Q3 2021 Trade Deficit Highlights Need for Export Diversification


Thursday, December 09 2021 / 08:52 AM / by FBNQuest Research / Header Image Credit: Business Standard


The NBS' latest report on foreign trade in goods shows the total value of trade in Q3 '21 was up 10% q/q and 59% y/y to NGN13.3trn. The value of trade in Q3 is the highest recorded in recent times and was supported by strong growth in imports. Relative to Q2 '21, the value of merchandise imports increased by 17% to NGN8.2trn. Compared with the corresponding quarter of FY '20, the growth in import value was much higher at 52% y/y. The total value of exports was flat q/q (+1% q/q), but was up 71% y/y. The net result was a deficit of NGN3.0trn. The trade deficit in Q3 is the eighth in a row.


We see from the Bureau's data that just over a third of total imports by value was due to machinery and transport equipment. Other items on top of the import list include mineral fuel, chemicals, and related products, and food and live animals which contributed 18%, 17%, and 14% respectively.


Notably, imports of premium motor spirit almost doubled y/y (c.+98%) to over NGN1.0trn and accounted for almost 13% of total imports. Subsidies related to these imports have become an increasing fiscal burden on the federation's finances in recent years. 


The rapid rise in crude oil prices for most of FY '21, as well as fx rate adjustments due to the naira's weakness account for most of the increase in the import value of premium motor spirit.


However, a portion of the growth can be attributed to rising fuel consumption which is reported to be mostly due to the smuggling of petroleum goods to neighbouring countries.


As usual, crude oil accounted for the largest share (78%) of total exports in Q3. The value of crude oil exports fell marginally by -1% q/q, but increased by 66% y/y. The increase can be linked to demand build-up following the opening of economies and relaxation of lockdown measures.


Other major items on the export list were vehicles, aircraft, and parts, and chemical products which contributed c.4% and 2% to the total exports respectively.


In aggregate terms, Nigeria recorded a total trade balance of c.USD35bn over 9M '21, comprising import and export trades of USD22bn and USD13.1bn respectively, implying a net deficit of around USD9bn.


To claims in some quarters that the Nigerian economy is now well diversified, we say that the balance of trade numbers which show that crude oil exports still account for over 78% of export value in Q3 suggest otherwise.


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