Nigeria’s GDP growth slows in 2015 amidst forex liquidity constraints

LAGOS, Nigeria, Capital Markets in Africa — The Nigeria National Bureau of Statistics released economic performance data for the fourth quarter of 2015 on Friday 11 2016. The release showed that Africa’s largest economy grew by 2.1% year-on-year (yoy)  in the fourth quarter against market expectations of 2.85%. The growth rate was also lower than the 2.84% recorded in the third quarter of 2015 and significantly lower than the 5.94% recorded in the fourth quarter of 2014. On a quarter on quarter basis, it grew at 3.1%.

The Nigerian economy expanded by 2.79%, which is significantly less than the 4.21%, 5.49% and 6.22% recorded in 2012, 2013 and 2014 respectively. It is worth noting that the Nigerian economy grew at an average of over 8% between 2004 and 2013.

Even though oil is a small part of overall output it is clear that at current price levels Nigeria’s economic performance will be sluggish for the foreseeable future. Government’s efforts to try and diversify the economy could take longer than expected and the lack of foreign exchange will continue to be a drag on overall economic activity.

The oil sector continued to contract in the final quarter of 2015, declining -8.28% y/y. For the year as a whole the oil sector contracted by -5.45%, down from -1.32% 2014. It is worth noting that because of the challenges in the oil sector it is not uncommon for the industry to experience negative growth. For example the sector contracted by 4.95% and 13.07% in 2012 and 2013 respectively. Oil production was down to 2.16 million barrels per day (MBPD) from 2.17 MBPD in the previous quarter. Oil now represents 8.06% of the economy.

The non-oil sector grew by 3.14% in the fourth quarter of 2015, which was higher than the 3.05% recorded in the previous quarter but down from 6.44% growth in the fourth quarter of 2014. For 2015 the sector grew by 3.75% and it is now 91.94% of the economy. It is clear that although the non-oil sector is the biggest part of the Nigerian economy, the government has done little to lower its own dependence on the commodity.

The Industrial sector contracted sharply in the last quarter of 2015, falling -3.04% y/y, compared with -0.13% in the previous quarter. The sector contracted by -2.24% in 2015, which is the first annual contraction since the GDP data was re-based a few years ago. The latest growth figures suggest the government has been relatively unsuccessful in its efforts to accelerate growth in the industrial sector.

The agricultural sector held up again in the final quarter of 2015, growing by 3.48% compared with 3.46% in the previous quarter. Agricultural growth has been steady in Nigeria and seems to have been unaffected by the El-Nino phenomenon experienced recently. Services, which is over half of the economy, slowed to 3.69% from 3.97% in the previous quarter.

Going forward, economic growth will depend on the recovery of the oil price, but more especially on restructuring the economy and reducing its dependence on oil exports. The country has significant potential especially in terms of tax collection outside of oil, where non-compliance is very high. Other sectors which have been neglected, such as general industry and agriculture, as well as other products which could be mined, provide possible opportunities for the country. This will depend, however, on how long it takes the current administration to implement structural reform.