During the week, the National Bureau of statistics (NBS) released its Foreign Trade Statistics for Q1:2016. Merchandise trade – the sum of visible import and export goods – in Q1:2016 plunged 38.0% Y-o-Y from N4.4tn in Q1:2015 to N2.7tn, representing the latest in the series of negative economic indicators published by the Bureau in recent time. Total trade declined by N793.5bn or 22.6% on a quarter on quarter (Q-o-Q) basis compared to N3.5tn in Q4:2015 as import and export for the period touched the lowest in 13 quarters.
More disturbing is the fact that the economy recorded the first negative trade balance since 2013 as crude oil export with average of 75.6% contribution to total exports in the last three years slowed to 64.7% as oil export tumbled 50.9% Y-o-Y and 46.6% Q-o-Q to N821.9bn in Q1:2016. The weakening external sector performance as indicated in the numbers above is consistent with the Q1:2016 GDP growth and unemployment figures published by the NBS recently, indicating that the economy contracted 0.4% while unemployment Despite the government’s determination to diversify the revenue base of the economy, crude oil export continued to account for over 70% of total rate increased to 12.1% in the same period. Merchandize exports in the last 12 months.
In Q1:2016, petroleum and oil related items accounted for 82.8% of total export, followed by raw cocoa and cocoa related items with 3.6% while other item accounted for 13.6%. Although this is not surprising given that lower oil prices in the global market has kept returns from crude oil export below a 10-year average while renewed episodes of production distortion in the Niger Delta region has only served to worsen the situation most especially with recent bombing by the new Niger Delta Avenger (NDA).
Similarly, the downward trajectory in the value of import also reflects the impact of control measures put in place by the CBN since June-2015 in response to foreign exchange demand pressures due to waning external reserves. Expectedly, the value of import slumped 15.8% Y-o-Y from N1.7tn in Q1:2015 to N1.5tn in Q1:2016. On a month on month basis, import bills touched a 38-month low of N445.6bn in February 2016. Further scrutiny of imported items indicated that import bill was majorly composed of refined petrol product (15.6%), Durum wheat (2.9%) and imported motor cycles (1.6%) in Q1:2016. This sharp decline is also not surprising given the reduction in petrol (PMS) importation by independent marketers during the period due to FX challenges, a situation that resulted in the various episodes of fuel scarcity experienced from January to April 2016.
Linking up the above, we believe that the weaker external sector performance as indicated in the trade numbers above reflects the sustained pressure in the overall economy worsened by sub-optimal monetary policy responses. We maintain that the continued delay by the CBN in fixing the currency market crisis will continue to worsen key macroeconomic indicators notwithstanding the anticipated fiscal impulse. Recent attacks on oil production assets by NDA suggest a weaker outlook for trade balance so long as export base remained dominated by crude oil. Also, implementation of the 2016 budget which is based on a daily crude production of 2.2mbpd may be threatened even though recent efforts to strengthen independent revenue are commendable. On the whole, since the metrics for the performance of the 2016 budget on the basis of 80.0% non-oil revenue appears as a fluke, weaker outlook for domestic oil revenue raises credit risk premium on government’s massive borrowing plan for the fiscal year.