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Nigeria Q2'20 Trade Report - Foreign trade flows down 12% in H1, deficit widest since 2015

Against the backdrop of the COVID-19 pandemic, Nigeria’s total trade in the first-half of the year plummeted 12% from one year ago, the National Bureau of Statistics (NBS) reported. Although trade flows were lower, imports were higher by 11% y/y in the period while exports declined considerably (-31% y/y). This resulted in a ₦2.2 trillion foreign trade gap in H1’20, indicative of the second annual deficit since the 2014/2015 oil price slump, and the widest at -3.2% of GDP. On a half-year basis, the value of crude oil exports dropped by 38% y/y, resulting in a reduction in its contribution to total exports to 71% in H1’20 from 80% in H1’19. The weaker contribution of crude oil was due majorly to the coronavirus induced slump in oil prices. The decline in crude oil’s composition of exports resulted in the increase in the composition of non-crude oil and non-oil exports, even though the value of non-crude oil exports declined on an annual basis by 1%.

Compliance with OPEC rules to widen trade gap

We expect Nigeria’s foreign trade gap in FY’20 to be the widest as we envisage that recovery in oil demand - and by extension prices - will remain sticky due to a resurgence of coronavirus cases which can slow the pace of the currently anticipated recovery in the global economy. Although trade data from some advanced economies suggests that global trade could be on a recovery path, we believe Nigeria’s foreign trade flows could take a longer time to recover, given a still weak global growth and demand backdrop. A good indicator is Nigeria’s Purchasing Managers’ Indices - for both manufacturing and non-manufacturing – whose uptrend in Q3’20 suggests that there’s a desire to get back to normalcy, but the back-to-back below-50 readings is indicative of reluctance to really embrace the budding recovery. The impact of the anticipated deficit in foreign trade could also be accentuated by mandatory compliance with OPEC production cuts, as compensation for earlier overproduction, contributing to the uncertainty of a rebound in the country’s foreign trade flows. As such, trade could be a major drag on economic growth in the year.