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Q3-20 | Non-Oil Drives Outperformance; Q4 Outlook Remains Frail
Q3-20 | Non-Oil Drives Outperformance; Q4 Outlook Remains Frail

By Cordros Capital

Economic growth declined in the third quarter of 2020, albeit at a slower pace than in the previous quarter, with the recently released GDP report showing GDP declined by 3.62% y/y (vs. Q2-20: -6.10% y/y). The performance was better than we expected – the outturn was 116bps above our estimate of -4.78% y/y, with the variance largely stemming from a smaller than expected decline in the non-oil sector. We, therefore, revise our estimate for Q4-20 and 2020FY growth upward to -5.61% y/y and -3.49% y/y, respectively.

Improved OPEC+ Compliance Creates More Woes for the Oil Sector

In our Q2-20 GDP report, we highlighted that despite the low production volume in Q2-20, Nigeria did not comply with the OPEC+ production cut agreement. As such, we expected the country to make amends in Q3-20 while also taking additional cuts for the overproduction in Q2-20. True to our prognosis, crude oil production averaged 1.67mb/d in Q3-20 - the lowest since Q1-17 (1.75mb/d) as Nigeria had to improve its compliance and make up for overproduction in the prior quarter.

Non-Oil Sector Continues to Grapple with the Impact of COVID-19

Activities in the non-oil sector declined slowly, an indication that the COVID-19 pandemic continues to have a lingering effect on business activities amid the lifting of restrictions. Hence, the non-oil sector contracted by 2.51% y/y, compared to the record contraction in Q2-20 (-6.05% y/y). Based on the sectoral decomposition of the GDP, save for the Agriculture sector (+1.39% y/y vs. Q2-20: +1.58% y/y) which grew during the quarter, the Industries (-6.12% y/y vs. Q2-20: -12.05% y/y) and Services (-5.49% y/y vs. Q2-20: -6.78% y/y) sectors declined. 

Having factored in the upside and downside risks across both Oil and Non-Oil GDP, we project a negative growth of 5.61% y/y in Q4-20 and revise our 2020FY GDP growth estimate to -3.49% y/y.

Cordros Capital
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