Nigeria: Economy finally emerges from recession in Q2
September 5, 2017
Nigeria’s economy expanded 0.6% year-on-year in Q2, contrasting Q1’s revised 0.9% decline (previously reported: -0.5% year-on-year) but undershooting analysts’ expectations, according to data released by the National Bureau of Statistics on 5 September. Q2’s figure broke a sequence of five consecutive quarterly declines, which were driven by lower oil production and a non-oil sector hobbled by power supply constraints and foreign exchange restrictions. However, the current pace of expansion remains far too low to make a noticeable dent in stubbornly-high unemployment, and as a result of population growth, GDP per capita is still declining.
In Q2, economic activity was pushed up by slightly higher oil output than in the same period last year. Oil output stood at 1.84 million barrels per day (mbpd) in Q2, a notch above Q2 2016’s 1.81 mbpd. As a result, the oil sector grew 1.6% year-on-year in the second quarter. The recovery in the oil sector can be largely attributed to an improved security situation in the key oil-producing Niger Delta region, as militant groups have refrained from attacking oil infrastructure and the government has made concerted efforts to engage with local communities. The non-oil sector marked its second consecutive quarter of growth (Q2: +0.5% yoy; Q1: +0.7% yoy), as a result of expansions in the agricultural, finance and insurance and electricity, gas, steam and air conditioning sectors.
Looking ahead, the evolution of the hydrocarbon sector will be key to sustaining the economic recovery. However, uncertainties remain that may inhibit the return of oil production to pre-conflict levels. This is partly because peace in the Niger Delta remains uneasy, with militant groups recently threatening further attacks on oil facilities. In addition, any production cap as part of the OPEC deal to prop up global oil prices would prevent the sector from returning to full strength; Nigeria’s oil minister had previously stated that the country would limit crude production at around 1.8 mpbd, roughly the current level.
Regarding the non-oil sector, the implementation of policy measures as part of the government’s Economic Recovery and Growth Plan would help industrialize the nation and diversify the economy. Specific solutions for the wobbly energy sector are vital, and power supply problems are a key gripe of companies operating in the country. However, there is considerable uncertainty over whether many measures will see the light of day, and the economy continues to be hampered by problems such as rampant corruption, exchange rate distortions and an inefficient labor market. As a result, FocusEconomics panelists expect only modest growth in the coming years, driven by greater private and public consumption and fixed investment.
Author: Oliver Reynolds, Economist