Monday, June 10, 2020 / 10:50AM /PFICapital Limited / Header Image Credit: Oilprice

Latest GDP data from the NBS indicates that the Nigerian economygrew at a slower pace of 1.87% YoY in Q1 2020 compared to 2.1% growth in Q12019 and 2.55% growth recorded in Q4 2019. This reflects the earliest effectsof the global disruptions caused by the COVID-19 pandemic as the non-oil sectorgrew at a slower pace of 1.55%.

We note that Nigeria recorded its index case of COVID-19 on 27thFebruary while the President announced a lockdown to commence for the firsttime on 30th March, which is about a month after. With Q1 starting from Januaryto March, the lockdown could therefore not have impacted the GDP growth. Oilsector growth printing at 5.06% YoY which is an increase of 6.51% relative tothe rate recorded in Q1 2019 also contributed to the positive growth raterecorded in Q1 2020.

Fig. 1:Real GDP (N'bln) vs YoY Growth (%) in Real GDP

Source: NBS, PFICapital Research

Activities that witnessed weakerperformance relative to Q1 2019 include Quarrying, Road transport,Accommodation and Food services as well as real estate.

The mining and quarrying sector contributed 9.54% (c.N1.60trillion) to the real GDP in Q1 2020. Quarrying and other minerals under miningand quarrying sector contracted significantly by -83.03% in Q1 2020 from -5.63%in Q4 2019 and 29.31% in Q1 2019. Coal mining under the mining and quarryingsector also contracted by -43.41% in Q1 2020 from -12.32% in Q4 2019 and 31.10%in Q1 2019. Overall, the mining and quarrying sector grew by 4.58% in Q1 2020from 6.07% in Q4 2019 and -1.37% in Q1 2019. This was attributed to 5.06%growth in crude petroleum and natural gas (which was the main contributor tothe mining and quarrying sector with a weight of 99.51% in Q1 2020) in Q1 2020from 6.36% in Q4 2019. 

Fig. 2: Contribution of Oil and Non-Oil Sector to RealGDP

Source: NBS, PFICapital Research

Accommodation and food services which accounted for 1.07% (N178.33billion) of the real GDP in Q1 2020, by -2.99% in Q1 2020 compared to growth of4.15% recorded in Q1 2019 and 2.02% growth recorded in Q4 2019.

Although transport and storage sector grew by 2.82% in Q1 2020 andcontributed 1.77% (N296.78 billion) to the real GDP, the road transportsub-sector grew at a slower pace of 2.83% relative to 21.48% growth recorded inQ1 2019. Transport services under the transport and storage sector contractedby -1.38% in Q1 2020 from growth of 2.11% in Q1 2019.

With 5.21% (N872.53 billion) contribution to the real GDP in Q12020, the real estate services sector contracted by -4.75% in Q1 2020 comparedto contraction of -1.31% in Q1 2019. The sector grew by -28.10% QoQ in Q1 2020.

Fig. 3: Oil Production (Mbpd) Since Q1'17

Source: NBS, PFICapital Research

Outlookfor Q2 2020

We point out that in Q1 2020, oil production was the highest sincethe last 13 quarters. This contributed majorly to the increased contribution ofthe sector to the real GDP as well as its 5.06% growth in Q1 2020. However,with the new OPEC quota in place, Nigeria is expected to produce 1.41 mbpd(which is currently in operation and expected to last in June 30, after whichthe country is expected to produce 1.495 mbpd between July 1 and December 31,2020) from 1.77 mbpd production level in April 2020. This therefore is expectedto reduce the contribution of the oil sector as well as drag the growth of theoil sector in Q2 2020. The addition of this and the continuous slow growth ofthe non-oil sector, will lead to the Nigerian economy recording a mild negativereal GDP growth in Q2 2020.

Further, we expect the arts, entertainment and recreation sectorto also be among the sectors that will drag down the real GDP growth in Q22020. We highlight that the sector grew at a slower pace of 1.53% in Q1 2020and contributed 0.31% to the real GDP in Q1 2020. With recreational activitiesgrounded and entertainment activities at their lowest levels, we expect thecontribution of the arts and entertainment sector to further decline as well asrecord negative growth in Q2 2020. Also, we expect the Education sector tocontract in Q2 2020 from real growth of 0.69% in Q1 2020 as well ascontribution of 2.08% (N348.56 billion) to the total real GDP.

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