Nigeria’s Exports Rise 14.2%, Imports Decline by 8.3% in Q1 – Razia Khan

Nigeria’s trade report for the first quarter of 2014 reveals a 14.2 percent quarterly rise in exports, and an 8.3 percent fall in imports during the same period.  
As a result, the trade surplus increased in the firs quarter of 2014 to N2.424 trillion (approximately $15 billion), according to National Bureau of Statistics (NBS) data.  CBN data for the first quarter of 2014 points to some recovery in crude exports over the fourth quarter of 2013 levels, although the price of Bonny Light softened over this time.  
The United States Department of Energy statistics – also available for the first three months of the year, suggests that Nigerian crude output largely flatlined over this time – between 2.3-2.4mbpd, up only very slightly from the range established in the fourth quarter of 2013.  CBN domestic production figures reveal more of an increase, albeit off a lower base.
Despite the increase in Nigeria’s trade surplus, the NGN was largely pressured in the firs quarter of 2014, reflecting sentiment-driven outflows.
More recently, foreign exchange reserves have recovered.  While officials suggest that the rise in foreign exchange reserves is because of continued recovery in crude exports, we believe that improved sentiment towards Nigeria, some recovery in risk appetite, and increased inflows have played a key role.  
The reduction in Bureau de Change (BDC) activity given the increased capital requirement for this sector,  and consequent reduction in local foreign exchange demand, has also helped the recovery in foreign exchange reserves.
Last week, the CBN announced a change in the way that regulatory capital for Nigerian banks would be calculated.  ‘Regulatory risk reserves’ will be excluded from any assessment of capital adequacy.  Tier 2 capital will be limited to 33.3 percent of Tier 1 capital. Impaired loans and receivables will be deducted from capital.  In addition to these announced measures, the capital adequacy ratio for systemically important banks has increased.  The overall effect of the new regulation will be to increase the capital-raising of banks.  Tier 2 debt issuance has already increased, with an increasing number of banks able to raise their dollar funding.  More foreign exchange-denominated issuance is still anticipated.  Moreover, the cap on Tier 2 capital will mean – potentially – more equity capital raising, encouraging more long-term, ‘stickier’ inflows.
However, the supportive role of increased inflows may need to be balanced against other factors.  Easy liquidity conditions domestically will need to be monitored carefully, especially as the election cycle (and party primaries) get underway.  Global risk appetite, and any adverse market reaction to Fed guidance on policy normalisation poses an additional risk.  For now however, we see higher inflows, and some reduction in domestic foreign exchange demand (relative to the first quarter 2014), as key factors supporting the naira. 

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