March 31, 2020 / 01:17 PM / by FBNQuest Research / Header Image
Nigeria's current-account deficit widened in Q4 from -2.2% of GDP the previous quarter to -5.4%, the worst ratio of the decade. The deterioration was the result of a rare deficit on trade, the first since Q3 2016, as well as the largest ever net outflow on services in US dollar terms. From our chart we can see some marked variations because the national accounts are not seasonally adjusted. Oil and gas still provide more than 80% of merchandise export revenue, so the crude price tends to be a useful indicator of the trade and current-account balances.
Additionally, the deficit on trade was caused by a spike in non-oil imports from US$11.8bn in Q3 to US$15.0bn.
For the compilation of the balance of payments (BoP) for Q4, as for part of the previous quarter, the CBN's statistics department would have worked with its revised assumptions for informal cross-border exports and imports following the land border closure in mid-August.
The one positive is the further evidence of an improvement in non-oil and electricity exports from US$4.7bn in 2018 (full year) to US$10.5bn in 2019. The FGN has an agreement to export power to the Niger Republic.
Trends on the balance of payments (%/GDP)
Sources: CBN; FBNQuest Capital Research
Nigeria's trade balance has been deteriorating for several years. Merchandise exports have been on a plateau at best because of the fall-off in investment in the oil industry, leading to a trend decline in production. Imports have been steadily rising, the attempts at substitution notwithstanding, due to the steady growth in the population.
Drilling down to the current account: the services outflow is widening due in part to the demographics; the outflow on income is stable; and there is some relief from substantial inward remittances (unrequited transfers).