Q2 GDP growth slows to 1.94% y/y

Recently released GDP data by the National Bureau of Statistics (NBS) shows that Nigeria’s Q2’19 GDP growth slowed to 1.94% y/y (Q1’19: 2.1% y/y), underperforming consensus estimate of 2.33% y/y and Vetiva estimate of 2.9% y/y. The slowed growth witnessed during the quarter was principally driven by the steep deceleration in non-oil GDP growth, which slowed to 1.64% y/y from 2.47% y/y registered in Q1’19. Contrastingly, oil GDP growth strengthened to 5.15% y/y (Q1’19: -1.46% y/y), majorly induced by the weak base of the corresponding quarter of 2018.

Herdsmen clashes hamper crop produce

Growth in agriculture output came in weaker to print at 1.79% y/y, indicating a sharp slowdown from a growth figure of 3.17% y/y recorded in Q1’19. This was largely a reflection of the weaker growth in crop production, which slowed to 1.94% y/y in Q2’19 from 3.26% y/y in Q1’19, weighed by continual disruptions stemming from herdsmen crisis. For context, according to Global Terrorism Index, there were 411 confirmed herdsmen attacks in 2018, 466 in 2017 and 588 in 2016. While the federal government recently proposed the Rural Grazing Area (RUGA) settlements as the solution to the frequent herdsmen clashes, the implementation of the proposal in southern Nigeria was thwarted by the regional stakeholders on the basis of ethnic and religious differences. Pending the implementation of a sustainable panacea, we highlight that, in the mid-term, herdsmen-farmer conflicts in major food-producing states will continue to precipitate volatilities in Nigeria’s crop output. As such, impact of supportive initiatives, such as the CBN’s Anchor’s Borrowers Programme and foreign exchange restriction on food imports, will remain shy of full realization. More so, though there were no official reporting of major flood incidents in food-producing region in Q2’19, adverse climate shift still poses a threat to Nigeria’s food security.

Policy reforms needed for strong economic growth

Q2’19 GDP data further buttresses the need for the government to adopt key policy reforms across major sectors that can address domestic structural issues, ranging from hampered farm produce, crude theft, poor refining capacity and constrained goods transport from the Apapa port. In the interim, we expect private investment spend to remain tepid, a reflection of adverse operating conditions across the country. Our forecast for FY’19 GDP growth has been revised lower to 2.5% y/y (previous estimate: 2.7% y/y).