Culled—Proshare

April 6, 2017/

FBNQuest Research

We can see from the balance of payments for Q4 2016 that the current account changed direction from a deficit equivalent to -0.1% of GDP to a surplus of 3.3%. The main influences were a recovery in oil exports, a further compression in merchandise imports, a fall in the net outflow on services and stronger inward transfers.

There is invariably a lag between the initial slump in oil export revenues and the compression of imports. In Nigeria’s case merchandise exports started to fall sharply from Q4 2014, and the slump in imports was evident from Q4 2015.

The share of oil and gas exports in GDP has crashed from 22.6% in Q4 2012 to just 7.4% in Q3 2016 and 9.2% in Q4. This modest recovery is due to higher production and, to a lesser extent, prices.

The compression of import demand does point to some success for the FGN’s substitution policy, one example being rice cultivation. However, the greater influence would have been what we term involuntary substitution, where consumers buy the local product because they no longer have the choice.

Drilling down into the reduced outflow on services in Q4 2016, we find a net inflow of US$100m on personal travel, which has health, education and other components, compared with an outflow of US$800m in Q4 2015.

Net current transfers, which are mostly workers’ remittances, have held up well. The inflow improved in Q4 from 5.3% of GDP to 5.5%, or in US dollar terms more impressively from US$4.6bn to US$5.3bn. We had expected greater use of the parallel market in fx.

A current-account surplus representing 0.6% of GDP in 2016 compares with a deficit of -3.2% the previous year, and highlights our point about the lag in import demand compression.