Tuesday, December 12, 2017 / 6:59PM /Vetiva Research
by the highest quarterly exports in three years, Nigeria’s current account
surplus rose to ₦1.2 trillion in Q3’17 (Q1’17: ₦719 billion, Q2’17: ₦506 billion), the highest since the 2014
oil price slump. The quarter’s performance was helped by a simultaneous
increase in exports – ₦3.1 trillion to ₦3.6 trillion – and moderation in imports – ₦2.6 trillion to ₦2.4 trillion compared to Q2’17.
recovery buoys current account
for 83% of total exports (previous: 78%), the surge in crude exports was the
main driver of Nigeria’s strong export performance. With oil prices little
changed q/q ($52.19/bbl in Q3’17 vs. $50.79/bbl in Q2’17), stronger oil
earnings came on the back of continued improvements in domestic oil production.
According to the Ministry of Petroleum Resources, average oil production for
the quarter rose from 1.87 mb/d in Q2’17 to 2.03 mb/d in Q3’17, touching a
2017-high of 2.08 mb/d in August.
terms of export destinations, India (19%) remains Nigeria’s most important
crude oil buyer, though the United States (15%) increased their crude imports
from Nigeria by 66% q/q. Relatively stronger oil prices in the final quarter of
the year (average of $60.26/bbl in October and November) and stable oil
production (average: 2.03 mb/d in October and November) point towards another
strong export performance for Q4’17. Going into 2018, stronger full-year oil
output numbers (forecast: 2.10 mb/d) and relatively healthy global oil prices
(IMF forecast: $51.00/bbl) would buoy Nigeria’s exports.
At just ₦126 billion and 3.5% of total exports, Nigeria’s
Q3’17 non-oil exports came in at their weakest in 2017. This highlights the
limited impact of endeavours aimed at diversifying Nigeria’s export revenues,
such as the Zero-oil initiative. It also reflects the natural lag of reaping
the fruit of non-oil export initiatives and the long road to diversification.
Moreover, we note that there are positive
signposts on the route. The review and revival of the Export Expansion Grant
(EEG) at the start of 2017 and stable budgetary allocations (₦20 billion) should
provide tax incentives for prospective exporters.
Furthermore, the proposed $1 billion Badeggi
Export Processing Zone (EPZ) in Niger State could significantly boost access to
market for Nigeria’s key agriculture produce such as rice, yam, and maize.
Whilst the EPZ is slated to open in 2018, challenges with securing counterpart
funding ($250 million provided by Turkish partners) may delay the process.
Nevertheless, we stress the potential of well-executed EPZs in providing a
stable platform for the diversification of export revenues.
dip on lower fuel cargos
imports have hovered around the average of ₦2.4
trillion in the quarters since devaluation (Q2’16). It is noteworthy that the
improvement in foreign exchange liquidity in the two most recent quarters has
had a very little effect on Nigeria’s goods imports, in comparison to capital
inflows and services which have both increased.
motor spirit (PMS) accounted for 20% in the quarter, unchanged from Q2’17. But
imports of PMS in Q3’17 were 6% and 14% lower than the corresponding values in
Q1’17 and Q2’17 respectively. This decline is consistent with lower product
truckout as reported by Nigerian National Petroleum Corporation (NNPC) in Q3’17
– 31 million litres per day vs. 39 million litres per day in Q2’17.
note that NNPC has been close to the sole importer of PMS in 2017 as a result
of relatively high global crude oil prices (compared to the NNPC pricing
template benchmark) which have made product importation uneconomic for
FY’17 current account surplus in sight
Crude oil sales will continue to drive Nigeria’s
current account and given our positive outlook on this front, we foresee
current account coming in strong going forward. If Q4’17 is as good as even the
weakest quarter seen so far in 2017 (Q2), FY’17 current account surplus would
be the highest since oil prices slumped in 2014 – reflecting the conclusion of
Nigeria’s current account cycle since that point.
Despite this, we note that 2014 current account
surplus was still significantly stronger (₦8.9 trillion vs. 2017 ytd: ₦2.4 trillion) and looks
unattainable in the short-term given prevailing oil prices. On the import
front, we expect relatively high global energy prices to slightly increase the
value of imports given the price inelasticity of petroleum product demand.
Overall, we expect Nigeria’s recovering current account to support dollar
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