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NIGERIA GROSS DOMESTIC PRODUCT - A soft recovery with subtle headwinds

A soft recovery with subtle headwinds
Following a surprise comeback from the lockdown-induced recession in the last quarter of 2020, the economy expanded by 0.51% y/y (Vetiva: +0.75% y/y) in Q1’21, confirming a recovery from the recession. On the surface, the recovery appears fragile, given the sub-optimal performance and lingering impacts of the pandemic on some sectors of the economy. However, we note that in both situations, the corresponding periods were pre-pandemic and thus, high-base periods. While the non-oil sector expanded slightly (+0.79% y/y), the oil sector relapsed (-2.21% y/y).
Sectoral performances: A mixed bag Assessing the economy from the lens of the agricultural, industrial, and services sectors. The agricultural sector expanded by 2.28% y/y in Q1’21, driven majorly by the development finance initiatives of the Central Bank of Nigeria (CBN), including the Anchor Borrowers Program, which has funded over 2 million projects since inception. With most of these projects targeted at farming, the crop production sub-sector (+2.31% y/y) remains the major driver of output growth in that segment, contributing 88% to agricultural output.
Stronger rebound ahead In the Agric sector, we believe improved crop production could buoy agricultural output. However, we express cautious optimism, as insecurity, which has stifled farming activities, could slow down output growth in the sector. With the ban on open grazing in several states, this could ease the current pressures on farming activities. However, the sector could ride on the previous year’s favourable base. Efforts in resolving the subsisting security situation are necessary to de-risk the sector and drive investments. In addition, improved mechanized farming methods and Research & Development must be fulfilled to improve agricultural productivity, as growth in the sector has been underwhelming relative to population growth.