Posted Mon, May 27, 2024 12:39 PM

The Nigerian Economy slowed in 2024Q1

The Nigerian economy expanded by 2.98 percent in 2024Q1, representing a slowdown compared to the growth of 3.46 percent in 2023Q4. However, the current growth rate represents an improvement relative to its level in the corresponding period of 2023 (2.31 percent). On a quarterly basis, the real Gross Domestic Product (GDP) contracted further by 16.1 percent in 2024Q1 compared with a contraction of 15.7 percent in 2023Q1. The non-oil sector – which accounted for 94 percent of the real GDP - remained the key contributor to economic activities.

The oil and gas sector grew for the second consecutive quarter in 2024Q1. Specifically, at 5.7 percent growth, the oil sector outpaced growth in the non-oil sector, which stood at 2.8 percent in the quarter. The sustained recovery of the oil sector in 2024Q1 could be attributed to the persistent improvement in the average domestic crude oil production, which stood higher at 1.6 million barrels per day (mbpd) in 2024Q1, compared to its levels in 2023Q1 (1.51mbpd) and 2023Q4 (1.57mbpd). For growth to be sustained in the oil sector and to reverse divestment risks, there is a need to resolve the perennial challenges facing domestic crude oil production, including ageing infrastructure, oil theft, pipeline vandalism, and kidnapping of expatriate workers.

 Data: NBS; Chart: NESG Research

The three (3) broad sectors recorded growth in 2024Q1. However, the economic growth in the quarter was largely driven by the Services sectors followed by the Industrial and Agricultural sectors.  

Agricultural sector continues to grapple with the impact of insecurity : The Agricultural sector slowed to 0.2 percent in 2024Q1 from 2.1 percent in 2023Q4, reflecting the detrimental impact of insecurity and displacement of farmers in the food-producing region. However, the sector’s growth is an improvement over a contraction of 0.9 percent recorded in the corresponding period of 2023. Nonetheless, insecurity has been a perennial challenge facing the sector and has contributed significantly to rising food prices. The average food inflation rose to a record high of 37.8 percent in 2024Q1, far and above its level in the corresponding period of 2023 (24.4 percent).

Industrial sector suffers from divestment: The Industrial sector slowed by 2.2 percent in 2024Q1, relative to an expansion of 3.9 percent in 2023Q4, albeit expanding faster compared with a 0.3 percent growth recorded in 2023Q1. The sustained growth in the Industrial sector is not unconnected with the continued recovery of the crude petroleum and gas sub-sector. Nonetheless, the non-oil Industrial activity sectors exhibited mixed performances in 2024Q1. While the Manufacturing and Water supply sectors expanded by 1.5 percent and 6.95 percent, respectively, activity sectors - including Electricity supply, Non-oil mining, and Construction - contracted in the quarter. This suggests the lack of broad-based growth in the Industrial sector and the need to extend financial and non-financial support to the players (largely small and medium-sized enterprises) in the space.

Specifically, despite the commencement of operations of the Dangote Refinery in 2024Q1, the oil refining sub-sector contracted sharply by 33.4 percent, underscoring the need to expedite actions towards reviving the local refineries in Nigeria. Similarly, the Chemical and Pharmaceutical Products sub-sector is yet to recover from the blow of divestments by British Pharmaceutical and Biotechnology Company, GlaxoSmithKline Consumer Nigeria, in August 2023, as it slowed to 2.6 percent in 2024Q1 from 6.8 percent and 6.2 percent in 2023Q3 and 2023Q4, respectively. This suggests the need to create an enabling environment for businesses to avert future divestments.

Services sector was the best growth performer in 2024Q1: The Services sector grew faster by 4.3 percent in 2024Q1 from 3.98 percent in 2023Q4, albeit slowing slightly from 4.4 percent in 2023Q1. This performance was driven by sustained growth in the critical activity sectors such as Finance and Insurance (31.2 percent), Information and Communications Technology (5.4 percent albeit slower than the growth of 6.3 percent in 2023Q4), and Transportation (3.3 percent recovering from three consecutive quarters of contraction). The recapitalisation of banks is expected to improve the Financial sector's contribution to the real GDP and propel the growth of the overall Services sector. However, to sustain growth in the Services sub-sectors, there is a need to improve the business environment by tackling bottlenecks, including infrastructural decay, multiple taxation, policy inconsistency and rising logistics costs.