Q2'16 TRADE - Current account deficit shrinks on fx liberalization
The total value of Nigeria’s international trade in Q2’16 was ₦3.9 trillion, much lower than corresponding values in the preceding two years (Q2’15: ₦4.4 trillion, Q2’14: ₦6.7 trillion) as the economy adjusts to a new normal for oil prices. Despite this, there was a marked quarterly improvement – the first since the start of 2014 – following higher exports (63%) and imports (38%). This brought the current account deficit down to ₦196 billion (Q1’16: ₦351 billion). Driving this upturn is a particularly strong June result as effects of currency devaluation begin to surface. We recall that following an initial announcement in May, the Central Bank of Nigeria eventually liberalized the foreign exchange (FX) market on the 20th of June. This bore immediate results as total exports increased by 24% m/m in June to shrink the deficit to the smallest it has been this year (official NGNUSD rate of 280.5 at the end of June). Furthermore, the rise in imports may have been as a result of frontloading following the announcement in May.
Nigeria’s current account balance at the end of 2012 gave a surplus of ₦16.8 trillion. So far in 2016, we have a deficit of ₦548 billion. Short-term efforts to improve the current account balance will likely hinge on oil export earnings and continued naira weakness. There is some positive news on the former –the Forcados export terminal is due to be running again by the final quarter of the year. However, risks from militancy in the Niger Delta region remain and oil prices are expected to stay moderated through 2017 as a result of supply glut. The currency aspect provides more joy – non-oil exports should grow further (naira has lost over half of its value since it was floated) and import inelasticity will be severely tested by more competitive domestic prices. These indicate a more bullish outlook for the current account balance in the second half of the year but the dependency on oil exports underscores the prevalent need to diversify FX earnings.
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