Analyst: Nigeria’s economy still weak as FX improvement downed Manufacturering

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    • Crude oil production rose to 2.03 million barrels a day
    • Buhari proposed 16% spending increase to stimulate economy

    Nigeria’s economic growth accelerated in the third quarter as oil output rose to the highest since the start of last year.
    But, Once you remove the oil sector, the underlying economy is weak,” Michael Famoroti, an economist at Lagos-based Vetiva Capital Management, said by phone. “Improvement in foreign-exchange liquidity didn’t help manufacturing.”
    The gross domestic product of Africa’s largest crude producer expanded 1.4 percent in the three months through September from a year earlier, compared with a revised 0.7 percent in the second quarter, the Abuja-based National Bureau of Statistics said Monday in an emailed report. The median of 13 economists’ estimates in a Bloomberg survey was for 1.5 percent growth.

    The economy contracted 1.6 percent in 2016, the worst annual slump in 25 years. The International Monetary Fund forecasts GDP growth of 0.8 percent this year and 1.9 percent in 2018 as output of oil, Nigeria’s biggest export, increases and as more foreign currency becomes available for factory imports.

    Oil production in the volatile Niger River delta region, where armed militants have attacked pipelines in the past, rose to 2.03 million barrels a day in the third quarter from a revised 1.87 barrels a day, the statistics office said. The crude sector contributed 10 percent to real GDP, according to the NBS. The non-oil sector contracted 0.8 percent in the period compared with growth of 0.5 percent in the second quarter.

    “It’s not surprising that the economy expanded further given relative stability in the Niger delta, which helped boost oil production,” Gaimin Nonyane, London-based economic-research head at Ecobank Transnational Inc., said by email. But the recovery “remains fragile” with pressure points in the economy including high inflation, she said.
    The faster economic growth may allow the Central Bank of Nigeria to continue its tight monetary policy to fight inflation that, at 15.9 percent in October, has been above the upper end of the 6 percent to 9 percent target range for more than two years.

    “The unexpected contraction in non-oil GDP is a big concern,” Razia Khan, head of macroeconomic research at Standard Chartered Bank Plc in London, said by email. “It likely creates more pressure for a more accommodative monetary policy stance from the CBN — but no change in November is still our base case for now.”

    The monetary policy committee is scheduled to announce its final rate decision for the year on Tuesday, having kept the benchmark rate at a record high of 14 percent since July 2016.
    Expansion of farming was little changed at 3.1 percent compared with the previous quarter. Manufacturing contracted by 2.9 percent after growth of 0.6 percent in the second quarter, according to the report.

    Weak Economy
    President Muhammadu Buhari asked lawmakers to approve a 16 percent increase in spending to 8.6 trillion naira ($23.9 billion) for 2018, about one third of which he wants to invest in roads, rail, ports and power to boost the economy. Success of the budget is partly premised on boosting oil production to 2.3 million barrels per day, notwithstanding threats by militants to resume vandalizing infrastructure — actions that contributed to the economy contracting last year.

    “While the latest data will undoubtedly come as a relief for the government, it does continue to underscore the key challenge for Nigeria: its dependency on the oil sector to drive growth,” Manji Cheto, senior vice president at Teneo Intelligence in London, said by phone.

    “At this point, it is clear that the Buhari administration cannot afford to let militant activities resume in the Niger Delta,” she said. “Back-door negotiations are still ongoing, aimed at avoiding exactly that outcome.”

    — With assistance by Simbarashe Gumbo, and Gordon Bell

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