Nigerian Economy Shrinks Again In Q2:2018 As Oil Output Slows … Farmers/Fulani Herdsmen Clash Slows Agriculture Output To Lowest Ebb Since 2010

The National Bureau of Statistics (NBS), has released the second quarter report of the Gross Domestic Product (GDP) with data showing a slower pace of real GDP expansion of 1.5 per cent Year-on-Year (Y-o-Y) ) from 2.0 per cent in the first quarter of 2018).
The NBS said this confirms its suspicions of continued weakness in the economy.
The result mainly reflected a sharp contraction in oil output of -3.5 per cent Y-o-Y, from an expansion of 14.7 per cent Y-o-Y in the previous quarter, due to disruptions at the Bonny and Forcados export terminals in May 2018; average oil output deteriorated -1.6 per cent Y-o-Y to 1.84mb/d in Q2:2018 from 1.87mb/d in Q2:2017. Meanwhile, there was a resurgence in non-oil output growth to 2.0 per cent Y-o-Y in Q2:2018, the highest in 10 quarters, although the gains recorded were unable to offset the under-performance in the oil sector.
According to Afrinvest, the slowdown in agriculture deepened in Q2:2018, as the sector expanded 1.2 per cent Y-o-Y, its slowest pace on record, based on quarterly data from 2010. This decline was on the back of sharp moderation in two sub-sectors, Crop production and Livestock, suspected to be linked to recent restiveness prominent around North Central Nigeria.
In recent times, insecurity due to herdsmen-farmer clashes has continued unabated in the middle-belt region, thus affecting crop and livestock outputs. Hence, growth in crop production (89.1 per cent of total Real Agriculture GDP) slowed to 1.4 per cent Y-o-Y in Q2:2018 from 3.4 per cent Y-o-Y in the previous quarter, the lowest on record, while the livestock sub-sector (7.5 per cent of total Real Agriculture GDP) remained in the negative territory, plunging deeper at -2.0 per cent. Y-o-Y, the weakest performance since Q4:2012.
The current trend in agriculture is worrying, as growth remains weaker than long-term trend of c.5.0 per cent despite the Federal Government’s (FG) substantial support to the sector, most especially through the Central Bank of Nigeria (CBN’s) Anchor Borrowers’ Programme. We believe the ambitious plans for food security and import substitution will take a while to yield results. This is because the current intervention in agriculture is inadequate to drive desired growth, given unaddressed factors such as the huge productivity gap in agriculture, climate change impacts in the form of drought, parasites & diseases and a potential reduction in youth participation in agriculture as massive urbanisation and rural-urban migration intensify. Without effective strategies to lessen the impact of these downside risk factors, performance in agriculture will remain weak in the long-term.
The trend in the growth of the manufacturing sector remains volatile, as growth moderated to 0.7 per cent Y-o-Y in Q2:2018, from 3.4 per cent Y-o-Y in the preceding quarter. This was driven by tepid growth in sub-sectors such as cement (+3.8 per cent) and food, beverage & tobacco (+1.2 per cent) which recorded slower paces of growth but cumulatively account for 54.6 per cent of total manufacturing real GDP.
Notwithstanding, the impressive growth performance of the Textile, Apparel and Footwear sub-sector – which accelerated at 2.7 per cent (the highest post-economic recession) – accounting for 22.1 per cent of total manufacturing real GDP, cushioned the effect. In our view, given the ease in FX challenges that affected the manufacturing sector’s growth between 2016 and early 2017, the slow momentum in the sector may be due to sluggish recovery in consumer spending.
After persisting in the negative territory for much of 2016 and 2017, the services sector staged a strong rebound in Q2:2018, growing at 2.1 per cent Y-o-Y, the highest since Q4:2015. This performance reflected a broad-based improvement in the largest sub-sectors as information and communications rose sharply (11.8 per cent Y-o-Y) and construction posted a positive and strong recovery (7.7 per cent Y-o-Y). Furthermore, trade and real estate services, which both account for 39.4 per cent of services GDP, recorded strong recoveries, although both are still some way off positive territory.
“We believe the resurgence in services was only a matter of time, given the pressure it came under during the slowdown as it recorded seven quarters of negative growth since Q2:2016. Despite the strong showing, we believe much needs to be done to annex the inherent growth potentials in the sector. There has been skewed focus on the agriculture sector of the economy which currently accounts for 22.9 per cent of GDP; whereas, the services sector, most especially trade, has received less attention in terms of access to cheaper credit. Our thesis presupposes that focus on the services sector, accounting for 54.4 per cent of total real GDP, has the potential to help achieve sizeable mileage in re-aligning growth around long-term trend”, said analysts from Afrinvest.

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