Thursday, June 09, 2016 9:28AM /FBNQuest Research
We return today to the financing of Nigeria’s current-account deficit, which eased to -US$2.01bn in Q4 2015 or 1.5% of quarterly GDP. Net investment flows on the financial account were negative, at –US$1.13bn, but net errors and omissions of US$3.14bn covered the gap.
On the flows, Nigeria remains a contender for steady if unspectacular FDI on the grounds of demographics and consumption potential. The once compelling argument for portfolio investment has been undermined by the emergence of sizeable delays in repatriations and by the CBN’s exchange-rate policies. (We are waiting to see what it has in mind in terms of greater “flexibility”.) Other inflows consist largely of loans and deposits.
Net errors and omissions were the largest financing items for the final three quarters of 2015. The grey areas in the balance of payments (BoP) include investment by Nigerian residents in real estate abroad, private-sector external debt and the reinvestment earnings of direct investors in Nigeria.
The flows in our chart are the gross liabilities. Adjusted for movements in assets, the net figures become US$0.17bn, US$0.93bn and -US$3.79bn for direct, portfolio and other investment respectively in Q4 2015.
Our house forecasts have current-account deficits of US$20.0bn this year and US$14.6bn in 2017, equivalent to 4.2% and 3.1% of GDP respectively.
A turnaround in the current-account hinges upon a marked recovery in the oil price, which we do not see before 2018, and/or significant import compression as a result of substitution policies.