07 September 2018 :Nigeria’s current account surplus improved 8% q/q to N2.4 trillion in Q2’18 amid a decline in both exports (5%) and imports (16%). Following this, H1’18 current account surplus came in at N4.5 trillion, higher than FY’17 surplus (N4.0 trillion) and the highest since 2014—pointing to the turnaround in Nigeria’s current account since the 2014 oil price crash. 

Imports sink to recent low 

At N2.1 trillion, Q2’18 imports were down 16% q/q, reaching their lowest point since Q1’16, which is notable for being the final quarter before a significant currency devaluation in June 2016. The decline in imports can be attributed to much lower motor spirit imports in the quarter (from N718 billion to N278 billion), which is consistent with National Bureau of Statistics (NBS) data on petroleum imports which shows a 15% q/q dip in motor spirits imports. Moreover, the monthly trade data shows that the decline in overall imports is concentrated in June 2018 (the lowest month since March 2016) and this is consistent with a similar material decline in motor spirits imports in June (according to the NBS petroleum port data). 

Crude oil prices lift exports 

Nigeria’s exports were down 5% q/q but 44% higher y/y. Crude oil exports were up in both q/q (4%) and y/y (54%) terms, and the drop in overall exports stemmed from normalization in non-crude oil exports (62% down q/q) following a spike in February 2018 due to the re-export of large transportation equipment. The increase in crude oil exports was on the back of stronger average oil prices (Q2: $75/bbl, Q1: $67/bbl) as volumes reported by OPEC were lower q/q (Q2: 1.66 mb/d, Q1: 1.79 mb/d) as a result of the Force Majeure on Bonny Lights exports in Q2’18. With the Force Majeure lifting in early July, oil volumes are on the recovery path (OPEC estimated a 70,000 bpd increase in July alone) and prices remain resilient, giving healthy upside to Nigeria’s near-term exports. 

Analysts expect business-as-usual in the current account 

Admittedly, analysts have not seen this happen, but recent challenges in agriculture caused by the Herdsmen crisis may put upward pressure on Nigeria’s imports, although the effect may be tempered by weakening global food prices. On the exports front, strong crude oil exports and resilient prices should support Nigeria’s current account balance, and analysts do not expect any material change in Nigeria’s trade profile in the near-term.

Reporting for EasyKobo on Friday , 07 August 2018 in Lagos, Nigeria

Source: Michael Famoroti from Vetiva Capital Management Limited