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Khan, Rewane list conditions for improved trade figures

By BusinessNews Staff on August 18, 2014

As the euphoria of the favourable trade report for the first quarter of the year, which was released last week simmers, leading economists and watchers of the Nigerian economy said at the weekend that the positive development can only last if urgent steps are taken to develop new sources of export growth.

The trade figures released by the Nigerian Bureau of Statistics showed that for the first quarter of the year, a 14.2 per cent quarter-on-quarter rise in exports was recorded with 8.3 per cent quarter-on-quarter fall in imports. As a result, the trade surplus increased in first quarter 2014 to N2424billion (approximately $15billion), according to NBS data.

Similarly, CBN data for Q1 2014 also points to some recovery in crude exports over Q4 2013 levels, although the price of Bonny Light softened over this time.
As at last week, external reserves was put at $39.6billion while the nation’s crude oil import, Bonny Light sold for $102.1 per barrel.

But in an interview with THISDAY, Managing Director, Head, Africa Macro Global Research, Standard Chartered Bank, Razia Khan, who attributed the impressive trade figures to the foreign reserves accretion made possible by the rise in value of Nigeria’s oil exports, said that reserves accretion will not be impossible – after all, if Nigerian growth is sustained.

This, according to her, should attract greater investment, warning, however, that unless new sources of export growth emerge, medium-to-long term reserves accretion will be tougher.
Given the fact that nearly 82 percent of the earnings on exports was made up of proceeds from oil, the Standard Chartered chief warned that “Nigeria is still vulnerable, because of its de facto single commodity dependence. Any severe disruption to oil earnings will still pose wider risks to the economy, especially with more banks and an increasing number of large corporates that rely heavily on external (USD-denominated) borrowing.”

She is of the opinion that the uncertainty over future fiscal terms and the non-passage of the PIB have impacted investment spending in Nigeria’s oil sector – with implications for future production levels. All of this combined, she stated, leaves Nigeria more vulnerable to any downward move in the oil price.

She noted that since 2011, oil prices have largely flatlined, adding that even recent events in Iraq have not provided much of a lift to prices.

“The medium-term outlook is therefore more of a concern. While the CBN’s outlined plans to cut imports by boosting domestic production are commendable, more sources of export growth must also be found,” she said.

On the sustenance of the current accretion in the foreign reserves account, Khan said it depends on how much of that reserves accretion is due to short-term portfolio inflows.
According to her, such inflows have helped to satisfy a lot of the FX demand, allowing the CBN to sell less of its reserves, saying if reserves accretion is due in large measure to new portfolio inflows, should Nigeria be tested by outflows, reserves accretion would be put at risk.

The economist also believe that favourable trade figures recorded in the first quarter of the year may be elusive going forward unless events and decisions on the international scene are favourable too.

She said: “Having seen increased offshore capital flows supporting the naira, the big risk that Nigeria faces is a potential deterioration in the external environment. US economic data has largely surprised positively, but has been balanced by a fairly dovish tone from the Fed. If the Fed should have to tighten sooner than the market currently expects, there could be a sell-off in a range of risk assets, and Nigerian markets may be impacted as well.

“If liquidity in Nigeria is loose at the time, if treasury bill yields look less compelling – then Nigeria is unlikely to keep on attracting sizeable new inflows in these circumstances,” she stated.
Another economist who spoke with THISDAY, Managing Director, Financial Derivatives Limited, Mr. Bismarck Rewane, believed the positive trade report for the first quarter can only be maintained when Nigeria ceases to rely on oil exports.

Explaining the figures for the first quarter, Rewane said: “What happened is if you look at that period, oil price increased, not the volume of exports. That was at the height of Iraq and Syrian crises.

In fact we had oil price going as high as $115 per barrel at one point. It is not the volume of exports that increased but it is the value. At the same time, leakages and oil theft were reduced. Remember also that that was the time there were arguments about some missing money. Sanusi was fired on February 14 and you are talking about Q1. Sanusi had started screaming before then about missing oil money and leakages, so all the boys who were involved in the whole thing must have gone underground.”
On the fall in imports, the FDC chief said the nation’s imports fell because “our commodities also reduced and people were not importing that much and don’t forget that Sanusi tightened the rate and that was when the CRR was raised, which means there was no enough liquidity to import.”

[This Day]

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