Q1 2018 Foreign Trade Report – Limited Upside in the Near Term

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June 14, 2018/InvestmentOne report

The Nigeria Bureau of Statistics recently released the Q1 2018 Foreign Trade report which showed a 35% year-on-year (y/y) and 20% quarter-on-quarter (q/q) improvement in total trade to N7.21trillion. Furthermore, there was a 221% y/y and 21% q/q increase in trade balance to N2.17trillion in Q1 2018; the highest in fourteen consecutive quarters.
Though oil was the main driver of the increase in exports, it was not the fastest grower as regards exports. There was a 237%  y/y surge in non-oil exports to N578billion. This expansion in non-oil exports was likely supported by the 1453% y/y increase in the exportation of vehicle, aircraft and vessel parts.
With oil exports accounting for majority of total exports, going  forward we expect the government to remain committed to its  amnesty agreement in the Niger Delta region thereby ensuring peace in region throughout 2018 and beyond. While the potential for OPEC & non-OPEC allies to loosen supply caps in H2 2018 could put downward pressure on oil prices, we expect only a slight decline from current levels (US$75 per barrel).
Although production levels are likely to be stable, upside potential remains limited given the lack of investments in the sector in recent times. This combined with the possibility for lower oil prices could limit potential improvements in foreign trade.
In terms of non-oil exports, the availability of FX and FG’s incentives to grow the agricultural sector should be supportive of non-oil output and potentially, non-oil exports. Similarly, we believe the government revision of documentation requirements for import and export may enhance the nation’s external trading activities. With this said, we highlight the difficulties faced by trucks in moving goods along the Apapa port roads (accounted for 89% of export and 57% of imports in Q1 2018) could frustrate the country’s external trading activities.
On the other hand, we expect government’s self-sufficiency target especially through its Economic Recovery Growth Plan (ERGP) to reduce the country’s food importation. While this may help to reduce importation over the medium to longer term, we could see the imports rise in the near term as activities in the Industrial sector continues to strengthen. However, we may not see decrease in importation of petroleum products until 2019 when Dangote refinery, with a refining capacity of 650,000 barrels per day, commences operation.