Q2'16 Foreign Trade Review - Deficit Correction Dependent on Improved Crude Oil Volumes

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Wednesday, September 07, 2016 2:28pm / CardinalStone  Research

The National Bureau of Statistics (NBS) reported Q2'16 foreign trade data yesterday with total exports estimated at N1.9 trillion ($9.0 billion),a 63.3% from Q1'16 level and a decline of 29.4% YoY. Imports rose to N2.1 trillion ($9.9 billion), 38.1% higher than the previous quarter and 21.3% higher than the corresponding quarter in 2015. Please see detailed analysis below;

Export improves to N1.9 trillion as Crude oil export rises 81.7% QoQ ...

Crude oil exports rose impressively by 81.7% QoQ despite the incidence of pipeline vandalism by militants and constituted 80% of the total value of exports (estimated at N1.9 trillion).

The Nigerian Bureau of Statistics (NBS) attributes the significant QoQ growth in the value of crude oil exports to higher oil prices in Q2'16 compared to Q1'16  ($45.5/bbl and $33.8/bbl respectively), as well as foreign exchange gains as oil export proceeds were converted at a significantly higher rate following the 40% devaluation in the Naira.

However, given much lower export volumes and price in comparison to Q2'15, crude oil exports declined year-on-year by 24.7%. Our estimate* of crude oil export volume in Q2'16 is 1.43 mbpd compared to 1.62 mbpd in Q2'15 implying a 12.3% YoY reduction.

Non-crude oil exports at N379.5 billion was 16.7% higher than levels in Q1'16 although still a far-cry from the levels seen in Q2'15 (-61.7% YoY). India remains Nigeria's largest export destination with total export value to the country at N402.6 billion ($1.9 billion), representing 21.5% of total exports.            

Import rises significantly QoQ despite weaker Naira ...

Total imports rose by 38.1% from previous quarter's level. Machinery and transport equipment (49.3%), industrial/raw material supplies (20.4%), fuels and lubricants/petrol (15.1%) as well as food & beverage (10.7%) imports constitute the  bulk of Nigeria's Q2'16 imports. A total of N1.0 trillion ($4.9 billion) worth of machinery and transport equipment were imported, a significant increase of about 94.8% QoQ and 41.1% YoY.

Whilst this is in high contrast with the trend in machinery and transport equipment import (quarterly average of N603.2 billion/$2.9 billion), we see this as a probable signal of a rising industrial base in Nigeria and a potential downplay on consumption. Petrol and food imports declined on a year-on-year basis although there was a marginal increase quarter-on-quarter.

We anticipate that the relatively higher costs of import, given Naira devaluation, will eventually lead to a reduction in imports (especially for consumer goods) and foresee quarterly imports hover around its 3-year quarterly average of N1.7 trillion for the rest of 2016. At N493.5 billion ($2.4 billion), Chinese imports accounted for the largest portion (23.9%) of total imports.

Despite higher trade value, Nigeria's current account position remains negative ...

According to the NBS, Nigeria's total foreign trade in Q2'16 stood at N3.9 trillion, representing a 49% increase above the value recorded in the preceding quarter (Q1'16) and 9.6% lower than the value in the corresponding quarter of 2015 (Q2'15). In dollar terms (using average interbank rate for Q1'16 - N197/$ and Q2'16 - N208), foreign trade increased by 41.1% relative to prior quarter.

Nigeria's current account however remains in a deficit position at N196.5 billion ($945 million) compared to N351.3 billion ($1.7 billion) in Q1'16 - Q1'16 figure was adjusted from the deficit of N186 billion ($894 million) deficit previously reported.

As crude oil export is still the largest contributor to total exports for the country, a sustained decline in the current account deficit (and a possible shift to a surplus position before end of 2016) is largely dependent on improved crude oil volumes as well as a significant decline in imports.

* Calculated using data from Nigerian National Petroleum Corporation (NNPC) monthly reports

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