External reserves dip by 6.1% in Q3 – CBN

In a report by the Central Bank of Nigeria (CBN), which highlights some major developments in the external sector of the Nigerian economy during quarter two (Q2) 2013, Nigeria’s external reserves declined by 6.1% with trade balance reducing to 8.9. The report, which takes results of Q3 in comparison with the levels recorded in Q1, 2013 and Q2, 2012, said the external account remained strong, though with volatile huge financial inflows, relatively robust external reserves and current account surplus.

Notwithstanding, the sector experienced severe pressures in Q2, reflected in huge payments for imports especially fuel and food items, as well as the negative net outcome in the services and income accounts. Consequently, the overall balance of payments swung into a deficit equivalent to 4.1% of the gross domestic product (GDP).

External reserves, at US$44.96 billion, declined by 6.1%, while trade balance, as a percentage of GDP, reduced from 15.8% in Q1 2013 to 8.9%. The stock of external debt trended upwards to US$6.92 billion but within sustainable level. The computed indices of NEER and REER, and major indicators of integration declined in the quarter. Against this backdrop, there is the need to put in place a comprehensive backward integration production strategy to enhance domestic manufacturing output that would curtail huge import bills, while ensuring that refineries are functional and optimal to reduce fuel importation. In addition, more emphasis should be on value-reorientation towards increased patronage for domestically produced goods.

Current account

The report stated that at US$5.01 billion, the estimated current account balance, declined by 26.3% from the level recorded in Q1 2013. This development was traced to the higher import bills and lower export earnings arising from the decline in crude oil production from 2.05 million barrels per day (mbpd) in Q1 2013 to 1.93 mbpd on account of production shut-ins and crude oil theft.

Further analysis revealed that aggregate imports increased by 21.3% from US$11.30 billion recorded in the preceding quarter to US$13.71 billion. It however, declined by 11.7% when compared with the level recorded in the corresponding quarter of 2012. Aggregate exports declined by 6.4% and 8.8%, respectively, when compared with the preceding quarter and corresponding quarter of 2012.

However, the deficit in the income account narrowed significantly from US$4.97 billion and US$6.00 billion recorded in Q1 2013 and Q2 2012, respectively to US$2.95 billion owing to lower repatriation of dividends and distributed branch profits by foreign investors. The deficit in the services account also narrowed relative to Q2 2012 but widened when compared with the level in Q1 2013, while the surplus in the current transfers account increased when compared to the levels recorded in the preceding quarter and the corresponding period of 2012.

Capital and financial accounts

Estimated capital and financial accounts balance registered a net liability of US$3.54 billion, equivalent to 5.0% of GDP as against net assets of US$2.19 billion and US$3.34 billion recorded in Q1, 2013 and Q2, 2012, respectively

Total financial assets representing financial outflows declined by 46.0% and 56.5%, respectively from the levels recorded in Q1 2013 and Q2 2012 as a result of the decline in external reserves by 6.1%. Direct investment abroad declined from US$0.36 billion and US$0.59 billion recorded in Q1 2013 and Q2 2012, respectively, to US$0.15 billion in the review period due to the sluggish global economic recovery.

However, portfolio investment abroad increased significantly from US$1.07 billion and US$0.79 billion recorded in Q1 2013 and Q2 2012, respectively to US$2.72 billion in the review period, reflecting the urge of resident Nigerians to take advantage of the cheaper financial assets abroad.

Total financial liabilities representing financial inflows increased by 2.8% and 71.8%, respectively when compared with the levels recorded in Q1 2013 and Q2 2012. Foreign direct investment inflows increased from US$1.29 billion and US$0.83 billion recorded in Q1 2013 and Q2 2012, respectively to US$1.47 billion in the review period due to renewed confidence of foreign investors and conducive macroeconomic environment. Short-term capital inflows declined by 4.4% from the level recorded in Q1 2013 but increased by 71.8% when compared with the level recorded in Q2 2012. In addition, the net FDI for Q2 2013 was US$1.32 billion as against US$0.94 billion in Q1 2013. The net portfolio investment however, declined from US$5.76 billion in Q1 2013 to US$3.81 billion in the review period.

Integration of the economy

The indicators of integration i.e. share of total trade, trade balance, exports and net flows as percentage of GDP declined in Q2 2013 to 50.6%, 8.9%, 29.8% and 35.9%, respectively compared with their levels in the preceding quarter. In contrast, imports and total foreign exchange flows as percentages of GDP increased to 19.3% and 71.5%, respectively during the review period.

The degree of openness, depicting the share of Nigeria’s total external trade to GDP, was 49.0% in the review period; as against 55.0% and 60.0% recorded in the preceding quarter and corresponding quarter of 2012, respectively. The decline in major indicators revealed the non-competitive nature of the external sector and low productive base of the real economy constrained by supply factors.

FDI and portfolio inflows

Aggregate foreign capital inflows stood at US$7.79 billion as against US$7.58 billion and US$4.53 billion recorded in Q1 2013 and Q2 2012, respectively. Of the total capital inflows, portfolio inflows remained dominant and accounted for 83.7 per cent of the total, while FDI inflows accounted for the balance.

Further analysis revealed that FDI inflows at US$1.47 billion, increased from US$1.29 billion and US$0.83 billion recorded in Q1 2013 and Q2 2012, respectively. Estimated portfolio investment inflow declined by 4.4% from US$6.82 billion in Q1 2013 to US$6.52 billion in Q2 2013, but increased significantly over the level recorded in Q2 2012. The continued dominance of portfolio investment in aggregate foreign capital inflows suggests the need to put in place a durable framework for managing short-term capital inflows.

Currency composition of foreign exchange reserves

The US dollar holdings in external reserves at US$38.25 billion constituted 85.1% of the total during the review period. Other currencies in the basket and their shares included Euro US$2.53 billion (5.6%), SDR units US$2.52 billion (5.6%), Chinese Yuan US$0.87 billion (1.9%) and GB Pounds US$0.76 billion (1.7%).

Further analysis revealed that the reserves portfolio was dominated by fixed deposits (53.3%), funds under Asset Management (19.6%) and current account (10.1%) as well as Sovereign Wealth Fund (SWF) (2.0%).

[Telegraph Nigeria]

Related Posts

• 

  Over 1,000 firms bid for 2017 railway projects
  Over 1,000 firms bid for 2017 railway projects
• 

  NAICOM moves to enforce compulsory insurance of public buildings
  NAICOM moves to enforce compulsory insurance of public buildings
• 

  Reps ask NPA to reverse termination of agreement with Intels
  Reps ask NPA to reverse termination of agreement with Intels
• 

  SEC suspends Oando shares from stock market
  SEC suspends Oando shares from stock market