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NIGERIA GROSS DOMESTIC PRODUCT - Softer policy restrictions drive Q2’22 GDP above expectation

According to the National Bureau of Statistics (NBS), the Nigerian economy grew by 3.54% y/y in Q2'22, above our in-house estimate of 2.50% y/y and Bloomberg consensus’ estimate of 2.73% y/y. The performance in Q2'22 was 43bps higher than in Q1'22 (3.11% y/y). We link this above-average expansion to the relaxation of government policy on trade (reopening of borders) and telecommunication (lifting of restrictions on SIM registrations). These policy reversals, which constrained growth in the past, spurred above-average expansion in Q2’22. 

Service and agriculture, which account for approximately 81% of the domestic economy, have remained the primary drivers of real GDP growth. The fastest growth in services was seen in the information and communications (ICT), trade, finance, and transportation sectors. Agriculture was driven by improved crop production, which was aided by several interventions by the Central Bank of Nigeria (CBN), such as the Anchor Borrowers' Program. Meanwhile, industrial output fell for the second consecutive quarter, primarily due to constrained oil production levels.

ICT, Trade, and Financial Services lead the way
The ICT sector grew by 6.5% y/y in Q2’22, above the 5.6% y/y growth recorded a year earlier (Q2’21). The removal of government restrictions on the registration of new SIM cards boosted the sector's output. Data from the Nigerian Communications Commission (NCC) data shows that the number of active GSM lines has increased by nearly 8% since the ban was lifted in April'21. Furthermore, in Q2'22, the CBN granted mobile money licenses to key players in the sector such as MTN and Airtel, allowing them to serve as payment platforms to the unbanked in a bid to increase financial inclusion; this could support output as new income streams emerge.

Q3’22 Outlook: Growth could moderate to 3.41% y/y 

In Q3’22, we expect the Nigerian economy to expand by 3.41% y/y. Our expectations are based on the relaxation of SIM bans and the reopening of land borders in the services sector, policy interventions in agriculture, and bright spots in the industrial sector. The Federal Government recently awarded a pipeline surveillance contract to combat vandalism and crude theft. Beyond efforts to reduce oil theft, we view the commencement of crude transmission via the Amukpe Escravos terminal (Nigeria’s most secure export route) as an upside trigger to oil production in Q3’22, which is insulated from crude theft that has plagued the Trans-Forcados terminal. Given this backdrop, we raise our real output expectations for 2022 from 2.7% y/y to 3.36% y/y (2021: 3.4% y/y).