Report
EUR 4.00 For Business Accounts Only

Nigeria Strategy Report H1 2019 Excerpts - Balance of Payment - Feeling the Strains

  • In this session, we continue discussion with the domestic section of our core strategy document – the Nigeria Strategy Report. In this piece, we focus on development in the domestic environment, highlighting our views on the drivers for Nigeria’s current and financial account over 2018, and outlay our outlook for the same over 2019.
  • Over Q3 18, the ink in Nigeria’s current account turned red – the first since the last 8 quarters. While we had expected higher oil price over the quarter to spur Nigeria’s current account surplus, the current account deficit reflected lower trade surplus due to the one-off jump in imports over the period – a fallout of the import of a submersible drilling platform.  As a result, current account surplus for the nine-month period is tracking lower by 59% YoY to $2.78 billion. Shifting our gaze to the other segment of Nigeria’s balance of payment (BoP), we saw capital flows outturn over the year play exactly in tandem with our view, plunging to a 6-quarter low over Q3 18 on the back of policy normalization in advanced economies and election uncertainties in the country. The net impact of current account deficit and lower capital flows resulted to a drawdown in external reserves.
  • Going into 2019, we estimate a decline in the current account surplus to $1.45 billion in FY 19, with surplus in the first half of $3.01 billion offsetting a deficit of $1.6 billion in H2. Our projection is largely hinged on our expectation of a higher trade surplus in H1 ($9.59 billion) than H2 ($6.53 billion.  Our forecast for lower oil prices (avg. of $56.95/bbl.) – despite stable production (avg. 2.08 mb/d) – in 2019 constitutes a major driver of our projection of a decline in exports by 11.9% to $54.8 billion during the period. Imports on the other hand is expected to normalize from the record high posted in 2018 to $38.7 billion (-10.40% YoY) by FY 19. To state, excluding the one-off jump imports recorded in Q3 18, our estimate for imports in 2019 will be slightly lower by 0.98% to $38.7 billion from $39.04 billion. Consequently, we forecast trade surplus of $16.12 billion relative to $19 billion in prior year. The foregoing alongside higher income deficit, slightly lower services deficit, and increased current transfer surplus, informs our decline in the current account surplus to $1.45 billion. Elsewhere, we expect election uncertainty in Q1 19, higher US yields and lower oil price to weigh negatively on capital flows to the country. Consequently, we forecast capital flows to moderate 39% YoY to $10.2 billion with flows in H2 19 expected to be lower due to a more bearish oil price outlook.     
Provider
ARM Securities Limited
ARM Securities Limited

ARM Securities Limited is a full-service brokerage house that offers best-in-class brokerage services to local as well as foreign private and institutional investors. Formerly known as Hamilton Hammer, the Company commenced operation in 1994 and was acquired by ARM Investment Managers in 2008--an acquisition which has successfully re-positioned the company as a recognized brokerage firm in Nigeria. The Company is a dealing member of the Nigerian Stock Exchange (NSE) and is regulated by Securities and Exchange Commission (SEC). ARM Securities research team provides insightful commentaries on the Nigerian economy and its equity and debt markets using an approach which incorporates a thorough understanding of the fundamentals of the industries and companies under coverage. The research therefore adopts an integrated methodology of top-down analysis and bottom-up stock selection, which focuses on publicly quoted companies on the Nigerian Stock Exchange that are judged to offer the highest potential for earnings growth. In addition, its analysts provide periodic commentaries on a range of topical global and local issues which provide investing clients with a holistic view of the opportunities and risks in today’s financial market landscape. ​

Other Reports from ARM Securities Limited

ResearchPool Subscriptions

Get the most out of your insights

Get in touch