As the 2015 calendar year gradually proceeds in its third quarter, economists are beginning to predict the possible outcome of its end. Going by administrative measures put in place by the Central Bank of Nigeria (CBN), and its consequent decline in merchandise imports, it is predicted that the situation may continue in the third quarter of the year, raising a prospect of reversing the nation’s current account deficits.
Merchandise trade declined to $12.4billionn in the first quarter from $15.7billion in the previous quarter. Financial experts said this was to be expected, given the average exchange rates in the respective periods of N191.1 and N172.0 per US dollar, explaining that demand for a commodity tends to ease when its price increases.
A financial investment advisory firm, FBN Capital Research, said the regime of import contraction, largely triggered by the complex foreign exchange rules will continue till the next quarter of the year. “The naira exchange rate is not exempt from this general rule despite Nigeria’s voracious appetite for imported goods and services. Even if it was miraculously exempt, the CBN’s circular of June 23 covering the 40 import items has maintained the correlation. Our expectation is that import contraction will continue and that, barring another exceptional net outflow on the income line, the current account will look a little healthier in subsequent quarters this year.”
The FBN Capital report said the CBN’s External Sector Development Report for Q1 2015 shows a current-account deficit equivalent to 2.8 per cent of GDP. This was unchanged from the previous quarter, for which a deficit representing just -0.1 per cent had been previously reported. The deficit was underpinned by a worsening of the net outflow on income. This line on the balance of payments is invariably a negative in Nigeria’s case but the outflow widened from -3.5 per cent of GDP the previous quarter to -5.2 per cent, which the report’s commentary attributed to particularly large remittances of dividends and branch profits.
The research firm said the deficits on the current (and capital) accounts in Q1 help to explain the pressure on the naira exchange rate in the period, and the introduction of additional administrative measures by the CBN such as the scrapping of its bi-weekly forex auctions in February.
According to the Foreign Trade Statistics of the Nigeria Bureau of Statistics (NBS) for the first quarter of 2015 which was released, the rise in exports and decline in imports, however, improved the country’s trade balance which increased by 71.6 percent from the preceding quarter to N1.5 trillion.
Compared with the corresponding quarter of 2014, however, the value of total merchandise trade decreased by N639.5billion or 11.6 percent, while the trade balance decreased by N839.1 billion or 34.6 per cent.
According to the NBS, value of imports stood at N1.64 trillion in Q1 2015, representing a decrease of N385.8billion or 19 per cent from N2.03 trillion recorded in the preceding quarter.
Year-on- year, however, the value of the country’s imports increased by N99.8billion or 6.5 percent from the Q1 2014 value of N1.54 trillion.
On the other hand, the value of exports totalled N3.23 trillion in Q1 2015, representing an increase of N275.6billion or 9.3 per cent over the value recorded in the preceding quarter. Compared to Q1 2014, the value of exports declined by N739.3billion or 18.6 percent.
By Pita Ochai