Nigeria’s trade surplus nears 4-year high as oil exports rise

Nigeria’s trade surplus surged to the highest in nearly four years in the second quarter of this year, a BusinessDay analysis of the latest foreign trade statistics report has shown.

The National Bureau of Statistics (NBS) report shows that the country recorded a positive trade balance of N1.29 trillion for the third straight quarter in Q2, a 38.7 percent increase from N927.2 billion in the previous quarter. It rose by 27.7 per cent from N1.01 trillion on a year-on-year basis.

A trade surplus, an economic measure of a positive trade balance, occurs when a country’s exports exceed its imports.

A report breakdown revealed that total exports, contributing 55.1 per cent to total merchandise trade (N12.7 trillion), grew by 8.2 per cent to N7.01 trillion in Q2 from N6.48 trillion in Q1.

Imports’ trade share of total trade accounted for 44.9 per cent of real work as it rose marginally by 2.9 per cent compared to N5.72 trillion from N5.55 trillion.

Exports trade was dominated by crude oil exports valued at N5.57 trillion, which accounted for 79.6 per cent of total exports, In comparison, non-crude oil export value stood at N1.43 trillion or 20.4 per cent of total exports, of which non-oil products contributed N688.7 billion, representing 9.82 per cent of total exports.

“The country was bound to have an improvement in exports because of the recovery in the country’s crude oil production and stable global oil prices. Last year, we were doing less than one million barrels per day,” Ayorinde Akinloye, an investor relations analyst at Seplat Energy Plc, said.

Ikemesit Effiong, head of research at SBM Intelligence, an Africa-focused geopolitical research and strategic communications firm, said oil production vastly improved due to a combination of a seasonal spike in European demand and the coming online of critical Nigerian crude grades, which have been under “force majeure.”

“It’s worth noting that these trends are unlikely to hold in the medium term because fierce competition from Russian and Middle Eastern crude in the Asian market plus uncertainty in the security environment of key oil producing areas in the Niger Delta is increasingly forcing Nigerian producers to sell crude at a discount,” he said.

Crude oil production is a significant source of revenue for the federal government for Africa’s biggest economy. According to the Nigerian Upstream Petroleum Regulatory Commission, the country produced 1.25 million barrels per day in June from 998,602 barrels per day in April. On a year-on-year basis, it also rose from 1.16 million barrels per day in June 2022.

Data from information websites like Oilprices.com and statistics show that global Brent oil prices averaged $74.84 per barrel in June from 82.5 per barrel in January.

“Crude oil exports drove the growth in the trade balance. We had experienced low crude oil production last year before the subtle pick up this year,” Abiodun Keripe, managing director at Afrinvest Consulting Limited, said.

He added that the marginal growth in imports due to the Foreign Exchange (FX) liquidity challenges improved exports marginally and a further recovery in the trade balance, which is positive for the economy.

Before the Central Bank of Nigeria collapsed all segments of the FX market into the Investors & Exporters (I&E) window in June, the country’s dollar liquidity crisis worsened on the back of the Russia-Ukraine crisis, which took place last February.

The naira depreciated from 416.52/$1 as of February 28, 2022, to N771.59/$1 on September 7, 2023, at the official market. At the parallel market, popularly called the black market, the dollar was quoted to N925/$1 from N575/$1.

According to a recent survey by the Manufacturers Association of Nigeria, manufacturing activities continue to suffer due to the persisting scarcity of forex and further naira depreciation.

“Only 14.7 per cent of manufacturers enumerated claimed that the rate at which forex was sourced improved in Q2; 66 per cent disagreed while 19.3 per cent were not sure if forex sourcing had improved in the quarter under review,” the association said.

It added that the lingering forex scarcity and continuous naira depreciation have left manufacturers bleeding and limited their capacity utilization since importing non-locally produced critical input has become a nightmare.

The FX challenge has hurt the manufacturing sector, said Keripe of Afrinvest. “It has impacted the ability of the manufacturers to import as many key materials that they need for the production of goods.”

According to Israel Odubola, a Lagos-based research economist, Nigeria’s trade surplus is not backed by economic fundamentals.

“It is not because we are producing and earning more in exports. It just shows that we are still very much dependent on oil exports, and so much talk about diversification has not been effective regarding the numbers,” he said.

He added that Nigeria is still an oil-dependent foreign exchange economy and should scale up value addition in non-oil exports to ensure that it has a diversified export base.

The NBS’s trade report highlighted that The Netherlands (N788.9 billion), the US (N718.6 billion), Indonesia (N550.1 billion), France (N540.7 billion) and Spain (N504.5 billion) were the top five export destinations in Q2.

In terms of imports, the top five were China (N1.27 trillion), the US (N921.6 billion), Belgium (N460.4 billion), India (N417.8 billion) and The Netherlands (N369.7 billion).