Nigerian Macroeconomics Commentary

Nigeria’s GDP growth slows on weak oil production, non-oil remains resilient: The National Bureau of Statistics (NBS) reported Q3 2022 output data which showed a deceleration in economic growth to 2.25% y/y relative to 3.54% print in Q2 2022. The main driver of the slowdown was the oil sector where output shrank 22% in Q3 2022, as oil production averaged 1.2mbpd vs 1.6mbpd in Q3 2021 as the oil companies shut down three key export terminals (Bonny, Brass and Forcados) over the quarter on account of rampant theft along their key trunklines. On the plus side, non-oil output clocked a 4.2% expansion (Q2 2022: 4.77%) despite the inflationary environment due to strength in trade (+5%), ICT (+12%) and construction (+5%) which offset a contraction in manufacturing (-2%) and tame growth in agriculture (+1.3%). Despite rate hikes and a worsening FX illiquidity situation, the +4% expansion in the non-oil sector is testament to its resilience. The Q3 report card brings real GDP growth to just under 3% and assuming non-oil output growth holds at 4% and oil production averages 1.3mbpd (October: 1.23mbpd) then full year 2022 growth is likely to anchor at 3%.

CBN delivers another hike at the last MPC in 2022: Keeping forming, the CBN hiked interest rates by 100bps at the last monetary policy meeting in 2022 which takes the key base rate to 16.5%, the highest level since 2003. In line with my call for a 50-100bps hike, nine (9) members of the MPC voted to raise the MPR by 100 basis points and 2 members voted to raise the MPR by 50 basis points. In the communique, the CBN cited the onset of the festive season and the 2023 elections alongside a desire to consolidate on the gains of its prior hikes. Presumably, the CBN appears to have taken the deceleration in m/m inflation over October as positive signs of the effect of its prior rate hikes and decided that the patient needed more of the same medicine. As I noted last week, the slowdown is likely transient given renewed pressures in farm produce inflation which will likely dominate subsequent CPI readings. Nonetheless, large base effects over December means that inflation will likely peak at 21.5-6% in November and the CBN guidance is for a deceleration to 15% by Q4 2023.

Figure 1: Monetary Policy and Naira Yields

Source: CBN

Overall, the November MPC draws close on the monetary calendar for 2022 which saw the CBN do a volte face from a dovish posture in March to an ultra-hawkish stance since May with cumulative rate hikes of 650bps over 2022. In terms of impact, the rate increment raises the ‘ceiling’ for interbank rates to 17.5% which will likely keep placement rates elevated given a fairly soft maturity profile over the rest of 2022.

Monetary aggregates slowed over October, but at a sluggish pace: CBN data on money supply showed that growth in key monetary aggregates continued to moderate in response to its tightening but a sluggish pace. Annualized growth in M3 through October came in at 18.5% (YTD: 15%) down from the 23% run rate as at June 2022. The slowdown reflects moderation in domestic credit growth which fell below 20% in October having run at a 20%+ run rate for much of the year. Elsewhere, after declining for much of the year, net foreign assets expanded over the period which accounts for some of the sluggishness observed in broad money as this offset the slowdown in net domestic assets.  Cumulative CRR debits stood at NGN11.7trillion.

Naira struggles continue, limited signs of improvement on fundamentals: Over the weekend, the media was awash with news emanating from the CBN’s governor’s speech at the annual Chartered Institute of Bankers of Nigeria (CIBN) gala. In particular, the claim by the governor that monthly FX earnings from crude oil sales had fallen to zero in 2022 from USD3billion a month in 2014. As with most things the story quickly gathered steam even though it was likely an exaggerated over-simplification by the Governor to drive home a point. Indeed, CBN data over the first half of 2022 shows that receipts from oil inflows to the reserves totaled USD3.9billion or USD660million a month – not quite the zero number. It is quite likely that inflows sank to zero in recent months following the much-discussed oil production issues.

Figure 2: Oil Inflows to External reserves

Source: CBN

Nonetheless, the governor’s point hints at the underlying issue this year with Nigeria’s external reserves which have declined thus far in 2022 (-8.4% to USD37.1billion) despite robust oil prices. The real unspoken issue is the DSDP swap program wherein Nigeria effectively barters crude oil for refined petrol at an exchange ratio designed to keep domestic prices low. Given the loss of nearly 1mbpd in production capacity due to outages along key export terminals, Nigeria’s USD earnings is in a precarious state.

In the week ahead, the DMO will look to wrap up its NGN100billion sukuk issuance this week though whether the initial rental rate of 15.64% will stand in the face of the CBN’s rate hike will be tested. There are thin inflows (OMO bills: NGN40billion)

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