Nigeria’s trade position showed further improvement at the start of 2018 as current account surplus rose from ₦0.7 trillion and ₦1.8 trillion in Q1’17 and Q4’17 to ₦2.2 trillion in Q1’18. This represented more than half of FY’17 current account surplus (₦4.0 trillion) and a far cry from a FY’16 deficit of ₦0.3 trillion. Driving this was an 8% y/y and 56% y/y increase in imports and exports respectively.
Crude exports surge, one-off spike in non-oil exports
Nigeria’s exports rose 20% q/q to its highest value since Q3’14. Crude oil exports increased 10% q/q and 51% y/y, supported by recovered production volumes and much stronger oil prices. To be specific, crude oil output and average price distribution for the relevant periods were: 1.75 mb/d and $55/bbl in Q1’17, 1.95 mb/d and $61/bbl in Q4’17, and 2.00 mb/d and $67/bbl in Q1’18. Notwithstanding the improvement in crude exports, non-crude oil exports actually accounted for a greater share (58%) of the rise in total exports on a q/q basis. This is because non-crude oil exports rose 70% q/q and 76% y/y to ₦1.1 trillion (a four-year high), causing crude oil as a percentage of total exports to moderate to 76%, the lowest crude oil contribution to exports since Q3’15 (69%). Ordinarily, this development would be viewed positively as it is indicative of greater diversification of exports. However, the spike in non-crude oil exports can be traced to an unusually high exported value of transport equipment (vehicles, aircraft, or constituent parts) in February which actually represented a re-export. Therefore, as these goods were initially imported into the country before exported in February, we do not consider this development to be indicative of any change in Nigeria’s export profile.
Petroleum imports may point towards greater smuggling
After two consecutive quarterly declines, imports rose 19% q/q to ₦2.5 trillion. We note that imports in the quarter were skewed towards January – accounting for 42% of Q1’18 imports, highest month on record. Meanwhile, we highlight that Nigeria’s import profile remains tilted towards processed goods (c.80% of imports) such as manufactured goods and refined petroleum products, a stark contrast with exports which are mainly primary products (above 90%).
We draw attention to a significant jump in mineral fuel (petroleum product) imports in Q1’18 – up 183% q/q and 41% y/y respectively. Whilst this must have been partly driven by a higher landing cost of petroleum products on the back of stronger oil prices in the period, we are convinced that volumes also rose during the period. Indeed, this is supported by Ministry of Petroleum Resources data which shows a significant uptick in petrol truck out since the turn of the year – ytd monthly average of 52 million liters per day vs. 2017 average of 35 million liters and estimated national demand of 40 million liters. Furthermore, the extraordinary nature of the increase in PMS imports is evidenced by the fact that it accounted for 29% of total imports, compared to 5-year average of 17% and the previous high of 31% in Q1’13. In our view, as demand for petroleum products is little changed in recent times, this may indicate a larger amount of smuggling activities. If so, this would represent a non-trivial waste for Nigeria given the size of the implicit subsidy borne by the Nigerian National Petroleum Corporation and the additional pressure of excessive petroleum imports on Nigeria’s dollar holdings. Nevertheless, this status quo is likely to persist amid a strong oil price outlook for the rest of 2018 and high unlikelihood of a change to the petrol pricing template before the 2019 elections.
Positive oil outlook buoys current account
We expect non-crude oil exports to normalize from Q2’18 onwards and foresee oil & gas exports dominating Nigeria’s exports given the healthy pricing and volume outlook in the space. Meanwhile, we expect imports to remain stable amid continued foreign exchange market stability and strengthening consumer wallets. All in all, the positive outlook for crude oil prices should buoy Nigeria’s trade balance in 2018.