Trade deficit worsens to N3.94trn
Experts say Nigeria’s rising imports levels to keep economy in deficit in 2021
NIGERIA’S TOTAL TRADE STOOD at N9.8 trillion in the first quarter of 2021 in the face of currency devaluation that has continued to buffet the economy.
An increase of 6.9 percent in the last quarter of 2020 could not ease Nigeria’s total...
NIGERIA’S TOTAL TRADE STOOD at N9.8 trillion in the first quarter of 2021 in the face of currency devaluation that has continued to buffet the economy.
An increase of 6.9 percent in the last quarter of 2020 could not ease Nigeria’s total trade deficit, which printed N3.9 trillion, showing the economy recorded a higher level of imports over exports, a Recent Terms of Trade statistics reports by the National Bureau of Statistics (NBS) show.
The reported trade deficit represents a 1095.3 percent year-onyear increase and a 44.4 percent quarter-on-quarter increase; and this was driven by a 54.3 percent year-on-year to N6.9 trillion surge in imports, as exports further reported a 29.3 per cent year on year plunge to N2.9 trillion during the quarter. Also, the report showed that total trade increased by 14.1 per cent year on year and 7.0 per cent quarter on quarter in the first three months of 2021. The increase in total trade deficit comes as no surprise considering the impact of exchange rate devaluation on the naira cost of imported goods amid the increase in economic activities.
The surge in imports was primarily due to a 19.9 percent quarter on quarter rise in petrol accounting for 10 percent of the import bill, which rose to N687.7 billion in the review period. However, analysts have attributed the increases in the value of imports to global inflationary pressures and currency devaluation in 2021.
The value of total exports in the period under review decreased by 9 per cent quarter on quarter against the level recorded in the prior quarter, and 29.3 per cent year on year compared to the corresponding period of 2020.
Notwithstanding the reported deficits in total merchandise, the value of exports looks promising for the second quarter of 2021 on the back of the positively observed uptick in oil prices and the potential increase for output, considering OPEC+ monthly revision tied to the global vaccination rollouts and rebound in global economic output.
On the contrary, the value of imports, as noted by some trade experts, is expected to keep Nigeria in a trade deficit for the rest of 2021 considering the economy’s expected increase in demand level, coupled with the low base for exchange rate.
The value of crude oil export stood at N1.9 trillion, representing 66.38 percent of the total export recorded in the Q1 of 2021, while non-crude oil export accounted for 33.62 percent of the total export.
Meanwhile, petroleum products (comprising petroleum oils and oils from bituminous minerals, natural and liquefied gas) accounted for most of Nigeria’s exports, making up a little over 82 percent of total exports in the review period. Although, the decline in exports was broadly driven by weaker year on year oil prices during the first three months in 2021 relative to Q1-2020, as well as a steep decline in production.
Analysis of the data revealed that the majority of the goods imported during the quarter originated from China, valued at N2.0 trillion or 29.34 percent. This was followed by the Netherlands with N726.09 billion or 10.60 percent, the United States accounted for N608.12 or 8.88 percent and others.
Furthermore, the import trade classified by region showed Asia as the dominant originating region with a record of N3.3 trillion or 48.45 percent. It was followed by Europe with N2.5 trillion or 36.08 percent, America N827.8 billion or 12.08 percent, Africa N183.4 billion or 2.68 percent and Oceania N48.5 billion or 0.71 percent. Out of the value recorded for Africa, imports from ECOWAS countries accounted for N20.8 billion.
On the other hand, Nigeria exported most products to Asia worth over N1.1 trillion, Europe recorded N997.79 billion, while America had N316.62 billion and Africa recorded N449.84 billion. However, during the quarter, goods worth N282.2 billion were exported to the ECOWAS region.
On a country by country basis, most goods were exported to India to the tune of N488.1 billion or 16.8 percent, Spain received goods worth N287.2 billion or 9.9 percent, China N190.1 billion or 6.5 percent and the Netherlands recorded the receipt of exports to the tune of N160 billion or 5.5 percent.
From another angle, the resilience of Nigeria’s merchandise imports, which has been on the rise in previous quarters, has placed Nigeria in the deficit region in its current accounts. Recent data from the CBN showed that the current account has been in deficit since the third quarter of 2018, for which a worsening performance on trade is mainly responsible.
The trade and current-account deficits moved broadly in tandem before the coronavirus struck. Thus, the trade deficit has since become the larger of the two: net transfers (essentially remittances) have fallen as has previously been noted, but the positive impact of COVID-19 on the deficits on services and income has been greater.
A cursory analysis of the CBN data, and as also noted by FBNQuest analysts, indicates that the best hopes for the return of trade, and perhaps, a current-account surplus, lie in a strong recovery in crude production and prices. Both trends are now favourable, although no buys into the theory of the commodities supercycle.
“As for the reduced deficit on income, our take is that foreign companies have deferred the repatriation of dividends due to the challenge of accessing fx since March ‘20. Non-oil exports again disappointed in the fourth quarter of 2020. Running above $2 billion per quarter throughout 2019, they have declined to less than $700 million. Also, the closure of Nigeria’s land borders, since reversed, played its part. Other than in the second quarter of 2020, which was broadly the quarter of lockdown in Nigeria, merchandise imports have proved more resilient than expected on the background of the steady rise in the population, as well as the modest impact of efforts to boost import substitution,” said FBNQuest analysts.