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Nigeria macroeconomic and markets report, November 2021


Just as the world subtly basked in the euphoria of the waning of uncertainties around the delta variant of the Covid-19 virus, we have suddenly been confronted with the omicron variant of the deadly virus that has now been reported in at least 23 countries including the U.S., South Africa and Nigeria. At the tail end of November, the World Health Organization (WHO) designated Omicron (variant B.1.1.529) a variant of concern, on the advice of WHO’s Technical Advisory Group on Virus Evolution (TAG-VE). The decision was based on the evidence presented to the TAG-VE that Omicron has several mutations that may have an impact on how it behaves, for
example, on how easily it spreads or the severity of illness it causes. Policy makers and markets around the world continue to oscillate as the world race to ascertain the extent to which the virus can compromise progress recorded so far in the battle against Covid-19.

Elsewhere, the appointment of Jerome Powell as the Federal Reserve Chairman for another four-year term beginning February 2022 ended weeks of speculation over U.S. apex bank’s policy trajectory. Whilst the appointment of Powell has essentially entrenched an era of a Hawkish Fed who just recently changed its erstwhile position that inflationary pressures were transitory, the appointment of his closest contender, Lael Brainard (who has now been promoted to vice chairman) would have seen the emergence of a U.S. Fed that is more dovish in its policy posture. Consequently, the Feds have commenced tapering its asset-purchase program starting with $15 billion, split across $10 billion treasury purchases and $5 billion mortgage-backed securities. Although the Fed has noted plans to close out the asset purchase program by midyear 2022, there are credible talks around closing out the pandemic support program even faster, as inflation which hit 6.8% (year on year) in December remains
a major cause for concern. However, we are cognizance of how much unfolding insights into Omicron can influence decisions going forward.

On the local front, the fuss on whether or not to withdraw subsidy payments on petroleum motor spirit (PMS) remains present. The Federal Government of Nigeria currently expends roughly ₦250 billion monthly on subsidizing PMS consumption in the country, a numbers that keeps increasing. However, due to slackly constituted structure of institutions, the masses do not get the full benefit of this humongous monthly expenditure. With the World Bank and indeed the international financing community almost daily sounding the gong in support of subsidy removal to the Nigeria authorities, it remains unclear if the government will muster the courage and political will to finally end the perceived treacherous era of subsidy payment and allow a sternly market driven industry, geared at creating value for the Nigerian people.


GDP Growth & Oil Production

Nigeria sustained the growth trajectory seen in the last three quarters, as the economy recorded a real growth rate of 4.03% y/y in Q3 2021. The Q3 2021 growth rate represents a decline of 0.98% when compared to the preceding quarter (5.01%), but reflects a sharp uptick of 7.65% relative to the growth rate recorded in
Q3 2020 which stood at -3.62%.

The oil sector sustained its downtrend, as it recorded a real growth rate of -10.73% y/y in the third quarter of 2021. The oil sector marked its sixth consecutive period of contraction, despite the sustained bullish trend in the international oil market. Oil sector performance was dampened by the local production level, as it declined in the
review period. Local oil production stood at 1.57mbpd, reflecting a decline of 0.10mbpd when compared to the production level in Q3 2020 (1.67mbpd). Elsewhere, the non-oil sector recorded a real growth rate of 5.44% y/y in the review period, up by 7.95% and down by 1.30% relative to the rates recorded in Q3 2020 (- 2.51%) and Q2 2021 (6.74%), respectively.

Of the three major activity sectors, service retained the largest quotient in terms of GDP contribution, at 49.65%. Hence, agriculture and industries contributed 29.94% and 20.41%, respectively, to the GDP in Q3 2021. This explains the improvement seen in real GDP growth, as the service sector, which accounts for the lion’s share of the GDP, grew by 8.41% in the review period. Agriculture also grew by 1.22%, while industries remained in the contractionary region at -1.63%.

In other news, OPEC, in its monthly oil market report for November revealed that Nigeria’s oil production dipped on a monthly basis by 1.52% to 1.23mbpd in October 2021, as structural problems in the sector continues to weigh on output. This decline was recorded despite the 400,000bpd monthly output increase by OPEC+. In addition, OPEC estimated a demand growth of 5.7mbpd for 2021, 0.16mbpd lower than the preceding month’s estimate, putting the total demand for the year at 96.4mbpd. On the supply side, OPEC forecast a non-member supply growth of 0.7mbpd to average 63.6mbpd, leaving their projection unchanged from the preceding month’s estimate.


Inflation sustained its path of moderation in October 2021. The headline index grew by 15.99% YoY in October 2021, 0.64% lower than 16.63% recorded in September 2021. Likewise, the food and core inflation metrics respectively inched up by 18.34% and 13.24% YoY in October 2021, 1.23% and 0.50% lower than 19.57% and 13.74% recorded in September 2021. The drop in yearly headline inflation marks the seventh consecutive decline, following a 19-month uptrend that lasted from September 2019 till March 2021. The moderation in the headline index was largely driven by the sustained decline in the food subindex, as well as the reversal of the
core segment uptrend.

In October 2021, headline inflation rose by 0.98% MoM, representing a 0.17% decline from the rate of 1.15% that was recorded in the previous month. The yearly average rate rose to 16.96%, 0.13% greater than 16.83% recorded in the previous month. The decelerated rate of increase in the monthly headline rate of inflation benefited from a moderation in both food and core subindexes.

The food subindex rose by 0.91% MoM, reflecting a 0.35% decrease from the rate of 1.26% recorded in September 2021. The yearly average rate rose to 20.75%, 0.04% higher than 20.71% recorded in the preceding month. The food subindex reversed its monthly uptrend, benefitting from the gradual debottlenecking of supply chains and the year-end harvest impact.

Core inflation stood at 0.80% MoM, down 0.44% from 1.24% recorded in September 2021. The yearly average rate also rose to 12.73% last month, 0.18% higher than 12.55% recorded in the preceding month. The highest increases were recorded in prices of gas, fuels and lubricants for personal transport equipment, vehicle spare parts, non-durable household goods, solid fuel, passenger transport by road,…

Read More : Nigeria macroeconomic and markets report, November 2021

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