Nigeria’s National Bureau of Statistics (NBS) released Q1 2013 GDP while back which showed that national domestic output grew 6.56% from the corresponding period in 2012 which is 0.22 percentage points higher than in Q1 2012.
Figure 1: Output growth rate
The breakdowns provided reveal that oil GDP continued its pilloried performance by posting a 0.54% contraction i.e (-0.54%) no doubt on account of the several force majeures instituted by the oil companies operation during the period. Oil production averaged 2.29mbpd vs. 2.35 in Q1 2012 as Exxon Mobil, Shell and Agip had to stop exports along the 200kbpd Qua Iboe and Bonny streams amidst other disruptions to oil production. Note that Nigeria’s 2013 budget is premised on the assumption that oil production would be at 2.5mbpd.
Nigeria’s Oil price benchmark – the Bonny light behaved quite admirably during the period averaging $114.79/barrel (well above the $79/barrel in the budget) – implying that the declines in output on account of the disruptions to production had a much stronger effect on oil GDP growth. This trend of weakness in oil GDP has been steady since 2011 when bunkering became much bigger and resulted in oil contribution to GDP dropping to 14.75% from 15.8% in Q1 2012.
Figure 2: Crude Oil Production, exports and Prices
Non-oil GDP growth slowed down to 7.89% from 8.14% in recorded in Q1 2012. At this point the mathematicians would have smelled a rat – if Q1 oil GDP was negative and non-oil GDP growth slowed, where did the 22 basis point increment in overall GDP come from? Well simple – Although oil GDP contracted 0.54%, last year in Q1, it contracted a whooping -2.52% again on account of sharp drops in oil production. Thus, the moderation in oil GDP contraction was where the gain in overall GDP came from i.e. the only reason our GDP grew was because certain people bunkered less which pretty much sums the ‘pleasant’ state of affairs.
On non-oil GDP, its contractions stemmed from weakness in its biggest component Agriculture which grew 4.14% as against 4.37% in Q1 2012 as farming activities are still reeling from the 2012 floods which destroyed farmlands, rural roads, irrigation systems, etc
Wholesale and Retail trade also slowed posting an 8.2% growth where it was 8.42% in 2012 partly due to the floods which destroyed several road networks but crucially a distortion in trade flows stemming from the insecurity in the North. The curfews and significant population displacement has resulted in all kinds of distortion to trade patterns, recently FMCG companies on the Nigerian Stock Exchange all reported slowdowns in sales from the North on account of the Boko Haram issue. Clearly this too is affecting growth.
The Q1 2013 GDP report was not all gloom – Manufacturing posted a big jump rising from 5.17% to 7.7%. well surely that ought to have eyebrows raised what manufacturing? Well a closer look reveals that in recent years the Cement industry has been revved up. Crucially last year marked the beginning of the end of cement importation with no cement import permits issued except to the Ibeto Group which has a curious court order giving it a right to import cement till 2017. The capacity expansions by Dangote, WAPCO and Ashaka cement producers are having a bigger impact on manufacturing GDP.
The World Bank recently raised its outlook for Nigeria’s GDP growth rate to 6.7% largely on account of the recovery play – the weakened base of 2012 which was on account of one-off items: the partial subsidy removal which raised prices of Petrol by 49% and the floods which hit agriculture. Thus, if no floods again, non-oil GDP should improve given the scale of what the agriculture ministry is doing.
Nevertheless, the continued pace of oil theft in the Niger Delta should see oil GDP remain negative – albeit we have some oil projects coming up on stream in 2013 – Ehra North (ExxonMobil) and Oberan(EniAgip) and which could give Oil GDP a brief bump. Clearly the government has to tackle bunkering head on lest this trend continues. Furthermore, the continued lack of progress over the Petroleum Industry Bill will continue to create downside pressures on oil GDP and more importantly on fiscal revenues as with no clarity, few oil companies would be willing to bet on Nigeria’s oil sector. The fiscal terms on the PIB appear burdensome and the oil majors have resisted which is why we have not yet held any oil licensing round since 2008 to expand production and reserves. If this continues, longer term outlook for oil exploration in Nigeria is cloudy – hopefully the politicians would get their acts together and sort this mess.