Merchandise Trade Report: Trade Deficit Plunges Deeper as Exports Plummet

The total value of Nigeria’s merchandise trade in Q2:2020 declined by 37.6% q/q and 27.5% y/y to ₦6.2tn, the weakest since Q4:2017, as reported by the NBS. As a result, the moderation in trade deficit in the preceding quarter was short-lived as it worsened to -₦1.8tn in Q2:2020 from -₦139.9bn in Q1:2020, driven by a sharp decline in exports. This is the third consecutive trade deficit recorded since Q4:2019 and the worst performance on record. In dollar terms, Nigeria’s trade balance plunged by 360.4% y/y to $5.0bn as exports tanked 58.9% y/y to $6.1bn while imports declined by 14.6% y/y to $11.1bn.

Across regions, Nigeria’s trade with West Africa suffered a 50.3% y/y and 44.4% q/q decline due largely to a significant drop in exports. Imports from West Africa fell y/y by 78.7% while there was a 9.7% q/q rise in imports. Similarly, exports to West Africa declined, down 31.2% y/y and 49.6% q/q. We attribute the weakness in trade with West Africa mainly to the land border closure implemented in August 2019.
 
Exports fell 51.7% y/y and 45.6% q/q to ₦2.2tn in Q1:2020. There was a broad-based decline in oil and non-oil exports on a q/q basis, largely driven by the 47.2% and 56.2% decline in the export of crude oil and raw materials respectively. However, on a y/y basis, non-oil exports spiked by 55.1%, driven by a 139.6% and 6.3% increase in the export of manufactured and agricultural goods respectively, while export of crude oil plunged by 60.5%. We attribute the moderation in crude oil exports to the 12.6% q/q and 10.4% y/y decline in oil production to 1.81mbpd, as Nigeria enforced partial compliance with the output cuts it agreed to as a member of OPEC/OPEC+.

In addition, low oil price which averaged $31.4/bbl in Q2:2020 from $50.5/bbl in the previous quarter, also explains the lacklustre performance in exports during the period. Despite the resumption in economic activities across many sectors, we expect exports growth to remain weak largely due to weak oil production and oil prices.

In line with our expectation of a slower rise in imports, total imports rose marginally by 0.4% y/y but declined by 10.7% q/q to ₦4.0tn. The q/q moderation in imports was driven by a sharp 82.4% q/q drop in the import of mineral fuel which masked the increases recorded in the importation of raw materials, solid mineral and energy goods. Meanwhile, the y/y marginal rise was supported by a 129.8% surge in the importation of energy goods from China in Q2:2020. Generally, the slower increase in imports can be mainly attributed to the foreign exchange (FX) liquidity challenges witnessed during the quarter following the elevated risks induced by the COVID-19 pandemic. Nigeria’s imports from China, its major trading partner, grew by 13.9% on q/q basis, supported by the country’s quick recovery from the pandemic. However, imports from other significant trade partners including USA, India and Netherlands declined, indicating the impact of trade restrictions due to COVID-19 as US and EU suffered a devastating outbreak.

In subsequent quarters, we anticipate a gradual increase in imports given an expected improvement in FX funding as the CBN resumes sales in the FX market.



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