After 4x Deficits, Analysts say Border Restriction Hurts Trades, Price Level
After four times (4x) trade deficit, analysts think Nigerian border restriction has significantly damaged trade performance and price level.
Since the introduction of border closure measures in August 2019, Nigeria has recorded four consecutive trade deficits as the border-closure effects reflected in trade figures.
While Nigerian government has indicated plan to lift the policy in 2021, analysts project a negative trade position in the fourth quarter of 2020.
Nigeria’s border closure policy has failed to achieve government predetermined objective of lifting the local productivity and protect the home economy.
Instead, average price level has worsen as inflation rate peaked at 14.23% in October after 14th consecutive rise.
Also, trade performance has weakened, non-oil sector drive plunged while Naira remains unable to finding true value.
It is not however impossible to see another trade deficit in the first quarter of 2021 as stakeholders adjust to new policy.
In a macroeconomic note, Vetiva Capital observed that recent deficits were however reinforced by the pandemic-induced plunge in crude exports as OPEC+ production limits.
This include compensation for earlier overproduction, constrained the country’s export capacity.
Despite recovering by 34.8% quarter on quarter from pandemic lows of Q2-2020, total exports in Q3-2020 stood 43.41% lower year on year.
This came on the back declining crude oil production which came at 1.6mb/d in Q3-2020 as against 2.0mb/d a year earlier.
It also of interest to note that global prices of oil printed at $42 in Q3-2020 compare to $61 in Q3-2019, a significant revenue loss below pre-pandemic levels.
On the other hand, imports grew sharply by 33.8% quarter on quarter and 38.0% year on year driven majorly by demand for machines, chemical & allied products, and mineral products as well as a drop in the value of the Naira.
China was responsible for 30.5% of total imports while India outpaced Spain as Nigeria’s major export partner.
“We expect an extension of the deficits into Q4’20 while in 2021, the relaxation of border restrictions could abate supply-side inflationary pressures, improve trade volumes, and fast-track recovery in trade, which has been on a five-year recessionary path”, Vetiva capital posited.
Read More: Nigeria Records Third Consecutive Quarter of Negative Trade Balance
In its macroeconomic report, Cowry Asset Management Limited tasks government to activate policies to boost locally-made product to stem rising demand for imported goods.
The firm observed that foreign trade deficit worsened in Q3 2020, despite the rise in crude oil prices, amid the rise in import bill.
“We are yet to see sufficient improvement on the export side as the impact of COVID-19 pandemic and the Endsars protest still lingers”, Cowry Asset stated.
Thus, the firm said Nigeria needs to activate infrastructure and policies that would enhance the quality of locally-made products, for global competitiveness, in order to increase export proceeds and stabilize its currency.
The recent trade data shows that Nigeria’s importation of goods and services increased so fast that export level seems insignificant.
The National Bureau of Statistics (NBS) foreign trade statistics report showed that merchandise goods worth N8.37 trillion were traded in Q3 2020.
This was 34.15% higher than N6.24 trillion recorded in Q2 2020 (but 8.85% lower than N9.19 trillion printed in Q3 2019.
Of the total goods traded, value of exports increased in the third quarter by 34.85% when compare with performance in the second quarter of 2020.
But this translated to 43.41% drop when compare with the level recorded a year ago.
Export value rose to N2.99 trillion in Q3 2020, while the value of imports rose by 33.77% in the third quarter as against second quarter.
That implies 38.02% increase to N5.38 trillion in Q3 2020 as against the level of importation recorded a year ago.
The trade figure resulted to a higher trade deficit of N2.39 trillion in Q3 2020 from a N0.42 trillion trade deficit in Q2 2020, a complete reversal from a N1.39 trillion trade surplus printed in Q3 2019.
According to the report, crude oil exports which increased 56.04% in the third quarter above volume exported in the second quarter of 2020 to N2.42 trillion, but fell 35.30% when compare with value of export in the Q3-2019.
NBS data however indicated that value of export constituted 81.02% of total export value in Q3 2020.
The breakdown shows that Non-crude oil exports decreased by 14.64% in the third quarter as against record for second quarter of 2020.
This also translated to a 63.12% when compare to non-crude oil export value reported a year ago.
Data shows that non-crude oil export printed at N0.57 trillion in Q3 2020, thus constituting 18.98% of the total export value.
Further breakdown of the non-crude oil exports showed that manufactured goods, which has the highest weight, registered a decline of 47.67% and 86.66% to N132.99 billion in Q3 2020 from N254.18 billion and N996.78 billion in Q2 2020 and Q3 2019 respectively.
On the import side, capital goods bill (machinery for the production of other goods and transport equipment) which constituted 35.56% of the total imports rose to N1.93 trillion in Q3 2020 from N1.59 trillion in Q2 2020 (and from N1.84 trillion in Q3 2019).
Import bills on Chemicals & related products, Food & live animals and Manufactured goods, constituting 19.28%, 15.16% and 9.74% respectively, rose to N1.04 trillion, N0.82 trillion and N0.52 trillion respectively in Q3 2020 from N0.78 trillion, N0.65 trillion and N0.48 trillion respectively in Q2 2020 (and from N0.56 trillion, N0.38 trillion and N0.34 trillion respectively in Q3 2019).
Europe and Asia continued to dominate Nigeria’s export destinations; even as export value to the Europe rose sharply by 26.57% to N1.24 trillion in Q3 2020 from N0.97 trillion in Q2 2020 (but moderated from N1.86 trillion in Q3 2019).
Also, exports to Asia ballooned by 52.46% to N1.12 trillion in Q3 2020 from N0.73 trillion in Q2 2020 (but fell from N1.36 trillion in Q3 2019).
Of the total exports in the Europe and Asia, Spain and India recorded the highest trades: exports to Spain and India were N0.33 trillion and N0.50 trillion respectively.
Meanwhile, value of exports to African countries increased to N0.44 trillion in Q3 2020, from N0.40 trillion in Q2 2020 (but fell from N1.45 trillion in Q3 2019).
Elsewhere, crude oil prices headed for a sixth consecutive week of gains despite Moody’s expectation that crude oil price may hover around USD45 per barrel in 2021.
The West Texas Intermediate (WTI) crude price rose w-o-w by 2.49% to USD46.78 a barrel given the 3.03% w-o-w rise in US crude oil input to refineries to 14.44 mb/d as at December 4, 2020 (albeit, It declined y-o-y by 13.05% from 16.59 mb/d as at December 6, 2019).
Also, Brent price rose by 4.56% to USD50.93 a barrel as at Thursday, December 10, 2020 even as Bonny Light increased by 4.15% to USD50.70 a barrel.
However, we saw the U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) rose by 3.11% w-o-w to 503.23 million barrels as at December 4, 2020 -also, inventories have risen by 12.35% y-o-y from 447.92 million barrels as at December 6, 2019.
After 4x Deficits, Analysts say Border Restriction Hurts Trades, Price Level
