Trade Deficit: A Gift that Keeps on Giving

December 8, 2021/CSL Research

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The Nigerian Bureau of Statistics (NBS) in its recently released trade statistics revealed that the trade deficit in the third quarter (Q3 2021) of the year rose to N3.02tn from N1.87tn recorded as of Q2 2021. Total trade of N13.28trn grew 10.4% q/q from N12.08tn in Q2, with imports of N8.15tn and exports of N5.13trn. The top three export destinations for the quarter were India (14.8%), Spain (12.2%), and Italy (8.7%). In addition, the top three export earnings were sourced from petroleum oils and oils obtained from bituminous minerals, crude (74.5%), natural gas liquefied (9.5%), and floating or submersible drilling or production platforms (3.2%). Also, imports for the period were mainly sourced from China (29.9%), India (8.7%), and the United States (7.4%), with commodities such as motor spirit ordinary (12.9%), durum wheat (Not in seeds) (3.9%), and gas Oil (2.8%) constituting the top three most significant items brought into the country.

As of Q3 2021, the total import figure grew on both yearly and quarterly bases. We attribute this to the improved economic activities. Q/q, import grew by 17.3% to N8.15bn while there was a steeper 51.5% y/y rise in Q3 2021 import figure compared with Q3 2020. In addition, we believe the rise in the importation of brown sugars was aided by Central Bank of Nigeria’s (CBN) intervention in the space allowing sugar refineries with significant effort at meeting the Backward integration Plan (BIP) under the National Sugar Master Plan to access FX from the official window for importation of sugar. We also observed a significant rise in the importation of agricultural produce (21.0% q/q and 74.0% y/y) , raw materials (9.1% q/q and 29.1% y/y), and solid minerals (10.9% q/q and 53.4% y/y). We note that the surge in importation of agricultural produce is not a welcome development as it does not bode well for an economy aiming at local sustenance through improved agricultural yield.

On the export end, Nigeria reported a marginal uptick q/q, up 1.0%, while the stagnant economy in Q3 2020 provided a low base for a significant surge (71.4% y/y) to N5.13bn in Q3 2021. This aligns with our expectation, given that crude oil volume has paled in recent months, reducing the support that could have otherwise been provided by the increase in price that characterized Q3 2021. We believe the export figures might worsen, given the current downturn in price in the international crude oil market driven by fear of another round of lockdowns amidst the threat by the United States and other Non-OPEC members to inject reserves into the market. We continue to reiterate the need to diversify the country’s export basket, hence, we believe the recent activities of the Nigerian Export Promotion Council are laudable. In addition, we believe more needs to be done to improve local productivity to meet local demand and provide the needed commodities for export.

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