Expectations on report on emerging markets showed that Nigeria’s GDP slowed to 2.4% year over year in the second quarter — slower than expected — according to data released this week.
Teneo Intelligence, caught by surprise with its pessimistic expectation of 3.5% second-quarter growth in Nigeria, writes that the issue is structural, even if the oil-export-driven economy suffered as prices plummeted for crude. Oil prices rallied Thursday, with the international Brent crude benchmark price up nearly 9% to a recent $46.87, and the U.S. WTI price up a similiar percentage to near $42, the Global X MSCI Nigeria exchange-traded fund (NGE) rose 1.5% Thursday. The fund is down about 2% this week and has tumbled 27% this year.
The Market Vectors Africa Index ETF (AFK) is down more than 23% this year, while the iShares MSCI Frontier 100 ETF (FM) is down more than 16%. The iShares MSCI Emerging Markets ETF (EEM) is down 13% this year.
Anticipating pressure on commodities-driven economies in this market rout, Teneo Africa Economist John Ashbourne writes:
“It would be easy to blame this sharp slowdown merely on low oil prices, but this is not correct. Indeed it is worth noting that Nigeria’s economy is not as dependent on the oil and gas sector as is widely believed. The sector is the country’s key foreign exchange earner, but it only makes up 9.8% of GDP in real terms. … [and] the oil sector’s … contraction has eased. The real cause of Nigeria’s economic slowdown is the country’s faltering non-oil sectors.
Indeed, growth has even slowed in sectors, such as manufacturing, which should have benefited from the weakness of the naira. Information and communications (ICT) was the only major sector not to have slowed in the second quarter. The official Q2 jobs survey showed that Nigeria’s economy only created 141,000 new jobs in Q2, 70% fewer than in the same period last year. … And the headwinds to growth in Nigeria are building. Government spending will be constrained this year as revenue falters, and the central bank’s increasingly convoluted efforts to defend the naira risk further worsening an already worrying liquidity crunch. President Muhammadu Buhari’s long delay in appointing federal cabinet has left the country without strong leadership at a time of significant financial instability.”