There is a silver lining that the country’s trade deficit could shrink on the back of a benign crude oil price and the central bank’s stringent policies on importation as lack of industrialization continues to spur the demand for foreign goods.
Nigeria’s trade balance closed at a deficit of $7.3 billion, its highest deficit since the last recession in 2016, according to the latest report by the National Bureau of Statistics (NBS).
The reduction in trade comes as no surprise considering supply and demand shocks that rocked global trade in the early parts of 2020.
Analysts at United Capital Research are of the view that administrative measures on importations, implemented by the central bank since the beginning of the pandemic, may moderate the pace of increases in the import bill, thus, reducing the size of the deficit going forward.
The country’s total import value rose by 17.9% as at December (FY) 2020, primarily due to a 6.5 percent rise in the value of manufacturing goods imported (63.6 percent of import bill).
The acceleration of import is to structural bottlenecks and insecurity that continues to undermine industrialization.
Nigeria’s economy came under pressure after the coronavirus pandemic significantly undermined crude oil demand and paralyzed business activities across the country as the government imposed a lockdown policy to curb the spread of the virus.
As a result of the lockdown measures, the economy slipped into its second recession in less than six years in the third quarter of 2020, but a rebound in oil price on the back of OPEC and allies production cut and gradual reopening of the economy and contribution from key sectors helped the country exit the recession.
While a rebound in crude oil price and central bank policies are expected to shrink the balance of payment deficit, at CSL Stockbrokers expect weaknesses in the trade account to persist.
“we expect the weakness in the trade account to persist, due to the nation’s compliance with OPEC’s production cuts amidst continued reliance on imported raw materials, manufactured and capital goods,” said the analysts.