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Nigeria FY'16 Trade Report - First FY current account deficit since 1998

• Despite recording the strongest current account surplus in six quarters in Q4’16 (₦671 billion – 2.3% of Q4’16 GDP), Nigeria’s FY’16 current account came in at a deficit for the first time since 1998 on the back of deficits in the first three quarters of the year (₦961 billion cumulative). We recall that prior deficits were driven by slightly lower oil prices, currency depreciation (FY’16: c.55%), and an unexpected fall in exports due to internal economic and security turbulence. Nonetheless, we highlight that recent trend points towards sustained current account surpluses in 2017 as every month in Q4’16 recorded surpluses after six straight months of deficits. Exports and imports for the year registered at ₦8,527 billion and ₦8,817 billion respectively, translating to a current account deficit of ₦290 billion, 0.3% of 2016 GDP.
• Given their large share (40% of our total trade), crude oil exports will be critical for 2017 current account. The OPEC output cut deal agreed for the first half of 2017 has been rather successful at supporting prices (Ytd average: $56/bbl, 2016: $45/bbl) and despite the volatile diplomatic elements, OPEC member states are expected to roughly comply with their agreed cuts. This should keep prices above $50/bbl till the major OPEC meeting in May/June. Meanwhile, domestic oil production looks to be on the recovery path (January production: 1.9 mbpd) amidst abated militant activity. We foresee a stable outlook for H1’17 volumes and expect the return of the Forcados terminal (c.0.3 mbpd capacity) to improve volumes in the latter part of the year. Of course, we highlight the latent risk of resurgent militancy in curbing oil production.
• The picture is less clear for imports. Whilst likely currency weakness and structural policies (such as the 41 barred items) will restrain import volumes, improving liquidity in the foreign exchange market could spur greater import activity. Nevertheless, on the back of a recovery in oil exports, we expect a strong return to surplus in 2017.