Nigeria’s balance on the current account is highly correlated with its oil exports. Our chart shows that the trade and current accounts move almost in tandem. The balance on trade has fallen from a surplus equivalent to 10.0% of GDP in Q1 2012 to a deficit of -1.4% in Q1 this year. Over the same period, the share of oil and gas exports in GDP has plummeted from 25.0% to 5.8%. We therefore get to see Nigeria’s Achilles heel at close quarters, and the simplicity of its balance of payments, at least for current transactions.
It is commonly said that Nigeria has a high import dependency, which we would paraphrase to say that certain sectors, notable manufacturing, are dependent. Oil inflows have slumped while import volumes have declined in the current recession at a slower rate, which has boosted the backlog in unmet import demand and deepened the CBN’s exchange-rate difficulties.
We can see a modest trend decline in the ratio for the services account. Lower merchandise imports mean lower related payments for freight and insurance.
The inflows on net current transfers, which are not shown in our chart, are remarkably steady, ranging between 3.9% and 5.0% of GDP in the period. Anecdotal evidence points to a more recent fall-off as remitters access the parallel market for the greater naira value.
It is clear that, until Nigeria is able finally to diversify its economy, weak oil export revenues translate directly into a current-account deficit, albeit one of manageable proportions.
We see deficits ahead representing -3.8% of GDP this year and -2.0% next. This is not Ghana nor does it invite comparison with, say, Angola or Russia.