Nigeria’s Compliance with OPEC Rules to Widen Trade Gap –Analysts
President Muhammadu Buhari

Nigeria’s Compliance with OPEC Rules to Widen Trade Gap –Analysts

Compliance with the Organisation of the Petroleum Exporting Countries (OPEC) would widen trade gap, analysts at Vetiva Capital Management Limited has noted.

The investment firm stated this in its macroeconomic note while reacting to declining foreign trade as deficit hits widest since 2015.

Against the backdrop of the COVID-19 pandemic, Nigeria’s total trade in the first-half of the year plummeted 12% from one year ago, the National Bureau of Statistics (NBS) reported.

Although trade flows were lower, imports were higher by 11% in the period while exports declined considerably at 31% year on year.

This resulted in a ₦2.2 trillion foreign trade gap in the first half of 20, indicative of the second annual deficit since the 2014/2015 oil price slump, and the widest at -3.2% of GDP.

Nigeria’s Compliance with OPEC Rules to Widen Trade Gap –Analysts
President Muhammadu Buhari

On a half-year basis, the value of crude oil exports dropped by 38%, resulting in a reduction in its contribution to total exports to 71% in the first half of 2020 from 80% in in the equivalent period in 2019.

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Vetiva said in the review that the weaker contribution of crude oil was due majorly to the coronavirus induced slump in oil prices.

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Meanwhile, the review of the data shows that the decline in crude oil’s composition of exports resulted in the increase in the composition of non-crude oil and non-oil exports, though the value of non-crude oil exports declined on an annual basis by 1%.

“We expect Nigeria’s foreign trade gap in FY’20 to be the widest as we envisage that recovery in oil demand – and by extension prices – will remain sticky due to a resurgence of coronavirus cases which can slow the pace of the currently anticipated recovery in the global economy”, Vetiva Capital noted.

Analysts stated that though trade data from some advanced economies suggests that global trade could be on a recovery path, Vetiva Capital believes Nigeria’s foreign trade flows could take a longer time to recover, given a still weak global growth and demand backdrop.

Vetiva explained that a good indicator is Nigeria’s Purchasing Managers’ Indices – for both manufacturing and non-manufacturing – whose uptrend in the third quarter of 2020 suggests that there’s a desire to get back to normalcy, but the back-to-back below-50 readings is indicative of reluctance to really embrace the budding recovery.

The impact of the anticipated deficit in foreign trade could also be accentuated by mandatory compliance with OPEC production cuts, as compensation for earlier overproduction, contributing to the uncertainty of a rebound in the country’s foreign transactions flows.

As such, merchandise could be a major drag on economic growth in the year, Vetiva Capital stated.

Nigeria’s Compliance with OPEC Rules to Widen Trade Gap –Analysts