This week, the National Bureau of Statistics (NBS) released statistical reports on several sectors of the economy amongst which were Petroleum Products Imports and Consumption Statistics for 2017, Q4:2017 data on sectoral distribution of Value Added Tax (VAT) and Telecommunications sector. The data released by the NBS on petroleum industry showed total imports of major products such as PMS (Petrol), AGO (Diesel) and HHK (Kerosene) fell in 2017 to 17.3bn, 4.2bn and 340.3m litres from 18.8bn, 4.9bn and 713.8m litres in 2016 respectively. These translate to 7.9%, 12.7% and 52.3% Y-o-Y decline in average daily volume of Petrol, Diesel and Kerosene imports to 47.4m, 11.7m and 0.9m litres respectively in FY:2017. We attribute the decline in imports to both higher capacity utilization and yield efficiency of NNPC run domestic refineries and the constraints witnessed in PMS supply chain in H2:2017.
Data from NNPC shows capacity utilization of the 3 state-run refineries rose 2.5ppt Y-o-Y on weighted average basis to 16.2% in 2017, driven by higher utilization in the 0.21mbpd Port-Harcourt Refinery and 0.11mbpd Kaduna Refinery which improved 5.4ppts and 2.3ppts Y-o-Y to 22.6% and 11.5% respectively to offset 2.3ppt Y-o-Y decline in 0.125mbpd Warri Refinery to 9.6%. Yield efficiency also rose across the 3 refineries by 3.0ppts on a weighted average basis to 89.1%. We estimate yield efficiency gains and higher utilization resulted in 21.8% Y-o-Y increase in local refining output in the period.
The challenges faced with PMS supply chain is buttressed by the NBS’ report which indicates a 9.1% decline in PMS imports to 8.7bn litres in H2:2017 (Nigeria’s peak demand season) relative to 9.6bn litres in H1:2017 as NNPC grappled with logistics of handling more than 70% of imports after major oil marketers backed out due to higher landing cost relative to regulated price. We believe the abysmally low capacity utilization of NNPC refineries and inability to significantly improve on this despite several Turn around Maintenances (TAMs) continue to make the case for privatization more compelling. The NNPC’s constraints in successfully filling the vacuum left by major oil marketers in the importation of PMS also necessitates a bold policy action to deregulate prices in order to encourage private importation and reduce fiscal wastages. Nonetheless, as indicated by recent comments from the NNPC and Petroleum Ministry, deregulating prices is not a policy consideration at the moment; this is unsurprising given the political backlash that could greet such an unpopular reform.
On VAT, the Federal Inland Revenue Service (FIRS ) generated N254.1bn in Q4:2017 against N207.4bn in Q4:2016 and N250.6bn in Q3:2017, indicating a 22.5% Y-o-Y increase and marginal 1.4% Q-o-Q expansion. This took total amount of VAT revenue in FY:2017 to N972.3bn, a 25.1% increase from N777.5bn in FY:2016. The sizeable increase in VAT income in a low-growth environment was primarily on the back of a more aggressive tax collection program by the FIRS as opposed to increase in tax rate. Despite the impressive performance, revenue generated though VAT significantly lagged N1.8tn projection set for the 2018 budget and consumption tax revenue potential for a large consuming economy such as Nigeria (total VAT in FY:2017 was 1.1% of Household and Government Consumption Expenditure in 2016). To bridge some of the funding shortfall, the Economic Recovery and Growth Plan (ERGP) proposes to raise VAT on luxury items from 5.0% to 15.0%. There is also a low hanging fruit in raising overall VAT from 5.0% (one of the lowest in the world); yet, we expect government to continue to focus on enforcing tax compliance in the short term considering the difficulty of implementing tax hikes in a politically charged environment.
In addition to the statistics on VAT, the NBS also released Q4:2017 Telecoms data this week. The sector recorded growth across various metrics as total active voice and internet subscriptions rose 3.7% and 5.8% Q-o-Q to 145.1m and 98.6m users respectively. As expected, Global System for Mobile Communication (GSM) dominated usage for both voice and internet, accounting for 99.7% of total subscription compared to other technologies such as Code Division Multiple Access (CDMA), fixed wires/wireless and VoIP which cumulatively accounted for 0.3%. By Network, MTN Nigeria is the largest voice telecommunications company with 36.1% of Active Voice subscribers while Globacom, Airtel, and 9Mobile accounted for 26.4%, 25.7% and 11.7% respectively. A regional breakdown shows that 3 South West states - Lagos, Ogun and Oyo - had the highest voice subscriptions constituting 25.1% of the total in Nigeria. Lagos state accounted for 13.4% or 19.4m active voice subscribers and 19.1m GSM users as at Q4:2017 while Bayelsa state accounted for the lowest - 0.7% or 954,353 active voice subscribers.
On a similar note, data subscription rose 5.3% Q-o-Q to 98.7m users in Q4:2017 relative to 93.8m subscribers in Q3:2017. This Q-o-Q growth is in line with the rate of internet penetration in Nigeria fueled by increasingly affordable data plans and cheaper smartphones. As at Q4:2017, total number of incoming and outgoing porting activities stood at 8,628 and 8,830, down 48.7% and 47.1% Q-o-Q respectively. Despite its position as the telecoms market leader in Nigeria, MTN recorded the highest exit of subscribers in Q4:2017 as 2,775 subscribers (31.4% of total) ported from the network. On the flipside, 9Mobile (EMTS) was the largest beneficiary for incoming porting activities, as it welcomed 5,177 new subscribers (60% of the total).
Q4:2017 GDP Report… We Project 1.46% Expansion driven by Oil & Non-Oil Sectors
In the coming week, the NBS is expected to release Q4:2017 and FY:2017 GDP data. Ahead of the release, we project growth in the Quarter at 1.46% (relative to 1.4% in Q3:2017), bringing our FY:2017 estimate to 0.7%. We expect growth to be driven by both Oil (+13.6% Y-o-Y) and the Non-Oil sector (+0.6% Y-o-Y), which are to be supported by low-base effect of oil production, slower growth of GDP price deflator (following sharp deceleration in inflation in Dec-2017) and reported above-average harvest season with positive feedback on Agriculture sector. We retain FY:2018 forecast at 2.1%.