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NSR Q4 2017 (4) - Nigeria’s Net Creditor Status Diminishes Again

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Wednesday, October 11, 2017 05:08 PM / ARM Research  

 

In Q2 17, Nigeria retained its net creditor status with the rest of world after posting current account (CA) surplus of $1.4 billion. However, the reading implied a second consecutive quarterly decline in CA balance after the nation recorded surpluses of $2.7 billion and $3.3 billion in Q1 17 and Q4 16 respectively. Notably, the recent plunge in CA surplus was 2.7x that of the prior quarter and was triggered by a decline in trade surplus and, more importantly, sharp jumps in services and income deficits.

 

On the goods (trade) front, contraction in surplus position was underpinned by a surge in imports (+13% QoQ to $8.7 billion) which slightly offset milder export growth (+8.5% QoQ to $10.8 billion) to leave the country’s trade surplus at $2.1 billion in Q2 17 (vs. $2.3 billion in Q1 17). In our view, import activities were boosted by improved FX liquidity following the introduction of I&E window in April with an isolation of quarterly developments indicating strongest gains in non-oil (+25% QoQ to $6.6 billion). Specifically, non-oil imports received robust support from higher importation of food & beverage as well as industrial supplies, both of which jointly accounted for 47.4% of total imports in Q2 17 (vs. 27.4% in Q1 17).

 

On other fronts, sizeable net debits in travels, professional and technical services as well as losses on equity investment positions abroad led to expansion in services and income deficits in the review period. For context, cumulative deficits across both segments expanded 42% QoQ to $6.1 billion in Q2 17 to largely nullify milder growth in current transfers (largely unilateral transfers with nothing received in return e.g. workers’ remittance) and leave the country’s CA surplus 48% lower relative to Q1 17 levels.

 

However, the moderation in CA balance was compensated for by a strong surge in financial accounts (over three-fold QoQ to $4.3 billion) largely reflecting slower absolute reduction in foreign reserves (i.e. from debit of more than $2.9 billion in Q1 17 to just over $290 million in Q2 17). In addition, the financial account was supported by increases in other investments (such as trade credits and loans), FPI and FDI—with higher FPI mainly skewed towards equities according to information provided in CBN’s capital importation report4.

 

From ARM’s H2 2017 Nigeria Strategy Report 

1.       NSR Q4 2017 (3) - Fiscal: Federal Revenue Growth Shows Signs of Life

2.      NSR Q4 2017 (2) - GDP: Uphill with the Handbrake On

3.      NSR Q4 2017 - Crude Oil: Will Crude Oil ‘Roller Coaster’ Linger?

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1.  NSR H2 2017 (11) - Monetary Indicators Swamped By Hawkish Dogma

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