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Nigeria Q1'21 Trade Report - COVID-19 deepens merchandise trade deficit

COVID-19 deepens merchandise trade deficit
According to the National Bureau of Statistics (NBS), Nigeria recorded higher trade volumes in the first quarter of the year (+7.0% q/q; +14.1% y/y). This represents the highest quarterly trade flows (Q1’21: ₦9.8 trillion) Nigeria has recorded since the pandemic disrupted global supply chains (Q1’20: ₦8.5 trillion). While the recovery in trade could be attributed to the reopening of economic activities, the surge in trade flows was predominantly driven by a higher import bill (+54.3% y/y), which was responsible for 70% of total trade flows. With exports sustaining its plunge (-29.3% y/y) for the fifth consecutive quarter, the merchandise trade deficit expanded.
External position hangs in the balance
In the second quarter of the year, we see India’s health situation dragging trade deficit further into the red zone, given the identification of two variants of the virus and the resurgence of restrictions in major cities in India. Imports, on the other hand, could swell significantly on a year-on-year basis, riding on sustained appetite for foreign products. With machineries, mineral and chemical products being the major drivers of imports, these commodities are relatively inelastic and as a result, increased currency-related costs could easily be passed on to final consumers or borne by the government (PMS products). However, the fall in the value of the Naira could yield lower import volumes. Nonetheless, we expect the enacted provisions of the Finance Act to buoy importation of vehicles, given the gap in local supply. Ultimately, lower demand for Nigeria’s crude by India as a result of the health crisis could deepen Nigeria’s merchandise deficit in Q2’21.