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Nigeria’s trade balance hits recession low, records N579 billion deficit in Q4 2019

The Nigerian economy ended 2019 in what appears to be another major setback, as trade balance posted N579 billion deficit in the fourth quarter of 2019.

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Nigeria’s trade balance hits recession low, records N579 billion deficit in Q4 2019

The Nigerian economy ended 2019 in what appears to be another major setback, as trade balance posted N579 billion deficit in the fourth quarter of 2019, no thanks to the surge in importation within the period.

According to the latest foreign trade report released by the National Bureau of Statistics (NBS) for full year 2019, this is the first time the Nigerian economy recorded deficit trade balance in a quarter since 2016m when it witnessed recession.

Nigeria’s trade balance historical trend (2016 – 2019)

It is worthy of note that at the end of 2019, Nigeria’s total trade was estimated at N36.15 trillion, a 108% rise when compared to N17.34 trillion recorded in 2016. This implies that Nigeria’s foreign trade has witnessed significant growth in recent years.

Nigeria’s trade balance hits recession low, records N579 billion deficit in Q4 2019

However, it is important to provide some insights into what is driving growth in the country’s foreign trade and the key implications ahead. Basically, foreign trade is the value of goods (import and export) a country traded with the rest of the world within a period.

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[READ MORE: BOOM: Crude oil price crash below $30 in worst trading day since 1930)

So, if a country has more exports than imports, it is in a favourable trade position (surplus). On the other hand, if a country imports more than exports, then it is in an unfavourable trade position (deficit).

In 2016 Q1, Nigeria’s trade balance entered the negative territory, an unfavourable trade position with a N253.3 billion trade deficit, and this was largely driven by marginal increase in import. This followed consecutive trade deficits in Q2 and Q3 2016. By the end of Q2 2016, Nigeria had entered recession.

Over the years, since the post-recession era, Nigeria’s total import had dropped marginally below export, thereby leading to favourable trade balance. In 2019, Nigeria recorded positive trade balance between Q1 and Q3 2019, until a significant trade deficit was recorded at the end of Q4 2019. The trade deficit recorded in 2019 Q4 coincided with the period when the Nigerian government had ordered the customs to shut its land borders.

Nigeria’s trade balance hits recession low, records N579 billion deficit in Q4 2019

Import surge on the back of border closure

The quantum of illegally imported goods that flow into Nigeria has always been a constant sore spot for the country; hence, in August 2019, Nigeria closed its land borders in order to control the proliferation of smuggled items into Nigeria. However, critics of the government condemned the policy, stating that it would stifle businesses and lead to inflationary pressure.

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Following the border closure, import has surged significantly, and inflation is equally on the rise, as the Nigerian economy continues to grapple with the impact of the closed borders. The surge in import suggests that goods formerly traded and those smuggled through the land borders are partly being redirected through sea.

The increase in import is expected to have a strong effect on the country’s depleting foreign reserves, and the Central Bank may be left with little or no choice but to consider another devaluation.

While Nigeria is yet to resolve the fallout from the closed borders as negotiations with other neighbouring countries are still ongoing, import may yet rise further, as Nigeria remains largely import dependent.  This means the country may be in for another trade deficit in subsequent quarters, which will amount to increased pressure for another round of recessionary cycle for the economy.

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[READ ALSO: BLOODY WEEKS: Coronavirus costs investors N1 trillion, triggers devaluation fears)

Recession concerns intensify as Coronavirus dampens growth outlook

The outbreak of Coronavirus (COVID-19) in China, and subsequent rapid spread across countries, has crashed the global oil price. As at the time of this writing, Brent crude oil price has dropped to $35 a barrel, while WTI dropped to $31.

The drop in oil price due to COVID-19 has been driven by low demand for crude oil in China (second-largest economy in the world), as oil inventory continues to pile up. It should be noted that Brent oil at $35 a barrel is largely below Nigeria’s 2020 budget benchmark of $57. On the side, Nigeria may further have to approach the debt market.

Already, Nigeria is considering reviewing the budget benchmark; this has become necessary as oil price continues to plunge. Despite the decision of OPEC and its allies to cut oil production by 1.5 million barrel a day in the second quarter, this may not have significant push on oil price as the global oil demand continues to drop faster than supply.

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For the Nigerian economy, while experts have predicted that Nigeria may not devalue naira in 2020, recent developments with the surge in import bill are expected to deplete the country’s external reserves further, and pressures will mount further on the Central Bank of Nigeria to pull the plug on naira in the medium term.

Samuel is an Analyst with over 5 years experience. Connect with him via his twitter handle

1 Comment

1 Comment

  1. Rex

    March 9, 2020 at 10:53 pm

    Insightful analysis.
    Let me add!
    “Despite the decision of OPEC and its allies to cut oil production by 1.5 million barrel a day in the second quarter,”

    Concerning the above quoted statement, there is no agreement between OPEC + member to cut down oil production by 1.5 million barrels. Russia turned down the offer on Saturday.

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Energy

NNPC opens bid for repairs of pipelines and depots on a finance and operate basis

The project is expected to be operated on a public-private partnership basis.

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Pipeline Vandalism: Stakeholder collaboration, critical to tame menace - Kyari, Nigeria explains when it will fully comply with OPEC+ output cut

The Nigerian National Petroleum Corporation (NNPC) declared open on Tuesday, August 11, bids by interested private investors to repair the pipelines and depots that are serving the refineries.

These pipelines, built almost 4 decades ago, are very critical in the successful movement of crude oil to the country’s 3 refinery complexes located in Port Harcourt, Kaduna and Warri, and the subsequent movement of the finished petroleum products to the consumers.

The pipelines, which according to NNPC are in dire need of comprehensive repairs, have experienced years of incessant theft and vandalism as well as ageing.

This project is expected to be operated on a public-private partnership basis as the bidders are expected to finance and execute the project, then operate for an agreed number of years before transferring back to the NNPC. In other words, the bidders for the extensive repairs of these pipelines would have to finance them independently and operate for a defined period in order to recover their investment costs with throughput tariffs.

It must be noted that this model is similar to the one that had been in place by the state oil giant for the refineries. The NNPC had also announced plans to get private investors to invest in the repair of the 3 refineries on a repair and operate basis, as they do not want to be involved in the management of these refineries.

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The NNPC Group Managing Director, Mele Kyari, had said that the ultimate plan for these refineries was to allow it to run on the LNG model, where the shareholders would be free to decide on the fate of these refineries going forward.

The refineries, which have only run sporadically, were shut down by NNPC earlier this year while awaiting repairs and upgrade. These 2 projects are expected to be handled separately according to information made available on Tuesday.

In addition, the new pipelines would need intrusion detection systems, as well as deep burial, to stop theft or vandalism. The deadline for the submission of these bids is due by September 18.

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Economy & Politics

WTO Job: Okonjo-Iweala reveals how to resolve the rift between US and China

Mrs Iweala revealed how she hopes to resolve the rift between the United States of America and China.

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WTO, Okonjo-Iweala joins South Africa's presidential economic advisory council as nation struggles with recession

As the jostle for the top job at the World Trade Organization (WTO) becomes more intense, the Nigerian candidate, Ngozi Okonjo-Iweala, has disclosed some of her plans for the institution. The former Nigerian Finance Minister recently had an exclusive interview with CNBC Africa.

Speaking during the interview, Mrs Iweala revealed how she hopes to resolve the rift between the United States of America and China, the 2 biggest economies in the world, especially as regards trade issues. She also noted that part of her vision is to build a trade institution where there is greater trust among its members. She also stressed that the WTO, at this critical time, is needed to ensure that trade and global markets remain open.

READ MORE: Gold price up as COVID-19 cases rise, U.S-China tensions heighten 

On healing the rift between the US and China, Okonjo-Iweala admitted that it is going to be challenging and not be easy. She said:

Well this is not going to be easy, if it was easy, it could have been done a long time since. So it would be very challenging but it is not an impossible job. It is very clear that both the US and China have been helped and benefitted from the multilateral trading system in the past. Hundreds of millions have been lifted out of poverty. They have experienced shared prosperity in the economies and their countries.’

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The Nigerian candidate pointed out that it is important to remind the US and China of this shared prosperity. She then disclosed that she would listen to both countries to find out what really are the issues causing distrust among them. She said that she will not want to be involved in the larger political problems, but will rather separate the trade issues and focus on them and build this trust.

READ MORE: Dangote fertilizer plant to begin production this year

Going further on how to settle their rift, Okonjo-Iweala said, “You need to begin to find areas where there can be confidence-building and trade. Building trust is not talking about it, you have to have areas where both can work together and agree and we have a golden opportunity in the fisheries subsidies negotiations that are going on now because the US is a party to it, China is a party, the EU, all other members.’’

“It is a multilateral negotiation, so if they can sit around the table with others to negotiate this and have a successful outcome, that is one thing that will be shared in common between the 2. So that will begin to build confidence. Then reaching out both in the US and in China to talk to the policymakers, go where the decisions are made, talk to congress also in the US and begin to show the benefits of the system again.’’

READ ALSO: FG inks $3.9 billion deal with Chinese firm for construction projects 

She also said they will look at reasons why they need to work together because their rift may be causing negative externalities for other members. She is of the opinion that exposing all of these, working with them, and listening carefully will begin to build confidence.

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She believes that while achieving this will be difficult, focusing seriously on trade issues can create room for a breakthrough.

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Coronavirus

US hands over 200 ventilators to Nigeria

The US Ambassador to Nigeria said USAID and  Nigeria will work very closely over the next couple of weeks.

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US hands over 200 ventilators to Nigeria

The United States of America, on Tuesday, August 11th, handed over some 200 ventilators to the Federal Government of Nigeria. This was disclosed by the Federal Ministry of Health via its Twitter handle, following the handover ceremony in Abuja.

The US Ambassador to Nigeria, Ambassador Mary Beth Leonard, at the handover event, explained that the ventilators are compact & portable & can be easily mobilized to reach those patients with the most severe symptoms of COVID-19.

Speaking during the handover ceremony, the Ambassador said, “Their arrival fulfills the commitment discussed between US and President Muhammadu Buhari earlier this year. Our support includes; training on the use & maintenance of this equipment, ensuring that the ventilators can address other respiratory illnesses in the years beyond.”

According to her, the United States Agency for International Development (USAID) and  Nigeria will work very closely and energetically over the next couple of weeks, with the Presidential Taskforce on COVID-19, to bring these ventilators across each of Nigeria’s states & the Federal Capital Territory.

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“The United States has been pivotal in supporting Nigeria’s membership in the ‘Every Breath Counts’ Coalition. Nigeria is now one of 2 countries in Africa to have an “oxygen roadmap” that seeks to fight against pneumonia, hypoxemia, & now COVID-19,” she stated. She then added that as the U.S. Ambassador to Nigeria, she remains proud of the strong friendship between the two countries.

The Backstory: Last April, Nairametrics had reported when the Minister of Information, Lai Mohammed, said that “President Donald Trump assured that the United States stands in solidarity with Nigeria in this difficult time and promised to send ventilators to support the country in its fight against the pandemic.”

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