July 04, 2019 /10:20AM / By FBNQuest Research
In Q1 2019 Nigeria’s current account swung into a deficit of US$1.1bn, equivalent to -1.1% of GDP, compared with the previous quarter’s surplus of US$1.1bn (1.0%). The deterioration stemmed from a fall of US$2.8bn in crude oil and gas exports, which was partly offset by the highest non-oil exports since Q2 2014 (US$2.3bn). At the same time, non-oil imports increased by US$4.6bn.
We hesitate to call a turnaround in demand, given the absence of other evidence and the fact that large one-off transactions for the oil and other industries distort the quarterly data.
The current-account deficit would have been still larger had it not been for a US$1.3bn rise in net current transfers to a record US$7.6bn in Q1. There is precedent for these remittances to be revised downwards in subsequent data releases.
The long-term trend for the current account is one of deterioration. If we look back to the start of the data series in 2008, and so cover periods of high and low oil prices, we see that import growth has outpaced export growth. Imports have risen on the back of the rising population, diversification notwithstanding, while exports have stagnated. A lasting improvement on the current account would require large-scale import substitution, the passage of an oil industry bill and the development of selective non-oil exports.
Trends on the balance of payments (BoP; %/GDP)
Sources: CBN; FBNQuest Capital Research
We had expected a decline in oil and gas export earnings in Q1 on the basis of indicative output and price trends but not on the scale reported by the CBN.
In the absence of a timely production data series, analysts are left in the dark. We have to work with one-off figures such as the statement this week in Abuja by the outgoing head of the NNPC that output is currently running at 2.20 to 2.30 mbpd including condensates.