Posted Sat, Feb 24, 2024 10:46 AM

Oil and Gas sector exits recession and propels the Nigerian Economy in 2023Q4

The Nigerian economy expanded by 2.7 percent in 2023, representing a slowdown compared to the growth of 3.1 percent in 2022. Remarkably, the real Gross Domestic Product (GDP) grew by 3.5 percent in 2023Q4 (same as in 2022Q4), surpassing its performance in the first three quarters of 2023. While the non-oil sector remained the driver of economic growth for many quarters, the recovery of the oil and gas sector in 2023Q4 after 14 quarters of contraction is remarkable and significantly augmented the non-oil sector in propelling the economy in 2023Q4. Specifically, the oil and non-oil sectors grew by 12.1 percent and 3.1 percent, respectively, in the quarter.

The rebound of the oil sector in 2023Q4 is attributable to the significant improvement in the average domestic crude oil production, which stood higher at 1.6 million barrels per day (mbpd) in 2023Q4, compared to its levels in 2022Q4 (1.5mbpd) and 2023Q3 (1.45mbpd). While the improvement in domestic crude oil production reflects some gains reaped from the fuel subsidy removal, efforts should be geared to sustain crude oil output at high levels by curtailing oil theft, pipeline vandalism, and kidnapping of expatriate workers. This would help contain divestment risks in the oil and gas sector.

Data: NBS; Chart: NESG Research

Moreover, the three (3) broad sectors recorded growth in 2023. The Agricultural sector grew by 1.1 percent in 2023 relative to a 1.9 percent growth in 2022. The sector's sluggish growth is mainly attributable to insecurity in the food-producing region. This has been a perennial challenge facing the sector and has contributed significantly to rising food prices. The average food inflation rose to an all-time high of 27.8 percent in 2023. Meanwhile, the Industrial sector grew by 0.7 percent in 2023, improving from a contraction of 4.6 percent in 2022. This is not unconnected with the recovery of the crude petroleum and gas sub-sector.

However, the non-oil Industrial activity sectors, such as Manufacturing, are struggling with growth. In 2023, the Manufacturing sector expanded by 1.4 percent in 2023, representing a slowdown compared with a 2.5 percent growth in 2022. Of the 13 Manufacturing sub-sectors, five (5) activities contracted, five (5) slowed, while three (3) grew faster in 2023 relative to 2022. Specifically, the slowdown in the Chemical and Pharmaceutical Products sub-sector from 9.4 percent in 2022 to 6.4 percent in 2023 could be attributed to the exit of a British Pharmaceutical and Biotechnology Company, GlaxoSmithKline Consumer Nigeria, from the country in August 2023 after 51 years of operation. Meanwhile, the operations of the Dangote Refinery, starting in the first quarter of 2024, are expected to boost the overall Manufacturing GDP through forward and backward intersectoral linkages.

In addition, the Services sector expanded by 4.2 percent in 2023, slowing from 6.7 percent in 2022. The critical activity sectors, including Trade and Information and Communications Technology (ICT), recorded a slowdown in 2023. The depressed growth in ICT could be attributed to losses sustained by telecom companies due to currency devaluation. Specifically, foreign-owned subsidiaries, including Airtel Africa, MTN Nigeria, Nestle, and Guinness, have lost over N900 billion to currency devaluation [1]. Additionally, the Services sector has suffered from rising inflation, which has depressed the purchasing power of the citizens and weakened consumer spending with attention shifted towards basic necessities. To sustain growth in the Services sub-sectors, the Nigerian government should consider it imperative to improve the business environment by tackling bottlenecks, including multiple taxation, policy inconsistency and rising logistics costs. 

Footnote

[1] See, https://blueprint.ng/airtel-mtn-others-accumulate-over-n900bn-forex-loses-to-naira-devaluation/