Continuing Deficit on the Current Account

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Thursday, July 09, 2020 / 09:29 AM / by FBNQuest Research / Header Image Credit: FBNQuest            


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Nigeria's current-account deficit narrowed in Q1 2020 from -5.4% of GDP the previous quarter to -4.3%. The trade deficit narrowed in tandem from -1.2% to -0.4% of GDP. Oil and gas exports of US$11.2bn were the lowest since Q2 2017 but the decline in merchandise imports was still more dramatic, reflecting the lockdown in January in China, the principal source of imports, and the same event in Nigeria itself in March. Non-oil imports decreased by US$4.0bn on the previous quarter. There was a smaller decline in services imports, led for obvious reasons by transportation.

                                                                                                 

This was the seventh current-account deficit in succession. This unwelcome trend stems from the stagnation in the oil and gas sector, the narrow production base of manufacturing, population growth of about 3% per year, and a preference in some quarters for imported goods and services.

 

Encouragingly, the balance-of-payments (BoP) data show a healthy increase in non-oil exports, from US$3.5bn in 2017 to US$4.7bn and US$10.5bn in 2018 and 2019. The underlying success stories could include cement, cigarettes, cashew nuts, sesame seeds and cocoa. The CBN show these exports as non-oil and electricity because the FGN has an agreement to export power to the Niger Republic. 

 

 

Trends on the balance of payments (%/GDP)

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Sources: CBN; FBNQuest Capital Research

 

Making a call for Q2 presents a challenge. The shadows of recession and of the pipeline of delayed external payments hang over the BoP. Merchandise exports would have fallen due to the weaker crude price, notably in April, and imports due to the domestic lockdown and squeezing of demand. Debits for travel, transportation and business services would have fallen sharply.

 

For the compilation of this quarter's data, the CBN's statistics department would have again worked with its revised assumptions for informal cross-border exports and imports following the land border closure in mid-August.


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