The National Bureau of Statistics released the domestic economic performance result for Q1 2022 yesterday. The economy grew by 3.11% YoY in real terms during the period, driven by the Services sector which accounts for half of the Nigerian economy. The Agricultural sector also recorded a resilient performance, while the Industrial sector remained under pressure.

Oil GDP versus Non-Oil GDP

The unimpressive performance of the Oil sector sustained in Q1 2022 with a 6.81% YoY output decline, driven by lower oil production amid bottlenecks such as oil theft, weak investments, oil assets vandalism etc. Also, compliance to OPEC’s production cut agreement resulted in lower output. The daily average production declined by 13.37% YoY to 1.49 million barrels per day (mbpd) in Q1 2022 from 1.72mbpd in Q1 2021. On a quarter-on-quarter basis, the daily average production declined by 0.67%.

Driven by Information & Communications (+12.07% YoY), Trade (+6.54% YoY), Finance & Insurance (+23.24% YoY), Agriculture (+3.16% YoY), Manufacturing (+5.89% YoY), and Real Estate (+4.44% YoY) sectors; the Non-Oil GDP recorded a solid 7.45% YoY growth.

What is Powering Economic Growth?

In assessing what powered the domestic economic growth, we tried to identify the source using the Cobb-Douglas production function, which stresses the relationship between production output and production input. The Cobb Douglas production function consists of physical capital (K), labour (L), and total factor productivity (TFP) that measures the change in output that is not explained by ‘K’ and ‘L’. Typically, TFP is often described as technology.

We believe that TFP was the growth catalyst of the Nigerian economy. Due to limited data, we are unable to quantify this impact, but we arrived at our conclusion logically. According to data released by the NBS, the amount of capital imported into the economy declined by 31% to $6.70bn in 2021 (historical 7-year average: $12.22bn). Therefore, we conclude that the factor input relating to capital was weak.

There is no recent labour productivity data, but according to the CEIC latest data in 2018, the Nigerian labour productivity declined by 1.14% in September 2018. As at then, the Nigerian unemployment rate stood at 23%. As of Q4 2020, unemployment rate rose higher to 33% (NBS) and further rose to 35% in 2021 (Agusto & Co.). The conclusion we draw from here is that labour productivity is also weak.

Therefore, we believe that the TFP was responsible for the economic output growth in Q1 2022 and the past few quarters. The growth trajectory of the ICT sector provides credence to this. Also, our view that the rising trend of B2B e-commerce, which has supported manufacturing output growth, also serves as an anecdotal evidence.

Outlook

We expect the growth momentum to continue in the near term, driven by ICT sector growth, sustained Manufacturing sector growth, and resilience in the Agriculture sector. On the other hand, we expect the pressures in the Oil sector to persist, given weak regulatory responses to the ongoing challenges in the sector, and compliance with OPEC’s quota.

The risks to growth outlook of the domestic economy include political risk emanating from election activities, insecurity, and regulatory pressures, and tightening conditions in the global financial markets.

We revise our FY 2022 GDP growth to 3.30% (previous: 3.05%).

Please follow the link “Q1 2022 GDP Report – Economic Output Boosts on the Back of Technology” to view the whole report.

Thank you.