Nigeria’s balance on the current account is highly correlated with its oil exports. Our chart shows that the trade and current accounts move in tandem. The balance on trade has fallen from a surplus equivalent to 11.8% of GDP in Q3 2012 to a deficit of -0.1% in Q3 2016. Over the same period, the share of oil and gas exports in GDP has plummeted from 20.4% to 8.4%. Import volumes held up well initially when the oil price started to slide in mid-2014 but have since slumped due to soft household demand and acute fx shortages.
Merchandise imports of US$7.9bn in Q3 2016 compared with US$10.7bn the previous quarter and US$13.3bn one year previously. The numbers tell a similar story if we exclude oil imports; US$5.7bn, compared with USS8.5bn and US$10.7bn.
This sharp decline reflects the early successes of substitution policy such as a boost to rice cultivation. We also have to mention the strong element of involuntary substitution where consumers buy the local product because they no longer have the choice.
The consequence of this higher-than-expected import compression was that the current account moved back into positive territory in Q3 2016, at 0.6% of GDP.
Net current transfers, which are mostly workers’ remittances, have ranged between 4.0% and 5.3% of GDP over the past year. We had expected a sharp decline in recent quarters, given the temptations of the fx parallel market.
Sources: CBN; FBNQuest Research
There was a blip to the correlation in Q1 2016. This has been removed by a substantial data revision on the communications line of the services account.
