Q3-2021 Terms of Trade Report; Deficit Worsens

December 8, 2021/United Capital Research

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Earlier in the week, the National Bureau of Statistics (NBS) released the Terms of trade report for Q3-2021. The report showed that total trade in merchandise increased by 58.6% y/y in Q3-2021 and 10.4% q/q (from Q2-2021). The increase in total trade in merchandise comes as no surprise as we anticipated the impact of exchange rate depreciation coupled with the increased economic activities which led to increased demand for imports. Overall, Nigeria’s total trade in merchandise closed at N13.3tn in Q3-2021, while the trade deficit printed at N3.0tn, representing a 26.5% y/y increase in trade deficit and a 61.5% increase compared to the previous quarter.

On a year-on-year (y/y) basis, Nigeria’s total import value rose by 51.5% in Q3-2021, primarily due to a 34.5% q/q rise in importation of Premium Motor Spirit (12.9% of import bill) in Q3-2021. The value of manufacturing goods imported (60.1% of import bill) increased by 14.0% q/q to N4.9tn in Q3-2021. We attribute the increases in the value of imports to global inflationary pressures and currency devaluation in late 2020 and early 2021. In addition, increase in economic activities continued to boost demand as consumer income recovered. The value of total exports in Q3-2021 increased marginally by 1.0% against the level recorded in Q2-2021 and 71.4% compared to Q3-2020. Petroleum products accounted for most of Nigeria’s exports, making up 89.8% of total exports in Q3-2021. The y/y surge in exports reflects improved oil prices while the flattish q/q performance is down to curtailed oil production in Q3-2021.

For Q4-2021, our outlook for total trade remains positive as we expect economic activities to improve as consumer income continues to strengthen, feeding improved demand. Additionally, the festive season typically results into surge in demand, most of which are import-based. We expect these factors to continue to support trade. On the downside, the outbreak of the Omicron variant could upset oil demand as well as price, leading to pressure on export revenue. As a result, we project the current account deficit to persist with a strong possibility to widen. 

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