Nigerian External Sector Remains Vulnerable To Crude Oil Movements


FSDH Research expresses concern about the short-term outlook of the  external  sector  of  the  Nigerian  economy.

We  also  observe the  continued  dominance  of  crude  oil  exports  on  total  exports.  Although Nigeria recorded a favourable   trade   balance   (total   merchandise   exports higher than merchandise imports) in third quarter of 2018, it dropped sharply compared  with  previous  quarters.  The  external trade  data  that  the  National  Bureau  of  Statistics  (NBS)  published   for   third quarter of   2018   shows   that   there   was   an importation of submersible drilling platforms of N1.16 trillion in August  2018.  This increased imports significantly duringthe quarter. However, adjusting for the occasional drilling platforms, the trade balance was lower than the last two quarters of the year 2018. Despite the substantial increase in crude oil during the quarter, the unimpressive growth in exports    (especially    non-oil    exports)    has    adverse implications for the exchange rate.

Crude oil exports grew by 40 per cent in Q3 2018 compared with the level recorded in Q3 2017, while non-crude oil exports grew by 17 per cent. The contribution of crude oil exports to total

exports  increased  to  85%  in  Q3  2018,  the  highest  level attained since Q1 2016. The increase in the price of crude oil   without   a   corresponding   growth   in   non-crude   oil exports,  was  the  major  driver  of  the  growth  of  crude  oil exports  to  total  exports.  FSDH Research  estimates  that Nigeria would have recorded an

unfavourable balance of trade  (total  merchandise  imports  higher  than  merchandise  exports)  in  Q3  2018  had  the  price  of  crude  oil  not increased substantially during that period. Looking at the consistent decline in the crude oil price in the Q4 2018 so far, there are indications that imports may exceed exports.

Market intelligence conducted by FSDH Research has not revealed significant improvements in the non-crude oil exports  so  far  in  Q4  2018.  Most  of  the  exporters  that  we  spoke  with  complained  of  various  bottlenecks  in  the exportation of non-oil goods from Nigeria. Some of the issues they raised are: the gridlock in the Apapa area in Contributions of Crude Oil Exports to Total Exports vs

Bonny Light Price (US$bn) Crude Oil Exports to Total Exports -LHS Bonny Light Price (US$b/d) – RHS

Lagos,  lack  of  standardization  from  the  regulatory  bodies and duplication of duties by the port agencies.

Each of these obstacles increases the time and cost  of exports from Nigeria. In addition, most agriculture exportable     commodities     suffered     considerable setbacks due to security challenges in some parts of the country. There is an urgent need for the Federal

Government of Nigeria (FGN) to look at these export-limiting  factors  in  Nigeria  in  order  to  grow  the  non-crude oil exports and insulate the external sector from movements in the crude oil price.

FSDH  Research  also  notes  that  Nigeria  needs  to increase the exportation of semi-final and final goods from Nigeria. This can be done through value addition to  the  primary  commodities  that  currently  dominate the exports. For this to happen, additional policies and initiatives   are   required   to   make   the   business environment   more   conducive   for   businesses   to expand.  A  business-friendly  environment  will  reduce the cost of running business and enable the exports from Nigeria to compete with those of other countries on the international market.

There is a need to engage Nigeria’s trading partners to  ensure  reciprocal  trading  relationships  that  will benefit Nigeria. FSDH Research observes that South Korea   and   China   which   accounted   for   43%   of Nigeria’s total imports in Q3 2018 are not on the list of Nigeria’s top ten export trading partners. Nigeria can negotiate  better  trading  terms  with  its  trading  partners in  order  to  create  more  markets  for  Nigerian-made goods on the international market. These measures and initiatives  will  ensure  a  more  favourable  balance  of trade for Nigeria, enable broad-based exports earnings for the country and help sustain and strengthen the value of the currency. 



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