Rebound in Oil Exports Fails to Prevent Trade Deficit


Monday, December 05, 2016 2:57 PM/ Vetiva Research

·         Naira depreciation lifts Q3 trade, current account deficit shrinks

·         Petroleum products dominate trade statistics

·         Nigeria set to record current account deficit in 2016

Naira depreciation lifts Q3 trade, current account deficit shrinks
Naira depreciation buoyed Nigeria’s international trade statistics as total trade in goods rose 17% y/y (Q2’16: -7%) and 16% q/q. Median official exchange rate increased from NGN199/USD in Q2’16 to NGN312/USD in Q3’16 whilst the parallel market rate increased from NGN324/USD to NGN395/USD in the same period.

This led to a quarterly rise in both imports (6%) and exports (29%) and a more favorable y/y comparison – imports up 43% y/y (Q2’16: 33%) and exports down 1% y/y (Q2’16: -33%). As a result, current account deficit contracted to 104 billion (Q2’16: 484 billion), representing -0.4% of GDP (Q2’16: -2.1%) and shrank ytd current account ratio to -1.1% (2015: 3.1%).

Petroleum products dominate trade statistics
Crude exports remain the main driver of export earnings during the quarter, rising 21% y/y and 31% q/q to account for 84% of total export earnings, the highest contribution since 2013. Oil prices were relatively flat Q3 vs Q2, suggesting a greater effect of currency depreciation on oil export earnings.

A similar effect was seen in non-crude exports which rose 21% q/q, the first quarterly rise since Q3’15 though still depressed compared to previous years’ levels.

The data further highlights the importance of oil production for Nigeria’s export earnings and underscores the need for a resolution to the current state of militancy in the Niger Delta region of the country which has curtailed oil output for much of the year.

The biggest contributor to imports during the quarter was “Mineral products” which more than doubled to account for 31% of total imports during the period (Q2’16: 16%). In contrast, the “Vehicles, aircraft and parts thereof; vessels etc” category was down 11% y/y and 56% q/q.

Considering that passenger motor car imports rose 40% y/y and 34% q/q, we deduce that the contraction in the former is driven by the woes of the aviation industry as a result of dollar scarcity.

Strengthening trade ties across the Mediterranean
Whilst Europe is traditionally Nigeria’s largest export market (accounting for 34% of ytd exports), it has now overtaken Asia as Nigeria’s key import provider, bucking a trend that stretches as far back as the earliest available NBS statistics for 2010.

Looking at the year so far, Europe stands as Nigeria’s largest supplier of goods & services, accounting for 45% of total ytd imports compared to 37% for Asia. This change has largely been wrought by a significant increase in imports from Netherland and France, both already 56% above total 2015 levels.

In terms of crude sales, India continues to be Nigeria’s key export market, accounting for 20% of all crude sales in 2016 despite an increase in US crude imports from Nigeria following a dismal 2015.

India’s importance offers a sober contrast to Nigeria’s trade with the rest of Africa which continues to lag behind other regions. On a slightly positive note, trade with Africa rose to 9.7% of total trade, compared to 8.3% in both Q1’16 and Q2’16.

This was largely driven by an increase in exports to African countries which accounted for 16.1% of total exports, the highest contribution since Q1’15 (18.6%). As a proportion of total, imports from African countries fell to 3.6% (Q2’16: 4.0%) which meant that Nigeria’s current account surplus with the rest of Africa surged 80% to ₦283 billion.

Nigeria set to record current account deficit in 2016
We expect to see a further improvement in crude export earnings in the final quarter of the year considering higher oil prices since the initial announcement of the OPEC agreement in September and a rebound in oil production from the lows of August.

Nonetheless, we expect recent exchange rate rigidity in the official market to cap further currency depreciation gains. Meanwhile, the festive season should spur greater import demand, putting some pressure on the current account balance. Despite this, we expect a small surplus in Q4 (0.1%) to bring FY2016 to -0.8%.

Oil prices are likely to trend even higher in the early part of 2017, putting the onus on security in the Niger Delta region to ensure that Nigeria reaps the fruits of higher oil prices. Also important for the current account balance in 2017 is the rate of import substitution, especially with likelihood of further currency depreciation/devaluation during the year. We forecast current account ratio to improve to 0.3% in 2017.

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