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Nigeria Q1'17 Trade Report - 2017 begins with surplus amidst oil recovery

Supported by recovering oil sales, Nigeria’s current account surplus widened to ₦719 billion (Q4’16: ₦671 billion) in the first quarter of the year, bringing current account balance to 2.8% of quarterly GDP. This is a far cry from the ₦253 billion deficit recorded in Q1’16 when down-trending oil prices and a negative oil production shock reduced oil exports. The year-on-year (y/y) return to surplus was driven by severe currency depreciation in 2016 (official rate: 55%, parallel market rate: 84%) as well as stronger average oil prices in the corresponding period – $54.60/bbl in Q1’17 vs. $35.10/bbl in Q1’16. Meanwhile, import growth (35% y/y) has been slower than export growth (109% y/y) as a result of domestic import substitution driven by the weaker naira and rebounding exports. Current account figures did not change much on a quarterly basis. Total trade was flat q/q though surplus rose 7% from Q4’16 as exports grew marginally while imports fell slightly.

We expect export numbers to come in stronger in the coming quarters. Though global oil prices have receded in recent months, domestic production is looking much healthier, with qtd average of 1.92 mbpd vs. 1.83 mbpd in Q1. Moreover, the Force Majeure over Forcados exports have been lifted, suggesting a further 0.3 mbpd in production in the coming months. Meanwhile, reports up to February this year show a significant improvement in domestic refinery production and should this continue, we can expect slightly lower refined product imports. On the other hand, improved foreign exchange market liquidity and lower impediments to importing could spur a rebound in imports. Nevertheless, with domestic import substitution likely to continue amidst persistent currency weakness and an outsized impact of oil exports on trade numbers, we expect Nigeria’s current account surplus to continue to expand in the medium-term.