Merchandise Trade Report: Worst Trade Deficit on Record as Exports Plummet

Merchandise Trade Report: Worst Trade Deficit on Record as Exports Plummet

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Nigeria’s merchandise trade improved 8.9% q/q in Q4:2020, the highest since Q2:2019 though dipped 9.9% y/y to ₦9.1tn. For FY:2020, merchandise trade fell by 10.3% y/y to ₦32.4tn due to a sharp contraction in exports according to report by the NBS. Consequently, the trade balance had a deficit of ₦7.4tn, the first since 2017 and the worst performance on record. Across regions, Nigeria’s trade with West Africa suffered a 39.5% y/y decline in 2020 due largely to a significant drop in exports. Imports from West Africa fell y/y by 39.8% while there was an 8.4% q/q rise in Q4:2020. Similarly, exports to West Africa fell by 39.5% y/y but rose 24.5% in Q4:2020. We attribute the weakness in trade with West Africa to the restrictions from the pandemic and the land border closure.

Exports fell 34.8% y/y for FY:2020 following weak performance in the crude oil market and trade restrictions to contain COVID-19 spread. There was a broad-based decline in oil and non-oil exports on a y/y basis, largely driven by the 35.7% and 31.6% decline in the export of crude oil and raw materials respectively. The moderation in crude oil exports is attributed to the 32.6% y/y reduction in average crude oil price to $43.3/bbl. in 2020. In addition, as Nigeria enforced partial compliance with the OPEC+ output cuts, crude oil production declined 10.4% y/y to 1.8mbpd, compounding the decline in total exports. Conversely, exports rose by 6.5% q/q to ₦3.1tn in Q4:2020. This reflects the gradual resumption of trade on hopes of vaccine distribution and the 3.6% q/q increase in the average crude oil price. The recovery in Q4:2020 was supported by an 18.4% and 4.0% increase in non-oil exports and export of crude oil in that order. With the resumption of economic activities across many sectors, we expect growth in exports to accelerate on the back of the recovery in oil prices and a possible increase in oil production.

Total imports rose by 17.3% y/y to the highest on record at ₦19.9tn in 2020 just as it climbed 10.1% q/q to ₦5.9tn in Q4:2020. Despite the general slowdown in economic activities and foreign exchange (FX) illiquidity, the growth in imports was driven by a 12.2% y/y and 15.8% y/y increase in the import of machinery and mineral products. Nigeria’s imports from China, its major trading partner, grew by 2.0% and 32.5% in Q4 and FY:2020 respectively, supported by China’s fast-paced recovery from COVID-19. Meanwhile, imports from India, Nigeria’s second largest trading partner was down 22.6% y/y in FY:2020 but grew 42.9% in Q4:2020. In 2021, we anticipate a continued increase in imports as activities take full swing though continued FX challenges remain a downside risk.

 

Afrinvest


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