Nigeria Gross Domestic Product: Reforms restrict real output growth to 2.54% in Q3.

Nigeria Gross Domestic Product: Reforms restrict real output growth to 2.54% in Q3

In Q3’23, Nigeria’s real GDP growth slowed to 2.54% y/y, 9bps lower than our estimate (Vetiva: 2.63% y/y) and 30bps higher than the prior year (Q3’23: 2.25% y/y). We attribute this outcome to better oil production outcome, improved embrace of digital financial services platforms, and the negative passthrough of subsidy removal to trade and transportation.

Industrials: Oil sector dips slightly, Construction saves the day

Amid improved surveillance and the conclusion of routine maintenance, oil production rose to 1.45 million barrels per day in Q3’23, higher than the previous year (Q3’22: 1.20 mb/d). Despite this, headline oil GDP figure closed slightly lower (Q3’23: -0.85% y/y), contradicting the uptick in oil production. Overall, this mild contraction contributed aptly to the strongest industrial sector expansion since Q2’21 (Q3’23: +0.46% y/y).

Further compounding INTBREW’s woes was the Naira devaluation which affected its outstanding dollar-denominated credit facilities. Thus, for Q3’23, the company experienced a 5x increase in finance expenses, amounting to ₦6.8 billion in Q3’23. While for the 9M period, finance expenses amounted to ₦20 billion, representing a substantial increase of 181% y/y. 

Beyond the oil sector, we owe the positive expansion in the industrial sector to the expansion in the Construction sector and rebound in the Manufacturing sector. The Construction sector expanded by 3.9% y/y in Q3’23 (Q3’22: 5.52% y/y), possibly slower-than-usual due to the election season. The Manufacturing sector grew by 0.48% y/y (Q3’22: -1.91% y/y) amid a rebound in the Food, Beverage , and Tobacco sub -sector (Q3’23: +0.92% y/y), which recorded a contraction, a year earlier.

Agriculture: Crop production retains resilience, livestock growth slows

Agricultural output expanded by 1.3 0% y/y in Q3’23 (Q3’22: 1.34% y/y), extending the positive outturn for the second consecutive quarter. This was driven by positive expansions in crop production (Q3’23: +1.35% y/y). Nevertheless, we acknowledge the lingering impact of the cash crunch and high inflationary environment on growth in the livestock sub -sector, which slowed to 1.18% y/y in Q3’23 (Q3’22: 1.55% y/y).

Services: Finance and ICT shines, reform s slow growth in others

Growth in the services sector slowed to 3.99% y/y in Q3’23 (Q3’22: 7.01% y/y), dragged by a contraction in the transport sector (Q3’23: -35.85% y/y) and a moderation in trade growth (Q3’23: 1.53% y/y, Q3’22; 5.08% y/y). This can be attributed to the devaluation of the Naira and removal of fuel subsidies, which contributed to high transport prices, elevated cost of doing business and compressed consumer demand. As a result, trade volumes have been suboptimal. The telecoms (ICT) and finance sectors remained the delight of the services sector. ICT expanded by 6.69% y/y (Q3’22: 10.53% y/y) amid mobile money penetration, absence of restrictions on SIM registrations, and sustained digital adoption across sectors. Since the cash crunch of Q1’23, the financial services sector has grown by at least 24% y/y. This underscores the increased preference for digital payments platforms over cash transactions, following the hardship faced during the cash crunch. Consequently, the Finance sector expanded by 28.21% y/y in Q3’23(Q3’22: 12.70% y/y), driven by increased loans, digital adoption, and growth of payments services platforms.

What shaped the past week?

Equities:  It was a positive week for Nigerian stocks as the benchmark ASI gained 0.27% w/w. The Oil and Gas (+5.97%) space closed out the week as the top performer thanks to capital appreciation in SEPLAT. Meanwhile, it was a green close for the Banking space (+1.92%) as well, due to broad-based interest in the tier one space. On the other hand, the Consumer (-0.47%) and Industrial Goods (-1.23%) sectors closed the week in the red due to broad-based losses across both sectors.

Fixed Income:  The fixed income market traded on in a positive manner this week, as FAAC inflows for November spurred on bullish activity in the market. Yields moderated across board, notably the yield on the FGN 1-Year, 2-Year, and 3-year bonds eased by 169bps, 82bps, and 196bps to settle at 11.97%, 14.30%, and 13.40% respectively. While we acknowledge that the market traded in a positive manner, the bullish activity subsided over the course of the week, as investor focus now shifts to upcoming NTB and bond auctions. We cannot rule out the possibility of higher stop rates, owing to the current hawkish stance of the CBN..

Currency: The Naira depreciated by ₦132.00 at the NAFEM Window to close at ₦927.32.

Nigeria Gross Domestic Product: Reforms restrict real output growth to 2.54% in Q3

In Q3’23, Nigeria’s real GDP growth slowed to 2.54% y/y, 9bps lower than our estimate (Vetiva: 2.63% y/y) and 30bps higher than the prior year (Q3’23: 2.25% y/y). We attribute this outcome to better oil production outcome, improved embrace of digital financial services platforms, and the negative passthrough of subsidy removal to trade and transportation.

Industrials: Oil sector dips slightly, Construction saves the day

Amid improved surveillance and the conclusion of routine maintenance, oil production rose to 1.45 million barrels per day in Q3’23, higher than the previous year (Q3’22: 1.20 mb/d). Despite this, headline oil GDP figure closed slightly lower (Q3’23: -0.85% y/y), contradicting the uptick in oil production. Overall, this mild contraction contributed aptly to the strongest industrial sector expansion since Q2’21 (Q3’23: +0.46% y/y).

Further compounding INTBREW’s woes was the Naira devaluation which affected its outstanding dollar-denominated credit facilities. Thus, for Q3’23, the company experienced a 5x increase in finance expenses, amounting to ₦6.8 billion in Q3’23. While for the 9M period, finance expenses amounted to ₦20 billion, representing a substantial increase of 181% y/y. 

Beyond the oil sector, we owe the positive expansion in the industrial sector to the expansion in the Construction sector and rebound in the Manufacturing sector. The Construction sector expanded by 3.9% y/y in Q3’23 (Q3’22: 5.52% y/y), possibly slower-than-usual due to the election season. The Manufacturing sector grew by 0.48% y/y (Q3’22: -1.91% y/y) amid a rebound in the Food, Beverage , and Tobacco sub -sector (Q3’23: +0.92% y/y), which recorded a contraction, a year earlier.

Agriculture: Crop production retains resilience, livestock growth slows

Agricultural output expanded by 1.3 0% y/y in Q3’23 (Q3’22: 1.34% y/y), extending the positive outturn for the second consecutive quarter. This was driven by positive expansions in crop production (Q3’23: +1.35% y/y). Nevertheless, we acknowledge the lingering impact of the cash crunch and high inflationary environment on growth in the livestock sub -sector, which slowed to 1.18% y/y in Q3’23 (Q3’22: 1.55% y/y).

Services: Finance and ICT shines, reform s slow growth in others

Growth in the services sector slowed to 3.99% y/y in Q3’23 (Q3’22: 7.01% y/y), dragged by a contraction in the transport sector (Q3’23: -35.85% y/y) and a moderation in trade growth (Q3’23: 1.53% y/y, Q3’22; 5.08% y/y). This can be attributed to the devaluation of the Naira and removal of fuel subsidies, which contributed to high transport prices, elevated cost of doing business and compressed consumer demand. As a result, trade volumes have been suboptimal. The telecoms (ICT) and finance sectors remained the delight of the services sector. ICT expanded by 6.69% y/y (Q3’22: 10.53% y/y) amid mobile money penetration, absence of restrictions on SIM registrations, and sustained digital adoption across sectors. Since the cash crunch of Q1’23, the financial services sector has grown by at least 24% y/y. This underscores the increased preference for digital payments platforms over cash transactions, following the hardship faced during the cash crunch. Consequently, the Finance sector expanded by 28.21% y/y in Q3’23(Q3’22: 12.70% y/y), driven by increased loans, digital adoption, and growth of payments services platforms.

What shaped the past week?

Equities:  It was a positive week for Nigerian stocks as the benchmark ASI gained 0.27% w/w. The Oil and Gas (+5.97%) space closed out the week as the top performer thanks to capital appreciation in SEPLAT. Meanwhile, it was a green close for the Banking space (+1.92%) as well, due to broad-based interest in the tier one space. On the other hand, the Consumer (-0.47%) and Industrial Goods (-1.23%) sectors closed the week in the red due to broad-based losses across both sectors.

Fixed Income: The fixed income market traded on in a positive manner this week, as FAAC inflows for November spurred on bullish activity in the market. Yields moderated across board, notably the yield on the FGN 1-Year, 2-Year, and 3-year bonds eased by 169bps, 82bps, and 196bps to settle at 11.97%, 14.30%, and 13.40% respectively. While we acknowledge that the market traded in a positive manner, the bullish activity subsided over the course of the week, as investor focus now shifts to upcoming NTB and bond auctions. We cannot rule out the possibility of higher stop rates, owing to the current hawkish stance of the CBN..

Currency: The Naira depreciated by ₦132.00 at the NAFEM Window to close at ₦927.32.