:2017, Q3:2017 and Q4:2017 respectively. “Our projections were based on annualized Q1: 2017 GDP figures with improving policy reforms in the fiscal and currency market environment amid a hawkish monetary stance. We maintain our projections that Nigeria GDP will further expand in Q3 and Q4-2017, albeit at sub-optimal rates of 1.3% and 1.1% respectively.