March 19, 2018/InvestmentOne Report
The Recently released Q4 2017 Foreign Trade report by the Nigerian Bureau of Statistics (NBS) was reflective of expansion in economic activities in the oil sector and higher global oil prices. Consequently, there was a 168% year-on-year (y/y) and 65% quarter-on-quarter improvement in Nigeria’s Trade Balance to N1.8trillion in Q4 2017.
The improvements in the oil sector as well as the depreciation of the local currency most likely contributed to the N4trillion trade balance surplus in 2017, against a trade balance deficit in 2016 (N290billion).
Going forward, we expect the government to remain committed to its amnesty agreement in the Niger Delta region thereby ensuring peace in the region throughout 2018 as it has made a provision of N65billion in 2018 budget, about 34% higher than 2017âs provision. In addition to this, government has made a capital provision of N53.89billion for the Ministry of Niger Delta in 2018 budget which is 58% higher than the amount provided in 2017 budget. This, in addition to OPEC and non-OPEC members commitment to output cap may improve the country’s crude oil exports in 2018.
However, the major downside to our expectation is the possibility for shale producers to flood the market thus reducing the value of our oil exports. Similarly, we see a threat to our crude exports to US (15% of crude oil exports in Q4 2017) from President Trump’s protectionist stance. With this said, we believe our crude exports to other markets especially from Asia on the back of anticipated stronger growth in global economy, with IMF and World Bank projecting 3.9% and 3.1% respectively in 2018, should remain resilient.
In terms of non-oil exports, the availability of FX and governmentâs ease of doing business program should be supportive of non-oil output and potentially, non-oil exports. Similarly, we believe the government’s revision of documentation required for import and export may enhance the nation’s external trading activities. With this said, we highlight the difficulties faced by trucks in moving goods along the Apapa port roads (accounted for 96% of export and 46% of imports in Q4 2017) could frustrate the country’s external trading activities.
On the other hand, we expect government’s self-sufficiency target especially through its Economic Recovery Growth Plan (ERGP) to reduce the country’s food importation. While this may help to reduce importation over the medium to longer term, we could see imports rise in the near term as activities in the Industrial sector continues to strengthen. However, we may not see decrease in the importation of petroleum products until 2019 when Dangote refinery, with a refining capacity of 650,000 barrels per day commences operation.