Q4-2022 sees Nigeria’s External Position Improve with a Return to Surplus

In Q4-2022, Nigeria’s external position improved, as the current account returned to a surplus position, primarily propelled by a higher trade balance surplus and reduced shortfalls in the services and primary income accounts. Specifically, the current account balance attained a surplus of $2.3 billion, a significant turnaround from the $2.1 billion deficit recorded in Q3-2022.

Decomposing the breakdown provided, we highlight that the trade balance settled at a surplus in Q4-2022 ($2.8 billion), compared to the deficit in Q3-2022 ($42.0 million). This shift is primarily attributed to the significant decline in total imports ($11.8 billion vs Q3-2022: $14.2 billion, 17% q/q). In our assessment, we contend that reduced imports during this period resulted from both (1) FX depreciation, (2) persisting FX liquidity challenges arising from diminished FX supply to various market segments and (3) intermittent PMS scarcity inducing low fuel imports.

Elsewhere, within the Services Account, the net deficit balance decreased by 23% q/q (Q4-2022: $3.1billion vs Q3-2022: $4.0billion). In our view, the decrease can be attributed to international airlines intermittently canceling flights due to aviation fuel shortages and concerns about foreign exchange repatriation. Furthermore, we emphasize the decline in travel due to persisting FX depreciation and limited FX supply in the official market.

Turning to the Primary Account, the deficit declined by 34% q/q to $2.3 billion in Q4-2022 (vs $3.4 billion in Q3-2022). This shift primarily stems from a 26% q/q decline in investment income payments to $2.7 billion (vs:  $3.7 billion in Q3-2022), indicating limited dividend and interest repatriation from foreign investors, likely influenced by the Central Bank of Nigeria’s capital control measures during the assessed period.

In the Secondary Income Account, the surplus decreased by 9% q/q Q4-2022 reaching $4.9 billion (vs Q3-2022: $5.5 billion) – marking its lowest figure since Q3-2020 ($4.8 billion), despite a 3.0% q/q rise in workers’ remittances.

Looking ahead, in light of the Nigerian Export-Import Bank’s (NEXIM) efforts to bolster non-oil exports, we expect non-oil exports to boost overall exports in the short-to-medium term. Regarding oil exports, we anticipate that the ongoing challenges hindering their growth will persist in the near term. These include (1) intermittent shutdown of oil terminals due to leakages and (2) volatile crude oil prices due to a global economic slowdown.

There may be an increase in the travel cost deficit due to elevated personal travel linked to the “japa syndrome”; however, costs associated with transportation, business, professional, and technical services are likely to remain stable or moderately increase. Overall, we anticipate a growth in the services account deficit, although it will remain notably lower than pre-pandemic levels.

With a stable near-term economic outlook expected, repatriation of investment income is anticipated to remain stable and not experience sharp increases. Finally, we project remittances are projected to rise, driven by heightened emigration across borders.

Based on the above, we expect the current account balance to be in surplus over 2023. Our estimates under review