Recall that the year 2020 unwillingly hosted “The Great Lockdown”; a period when a global pandemic put nations on their backfoot, necessitating restrictive measures to halt the spread of a ravaging virus, albeit with the undesirable consequence of a self-inflicted economic contraction. For Nigeria, we were able to stage a recovery in non-oil related segments of the economy last year, as Covid-19 restrictions were deemphasized, and the economy attempted a return to normalcy.
However, the oil sector remained lagged all through 2021, shrugging-off an overwhelmingly bullish oil market, and allowing constricted output levels to subdue growth and sustain a negative trajectory. In the recent GDP report released by the National Bureau of Statistics, real GDP growth rate printed at an annualized rate of 3.98% in Q4 2021, drawing support from outperforming sectors like Financial and Insurance, Trade, and Information and Communication.
Nigeria sustained the growth trajectory seen in the last four quarters, as the economy recorded a real growth rate of 3.98% y/y in Q4 2021. The Q4 2021 growth rate represents a decline of 0.05% when compared to the preceding quarter (4.03%), but reflects a sharp uptick of 3.87% relative to the growth rate recorded in Q4 2020 which stood at 0.11%. In nominal terms, aggregate GDP stood at N49.28 trillion in Q4 2021, up by 13.11% when compared to the amount recorded in the fourth quarter of 2020 which stood at N43.56 trillion. The year-on year nominal growth rate for Q4 2021 stood above the levels as of Q4 2020 (10.07%), but fell below the nominal growth seen in the preceding quarter (13.92%). In 2021, aggregate nominal annual growth printed at 13.92%.
Oil Sector – downtrend persists
The oil sector sustained its contractionary trend, as it recorded a real growth rate of -8.06% y/y in the fourth quarter of 2021. The Q4 2021 negative growth rate seen in the oil sector represents an 11.71% improvement when compared to the rate recorded in Q4 2020 (-19.76%) and reflects a 2.68% increase relative to the rate seen in the third quarter of 2021 (-10.73%). The oil sector marked its seventh consecutive period of contraction, despite the overwhelming bullish bias in the international oil market. Brent Crude, which serves as the benchmark crude for Nigeria’s Bonny Light, averaged $79.66/bl in the review period, representing an upsurge of 8.78% and 76.01% relative to the average pricing in Q3 2021 and Q4 2020 ($73.23/bl and $45.25/bl), respectively.
The improvement in oil prices was recorded against a backdrop of growing demand amidst constricted supply. Oil demand recovery was buoyant in the review period, as most economies continued to relax Covid-19 movement and travel restrictions. However, the supply side remained slim, as the disruptive impact of hurricane IDA tempered output from shale producers, while the OPEC+ bloc maintained a modest policy on increasing supply despite pressures from nations like the U.S. for a more generous supply level. Also, these limiting factors on the supply side of the oil market were exacerbated by a prevailing global gas shortage.
Irrespective of the elevated oil prices, oil sector performance was subdued by the weak local production level in the review period. In Q4 2021, oil output stood at 1.50mbpd, reflecting a decline of 0.06mbpd when compared to the production level in Q4 2020 (1.56mbpd). The Q4 2021 oil production level was also lower than the 1.57mbpd output level recorded in Q3 2021. The disappointing oil production level was recorded despite OPEC’s effort to increase output by 400,000bpd monthly throughout the review period, as Nigeria struggled to meet increasing output quotas due to the debilitated state of oil infrastructures, low oil investments, and other factors relating to theft and vandalism. Overall, the sector growth rate printed at -8.30% in 2021.
In terms of GDP contribution, the oil sector accounted for 5.19% of the GDP in the review quarter, lower than 5.87% and 7.49% recorded in Q4 2020 and Q3 2021, respectively. The overall oil sector GDP contribution for 2021 stood at 7.24%.
Non-Oil Sector – remaining resilient
The non-oil sector recorded a real growth rate of 4.73% y/y in the review period, up by 3.05% and down by 0.71% relative to the rates recorded in Q4 2020 (1.69%) and Q3 2021 (5.44%), respectively. The sector continues to draw support from the sustained growth in areas that were resilient during the pandemic-induced recession, and also from the recovery in sectors that fell sharply in the base period. The underlying sectors that supported the Q4 2021 non-oil growth includes; Financial and Insurance, Transportation and Storage, Trade, and Information and Communication.
The non-oil sector’s GDP contribution stood at 94.81% in the review period, higher than its contribution in Q4 2020 which stood at 94.13%, and also above the 92.51% share recorded in the third quarter of 2021.
Sectoral Performance in Q4 2021 – broad-based growth
Of the nineteen sectors under our review, eighteen recorded growth while one contracted. A further probe of the data revealed that the major sectoral underperformers in Q4 2020 delivered some of the best growth rates in the review period. These include sectors like Transportation and Storage, Electricity, Gas, Steam and Air Conditioning Supply, and manufacturing. As the economy further reopened, these sectors rebounded strongly, given increased activity levels. Elsewhere, we also saw decent upsurges in Real Estate and Construction sectors, benefiting from increased infrastructure spending. Also, we continued to see sustained resilience in Finance and Insurance, Agriculture, and Information and Communication sectors. However, the Mining and Quarrying sector was the sole decliner in the review period.
Activity Sectors – Services remain the outperformer
Of the three major activity sectors, Services retained the largest quotient in terms of GDP contribution, at 55.11%. Hence, Agriculture and Industries contributed 26.84% and 18.05%, respectively, to the GDP in Q4 2021. Consequently, Services was the major sponsor of the overall GDP growth in the review period, as the sector grew by 5.58%. GDP growth was also supported by a 3.58% uptick in Agriculture, while Industries remained in the contractionary region at -0.05%.
The impressive performance seen in Services was buoyed by subcomponent overperformers like Finance and Insurance, and Information and Communication, which recorded real growth rates of 24.14% and 5.03%, respectively, in the review period. Elsewhere, other components like Trade and Transportation leveraged their low base period performance to support Service sector growth in the review period.
Expectations – back to pre-pandemic growth levels
Following the non-oil sector-led growth recorded in 2021, economic performance for the current year remains hinged on the trajectory of growth in the non-oil space. Despite the uncertainties posed by the Covid-19 pandemic and our lagged vaccination campaign, it appears that the government has partly divorced the idea of implementing economic restrictions as a measure to curtail resurgences of Covid-19 cases. Hence, in 2022, the non-oil sector has the leeway to sustain the existing trend of recovery as minimal Covid-19 related restrictions are anticipated, while service sector components like Information and Communication will act as major catalysts to non-oil growth irrespective of the turn Covid-19 takes. However, our optimism regarding the non-oil sector still recognizes the existence of Covid-19 downside risks, although less predominant.
Elsewhere, the unending trend of contraction in the oil sector is likely to wane and possibly stage a late rebound this year, drawing support from elevated oil prices which currently hover around a 7-year high. However, oil sector performance should remain hushed by limited production levels, regardless of provisions of increased output quotas by OPEC+. In terms of oil sector tailwinds, we view a “properly” implemented Petroleum Industry Act (PIA) as the required catalyst that could possibly boost investments in the upstream segment of the oil sector this year.
In a nutshell, we expect the economy to sustain the positive trend, albeit less aggressive. For 2022, growth should resemble the pre-pandemic trend, as the weak base impact that propelled growth above 3.00% in 2021 would wane, forcing real GDP growth to print between 2.50% and 3.00% in 2022.