Nigeria Strategy Report H1 2018 Excerpts - GDP : Juggling optimism on a tightrope
- We expect a juggling act between recovery and headwinds in the near term. However, we hold the view that economic direction will be more tilted towards a recovery. Tying our views on both oil and non-oil component of growth, we forecast a real GDP growth of 1.9% YoY as our base case in 2018.
- Domestic economy back from the brink. After four consecutive quarters of contraction, Nigeria’s economy re-emerged in the second quarter (0.72% YoY) and further sustained the recovery momentum in the third quarter (1.4% YoY) with combined nine-month 2017 GDP growth of 0.4% YoY. Much of the growth reflected higher oil production while agriculture output remained solid. Consequently, oil and agriculture GDP expanded by 25.9% and 3.1% YoY respectively over the 9M 2017. Irrespective of the growth in Agriculture sector, non-oil GDP swung into a contraction in the third quarter by –0.8% YoY (9M 17: +0.1% YoY).
- Over the fourth quarter, given our production estimate of 2.05mbpd (+16.5% YoY), we estimate a 48% YoY growth in Oil GDP. For non-oil, despite resilience in Agriculture which we expect to grow 3.2% YoY, sustained deceleration in Services (-4.7% YoY), Manufacturing (-1.8% YoY) and Trade (-2.8% YoY) translates to a 2.3% contraction in non-oil GDP in the quarter. Consequently, we forecast Q4 17 real GDP to print at 1.1% YoY which translates to 2017 real GDP growth estimate of 0.6% YoY.
- Oil and Agric Output to support 2018 GDP growth story. Notwithstanding the recovery in crude oil production and resilience in Agriculture which lifted the domestic economy, we believe the structural headwinds in the Services and Manufacturing segment – a good proxy for economic productivity – serves as a caution to the optimistic outlook for the economy. We expect juggling act between recovery and headwinds to dictate the economic direction in the near term. However, we are of the view that the balance of factors is more tilted towards recovery. Overall, we forecast a growth of 8.4% for oil output and 1.3% YoY for non-oil which feeds into a real GDP growth of 1.9% in 2018.
ARM Securities Limited is a full-service brokerage house that offers best-in-class brokerage services to local as well as foreign private and institutional investors. Formerly known as Hamilton Hammer, the Company commenced operation in 1994 and was acquired by ARM Investment Managers in 2008--an acquisition which has successfully re-positioned the company as a recognized brokerage firm in Nigeria. The Company is a dealing member of the Nigerian Stock Exchange (NSE) and is regulated by Securities and Exchange Commission (SEC). ARM Securities research team provides insightful commentaries on the Nigerian economy and its equity and debt markets using an approach which incorporates a thorough understanding of the fundamentals of the industries and companies under coverage. The research therefore adopts an integrated methodology of top-down analysis and bottom-up stock selection, which focuses on publicly quoted companies on the Nigerian Stock Exchange that are judged to offer the highest potential for earnings growth. In addition, its analysts provide periodic commentaries on a range of topical global and local issues which provide investing clients with a holistic view of the opportunities and risks in today’s financial market landscape.
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