October 16, 2018/FBNQuest Research
In Q2 2018 Nigeria’s current-account surplus widened from the equivalent of 3.8% of GDP in Q1 to 5.7%, and was the highest in value terms since Q1 2013. Merchandise exports increased by 8.0% on the quarter, and the share of oil and gas exports in GDP reached 13.7%.
Non-oil exports, shown by the CBN as overwhelmingly electricity, almost doubled to US$1.76bn, which does not tally with the anecdotal evidence. Merchandise imports declined by 15.3% on the quarter due to a steep fall in imports of energy products which we attribute to shipment timings.
Oil and total exports move in tandem, and the rare current-account deficits (such as Q2 and Q3 2016) are caused by oil revenue weakness. Both grew strongly in Q2: prices firmed and the leakages were contained.
Nigeria runs structural deficits on services and income, reflecting the failure to diversify the economy. The net services outflow amounted to US$5.15bn, principally other business services (US$2.48bn) and travel (US$1.71bn).
The one piece of good news (other than the oil receipts) was the increase in net current transfers, which are predominantly workers’ remittances, to US$6.36bn, their highest for at least ten years and probably highest on record. A frustration we have regularly voiced is that nobody has more than a fragmentary view where these receipts have been deployed.
We could be seeing the relative strength of the remitting economies (principally the US, the UK and other OECD members) at work. The trend increase could also be a response to the CBN’s fx reforms.
Sources: CBN; FBNQuest Capital Research
The current-account surplus/GDP ratio is at a level where it can absorb the decline in portfolio inflows in response to the normalization of US monetary policy and the resurgence of the US dollar.