Nigeria: Nigeria's GDP: Positive Signals For 2017

Last Updated: 6 March 2017
Article by Andrew S. Nevin

Real GDP contracts 1.5% y/y in 2016

Despite headwinds, Nigeria's nominal GDP breached the NGN100trillion mark for the first time ever in 2016. This means in dollar terms, the economy retains its position as the largest economy in Africa, with GDP at USD337billion. In real terms however, the narrative is not as compelling. The economy recorded a contraction in growth by 1.5% y/y - the result of a mix of factors: foreign exchange and fuel shortages, intermittent power outages, delayed fiscal stimulus and lack of clarity on the policy environment. This performance was largely in line with our expectations. PwC had estimated real GDP growth at -1.7% y/y.

While the non-oil sector remained the major driver of the economy (91.6% of GDP), its resilience was called into question by a myriad of structural shocks. Real growth in the sector was -0.2% y/y for the first time in recent years, well below the 5-year average of 5.1%. As expected, the oil sector contracted sharply by 13.7%, a reflection of lower oil prices and massive shortages in oil production. Agriculture, Information and Communication, and Education emerged as the best performing sectors with respective y/y growth of 4.1%, 3.9% and 1.4%, while the Power, Mining and Real estate sectors were the worst hit, declining y/y by 15.0%, 13.6% and 6.9% respectively.

Since the rebasing of GDP series, the economic structure of Nigeria has shown increased diversification with oil becoming less relevant (8.4% of GDP), but only from an activity perspective. The oil sector remains the predominant source of fiscal and export revenues. This suggests an increasing linkage between the oil and non-oil sectors in particular, through the exchange rate channel.

2017: A return to positive growth

Our base case scenario puts 2017 growth at 0.7%, an improvement on 2016 levels, though below population growth of 2.8%p.a. and 5-year average growth of 4.8%y/y. This suggests there will be a gradual but weak recovery of economic activities and a further decline in per-capita GDP. This growth is expected to be driven by the following:

  • Moderate improvement in crude oil production to an average of 1.8mbpd, up from 1.7mbpd in 2016, as attacks on oil and gas infrastructure moderate,
  • Stabilisation of oil prices at an average of US$55/bbl supported by the implementation of OPEC's output freeze deal and,
  • Improved liquidity in the foreign exchange market.

Improvements in oil revenues should support public spending and positively impact the current account balance. We project that the 2017 current account balance will post a surplus of 0.2% of GDP in 2017, from an estimate of -0.6% in 2016 even as terms of trade improve. This should increase foreign exchange liquidity to support a more flexible exchange rate regime thus narrowing further, the gap between the official and parallel market rates.

Hence, the real GDP growth projection of 0.7% takes account of the net effect of a number of recent developments, which suggest that consumption (65%-70% of GDP) will continue to grow at a below-average pace for a time and investments will likely remain subdued until at least mid 2017. The impact of these will be offset to some extent by the net positive effect of higher net exports and increased government expenditure. The key risk to our outlook stems from any significant shocks to the consumer, in particular variables that impact energy and transportation costs.

As usual, the path of the exchange rate remains a key source of uncertainty for the forecasts although our estimates point to the possibility of further devaluation of c.15% to NGN/USD350 by year-end 2017.

Real GDP contracts 1.5% y/y in 2016

Despite headwinds, Nigeria's nominal GDP breached the NGN100trillion mark for the first time ever in 2016. This means in dollar terms, the economy retains its position as the largest economy in Africa, with GDP at USD337billion. In real terms however, the narrative is not as compelling. The economy recorded a contraction in growth by 1.5% y/y - the result of a mix of factors: foreign exchange and fuel shortages, intermittent power outages, delayed fiscal stimulus and lack of clarity on the policy environment. This performance was largely in line with our expectations. PwC had estimated real GDP growth at -1.7% y/y.

While the non-oil sector remained the major driver of the economy (91.6% of GDP), its resilience was called into question by a myriad of structural shocks. Real growth in the sector was -0.2% y/y for the first time in recent years, well below the 5-year average of 5.1%. As expected, the oil sector contracted sharply by 13.7%, a reflection of lower oil prices and massive shortages in oil production. Agriculture, Information and Communication, and Education emerged as the best performing sectors with respective y/y growth of 4.1%, 3.9% and 1.4%, while the Power, Mining and Real estate sectors were the worst hit, declining y/y by 15.0%, 13.6% and 6.9% respectively.

Since the rebasing of GDP series, the economic structure of Nigeria has shown increased diversification with oil becoming less relevant (8.4% of GDP), but only from an activity perspective. The oil sector remains the predominant source of fiscal and export revenues. This suggests an increasing linkage between the oil and non-oil sectors in particular, through the exchange rate channel.

2017: A return to positive growth

Our base case scenario puts 2017 growth at 0.7%, an improvement on 2016 levels, though below population growth of 2.8%p.a. and 5-year average growth of 4.8%y/y. This suggests there will be a gradual but weak recovery of economic activities and a further decline in per-capita GDP. This growth is expected to be driven by the following:

  • Moderate improvement in crude oil production to an average of 1.8mbpd, up from 1.7mbpd in 2016, as attacks on oil and gas infrastructure moderate,
  • Stabilisation of oil prices at an average of US$55/bbl supported by the implementation of OPEC's output freeze deal and,
  • Improved liquidity in the foreign exchange market.

2017: A return to positive growth

Improvements in oil revenues should support public spending and positively impact the current account balance. We project that the 2017 current account balance will post a surplus of 0.2% of GDP in 2017, from an estimate of -0.6% in 2016 even as terms of trade improve. This should increase foreign exchange liquidity to support a more flexible exchange rate regime thus narrowing further, the gap between the official and parallel market rates.

Hence, the real GDP growth projection of 0.7% takes account of the net effect of a number of recent developments, which suggest that consumption (65%-70% of GDP) will continue to grow at a below-average pace for a time and investments will likely remain subdued until at least mid 2017. The impact of these will be offset to some extent by the net positive effect of higher net exports and increased government expenditure. The key risk to our outlook stems from any significant shocks to the consumer, in particular variables that impact energy and transportation costs.

As usual, the path of the exchange rate remains a key source of uncertainty for the forecasts although our estimates point to the possibility of further devaluation of c.15% to NGN/USD350 by year-end 2017.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Andrew S. Nevin
 
In association with
Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions