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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.

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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

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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.

[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.

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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.

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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Business News

Ecobank Transnational to hold AGM by proxies on June 30th

Due to the ravaging Coronavirus pandemic, ETI said the AGM will be held by proxies.

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Ecobank Transnational Incorporated (ETI) has announced the date and venue of its 32nd Annual General Meeting (AGM). According to a disclosure that was sent to the Nigerian Stock Exchange, the company’s AGM and an Extraordinary Meeting are scheduled to hold on June 30th, 2020, at Eko Hotels and Suites in Victoria Island, Lagos.

Due to the ravaging Coronavirus pandemic, ETI said the AGM will be held by proxies. The proxy AGM is expected to enable the Pan-African financial institution to abide by the directives issued by governments and agencies regarding COVID-19 and how to contain its spread.

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“As a responsible corporate citizen, ETI intends to strictly comply with this restriction in addition to other applicable health and safety measures. Accordingly, attendance at this year’s General Meetings shall be mainly by proxies in accordance with the Articles of Association of the Company and applicable law,” a statement by the company said.

To this end, shareholders have been advised to select any of the company’s top executives (including the Chairman, Emmanuel Ikazoboh, and the MD of Ecobank Nigeria, Patrick Akinwuntan) to represent and vote on their behalf during the AGM. Proxy forms may be downloaded from the company’s website, filled, and submitted in advance.

READ ALSO: NSE commemorates FBNQuest Merchant Bank’s N5 billion Bond Listing with Digital Closing Gong Ceremony

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Meanwhile, the issues that are up for discussion during the AGM and the Extra Ordinary meeting are enumerated below.

Annual General Meeting

1. Approval of the accounts
2. Appropriation of the Profits
3. Election of Directors
4. Ratification of the co-option of directors
5. Renewal of the appointment of the joint auditors
6. Approval of the Final Board Fees for Retiring Directors

Extraordinary General Meeting

1. Withdrawal of resolution on consolidation of shares
2. Amendment of the Articles

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Note that in Q1 2020, ETI reported profited after-tax from continuing operation of N66.4 billion, marking a 19% decline when compared to N81.9 billion during the comparable period in 2019.

ETI’s share price on the Nigerian Stock Exchange closed Friday’s trading session at N5.55. The company has a market capitalisation of about N137.3 billion according to information obtained from Bloomberg.

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NNPC explains measures to cut cost of crude oil production

Ewubare stated that NNPC was looking very closely at such variables as logistics, security, and transportation with a view to reducing the cost of production to $10 per barrel or below. 

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The Nigerian National Petroleum Corporation (NNPC) has said that it is taking some measures to bring down the cost of crude oil production to $10 per barrel or below. 

According to a press statement that was signed by NNPC’s Group General Manager, Group Public Affairs Division, Dr. Kennie Obateru, this was disclosed by the Corporation’s Chief Operating Officer (COO), Ventures and Business Development, Mr. Roland Ewubare, on a Channels TV breakfast programme on Friday, June 5, 2020. 

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Ewubare pointed out that the peculiarity of the terrain was an important factor in determining cost, with such issues as pipeline vandalism, crude oil theft, and some others being critical factors that are peculiar to the Nigerian terrain and would definitely drive up crude oil production cost in the country. 

READ ALSO: NNPC unveils COVID-19 contacts tracing app, marketers to buy petroleum products online

He, however, stated that NNPC was looking very closely at such variables as logistics, security, and transportation with a view to reducing cost of production to $10 per barrel or below. 

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He disclosed that much had been done over the years in the area of reducing contracting cycle which used to be a major factor responsible for high cost of production, stressing that the National Petroleum Investment Management Services (NAPIMS) achieved a six-month contracting cycle under him as Group General Manager. 

Mr. Ewubare denied reports that Nigeria is part of OPEC+ member countries that did not comply with the output cut that was agreed by the alliance 

Mr. Ewubare explained that though Nigeria’s total production capacity was 2.3million barrels per day, it was currently producing only about 1.4million barrels per day in compliance with the OPEC+ production quota, stressing that what makes up the little extra over the 1.4mbpd figure being bandied around for Nigeria was condensate which is usually not computed as part of production in OPEC quota.  

READ MORE: NNPC seeks Russian firms’ partnership to revamp oil refineries  

While making some clarification, Ewubare said, There’s some confusion in the market around the parameters for the production cuts. Nigeria has a full production capacity of about 2.3mbpd. We are currently producing between 1.6 and 1.7mbpd. Our OPEC quota as a result of the cuts is about 1.4mbpd. You and I know that condensate is not included in the computation of the cut numbers. So what we have is 1.4mbpd of crude oil. The little you see above 1.4mbpd is made up of condensate which does not count as part of the basis for assessing our OPEC quota”. 

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NNPC Group Managing Director, Mallam Mele Kyari, in a recent interview, advanced a similar position where he stressed that NNPC was working assiduously to bring down the cost of crude oil production to not more than $10 per barrel by 2021.  

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Business News

NNPC raises alarm over low grade, contaminated diesel in the market

This warning was contained in a report by the Managing Director, NNPC Retail Limited Managing Director, Dr. Billy Okoye, who also admonished motorists to be careful of the off-spec products. 

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The Nigerian National Petroleum Corporation (NNPC) has raised alarm over the circulation of low grade and contaminated AGO, popularly known as diesel, which is offered at discounted prices in some parts of the country. 

This was disclosed in a press release by the Group General Manager, Group Public Affairs Division, Dr Kennie Obateru, on Friday June 5, 2020. 

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This warning was contained in a report by the Managing Director, NNPC Retail Limited Managing Director, Dr. Billy Okoye, who also admonished motorists to be careful of the off-spec products. 

READ MORE: FG projects $2 billion annual revenue from Escravos Gas project

The state oil giant, in the press statement, said, “The Nigerian National Petroleum Corporation (NNPC) has raised an alarm over prevalent low grade and contaminated AGO, otherwise called diesel, offered at discounted prices in parts of the country.” 

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Dr. Okoye, stated that the warning became necessary because the low grade contaminated diesel is harmful to machines and the environment. He explained that NNPC Retail Ltd is a market leader and therefore considered it incumbent upon it to alert the general public on the circulation of these low grade products. 

While urging consumers of the product to patronize the oil firm’s service stations where the quality of their products was assured, Dr. Okoye gave assurances that NNPC Retail Limited dealt only in premium high-quality products in the interest of Nigerian motorists and users. 

READ MORE: Fitch revises national ratings of GTBank, Zenith bank

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Unlike the premium motor spirit otherwise known as petrol, which was operating a fixed price regime and had NNPC as the sole importer, the diesel products were deregulated and had other independent marketers apart from NNPC importing the products as well. 

The intense competition and unhealthy drive for profit, in addition to poor regulation, could have given rise to this.  

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