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Nigeria Gross Domestic Product - FY’17: Promising close to a year of recovery

 

FY’17: Promising close to a year of recovery
With an impressive year-on-year (y/y) growth of 1.9% vs. our 1.0% forecast, Nigeria’s Q4’17 real Gross Domestic Product (GDP) growth compares favorably with the preceding quarter (1.4% y/y) and the corresponding period in 2016 (-1.7% y/y). Although it slightly trailed Consensus expectation of 2.0% y/y, we judge this to be a robust economic performance for the close of 2017. FY’17 GDP came to 0.8% y/y (Vetiva: 0.6%) whilst Nominal GDP rose 12.1% y/y largely on the back of higher prices during the year. Base effects from the 2016 recession (FY’16: -1.6% y/y) would have supported Nigeria’s economic performance, but we also point to sturdy growth in the agriculture and oil industries as catalysts. It is likely that government policy also played some part in supporting growth, mainly in the form of agriculture promotion initiatives in line with the Agriculture Promotion Policy (APP), partial foreign exchange (FX) market liberalization, and Central Bank of Nigeria tight monetary stance to combat inflation. At the same time, truncated budget implementation, fiscal slippage, and legacy challenges from FX policies and weak infrastructure would have adversely affected growth. We are more positive about Nigeria’s growth prospects in 2018 as increased aggregate demand supplements continued growth in agriculture and oil. Our base FY’18 GDP growth forecast stands at 2.4% y/y.

The oil sector was the main growth driver in 2017. Whilst it directly accounts for just 9% of GDP, growth in the oil sector accounted for 83% of the observed growth in Nigeria’s GDP in 2017. Despite this, there are positives from strong non-oil growth in Q4’17 (1.4% y/y) given that the sector has been relatively flat in recent years. So, although oil recovery continues to drive Nigeria’s economic momentum, the much larger non-oil sector is picking up speed – a boon for our outlook of healthy growth in 2018 and beyond.

2018 outlook buoyed by strong finish to 2017
As mentioned previously, we are more positive about Nigeria’s growth prospects in 2018. We believe there are three key growth levers in the coming year: oil production, recurrent aggregate demand (public expenditure and household disposable income), and the cost environment (inflation, interest rates, and FX rate). The potential paths of these variables can be seen in the scenarios in the table. Our base expectation for 2018 is 2.4% y/y GDP growth driven by continued growth in agriculture, stronger oil production, higher aggregate demand, and an improving cost environment.