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NIGERIA Q3 2016 Trade Report - Rebound in oil exports fails to prevent trade deficit

• Naira depreciation buoyed Nigeria’s international trade statistics as total trade in goods rose 17% y/y (Q2’16: -7%) and 16% q/q. Median official exchange rate increased from NGN199/USD in Q2’16 to NGN312/USD in Q3’16 whilst the parallel market rate increased from NGN324/USD to NGN395/USD in the same period. This led to a quarterly rise in both imports (6%) and exports (29%) and a more favorable y/y comparison – imports up 43% y/y (Q2’16: 33%) and exports down 1% y/y (Q2’16: -33%). As a result, current account deficit contracted to ₦104 billion (Q2’16: ₦484 billion), representing -0.4% of GDP (Q2’16: -2.1%) and shrank ytd current account ratio to -1.1% (2015: 3.1%).
• We expect to see a further improvement in crude export earnings in the final quarter of the year considering higher oil prices since the initial announcement of the OPEC agreement in September and a rebound in oil production from the lows of August. Nonetheless, we expect recent exchange rate rigidity in the official market to cap further currency depreciation gains. Meanwhile, the festive season should spur greater import demand, putting some pressure on the current account balance. Despite this, we expect a small surplus in Q4 (0.1%) to bring FY2016 to -0.8%.
• Oil prices are likely to trend even higher in the early part of 2017, putting the onus on security in the Niger Delta region to ensure that Nigeria reaps the fruits of higher oil prices. Also important for the current account balance in 2017 is the rate of import substitution, especially with likelihood of further currency depreciation/devaluation during the year. We forecast current account ratio to improve to 0.3% in 2017.