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Nigeria’s foreign trade balance is expected to deteriorate further over the next few quarters given the benign outlook for crude oil earnings and prospects for a higher import bill. This was the view of analysts at Cordros Capital in their weekly assessment of the nation’s economy during the weekend. This came on the back of the Q1 2020 Merchandise trade data released by the National Bureau of Statistics (NBS) recently in which Nigeria’s external trade balance extended its deficit run for a second consecutive quarter in Q1’ 2020 from N831.62 billion in the period of 2019 to N139 billion.
Furthermore, the report stated that of the total goods traded, value of exports decreased quarter-on-quarter (q-o-q) by 14.42 per cent (and fell year-on-year, y-o-y, by 9.98 per cent) to N4.08 trillion in Q1 2020, while the value of imports plunged q-o-q by 21.08 per cent (but rose y-o-y by 13.99 per cent) to N4.22 trillion in Q1 2020.
According to Cordros, the blend of lower crude oil (-12.8 per cent y-o-y) and non-crude oil (-1.8 per cent y-o-y) exports weighed markedly on overall exports while adding that the decline in crude oil exports was not surprising, given the sharp deceleration in the oil price (-20.0 per cent y-o-y) even as crude production (+4.0 per cent y-o-y) rose marginally.
“It is noteworthy to mention that crude oil exports still account for more than 72 per cent of total exports, portending that the country is still miles away from achieving its revenue diversification mandate. On the other hand, importation of agriculture (+10.6 per cent y-o-y) and solid mineral (+20.1 per cent y-o-y) goods, supported overall import in the review period.
Over the next few quarters, the foreign trade balance is expected to deteriorate further, given the benign outlook for crude oil earnings and prospects for a higher import bill. For one, the oil price is expected to average $38.71/per barrel over 2020 compared with $64.16/ per barrel in 2019). That together with the new OPEC+ agreement, which is expected to place a cap on Nigeria’s oil production (Cordros’ estimate: 1.79 thousand barrels of oil per day including condensates), should cascade negatively into export earnings”.
The analysts thereafter said, “on imports, the need to flatten the COVID-19 case curve will continue to support the demand for medical supplies. Thus, we suspect that the shipments of medical supplies and food items will dominate the import bill – non-oil imports made up 82.2 per cent of total imports in 2019. Thus, we see further legroom for Nigeria’s trade deficit to expand”.
