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Nigeria Strategy Report H2 2018 Excerpts - Balance of Payment: CA surplus recycled through record portfolio outflows

  • We continue with our series of excerpts from our core strategy document – The Nigeria Strategy Report, but direct our focus towards a review of the country’s current and financial account position over H1 2018 and delineate our outline for the same over the rest of 2018.
  • In our H1 2018 strategy report, we had posited that in the face of currency-induced jump in import, sustained crude price rally would provide some cheers for oil export with knock-on effect keeping surplus trade balance largely intact. Upon our thesis, external trade balance stretched its growth to Q1 18, rising by +5.1% QoQ to $5.8 billion. Elsewhere, whilst surge in investment deficit drove expansion in income deficit, it was the case of slower deficit increase in other business services that supported the mild growth in service deficit. Irrespective, remittances-driven surge in current transfer largely masked income and service deficit with the attendant impact leaving the bourgeoning CA surplus without a scratch. On the financial account ledger, capital flows into Nigeria reached a record high of $9.9 billion in the first five months of the year, surpassing flows in the pre-oil crisis period with driver largely linked to the surge in FPI.
  • Into the rest of the year, with regard to the current account, we believe that the confluence of higher crude production and prices will continue to support export earnings, while tepid non-oil import should mask the substantial jump in oil import. On the rest of the ledger, we expect the combined impact of improved economic activities and sustained FX liquidity to drive sizeable deficit in travel, transportation, and other businesses, thereby leaving overall services net debit position higher. On financial account, we expect the double whammy of policy normalization in advanced economies and election uncertainties in Nigeria to potentially create foreign investors’ aversion towards naira assets and, by extension, amply reduce capital importation into Nigeria. Against that backdrop, we expect sluggish capital importation to mask sturdy trade surplus with knock-on effect leaving BOP picture on a knife edge.
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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. ​

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