Nigeria’s trade surplus has reached its highest point in five years and three months, driven predominantly by the devaluation of the naira, according to a recent analysis of foreign trade statistics by BusinessDay. The National Bureau of Statistics (NBS) reported a positive trade balance of N1.89 trillion in the third quarter of this year, marking a substantial 166.2 percent increase from the previous quarter. This surge in trade surplus is attributed to increased exports, particularly in crude oil, coupled with a weakened naira against major foreign currencies. The analysis delves into the factors influencing this economic shift and its implications for Nigeria.
Key Points:
Trade Surplus Soars: Nigeria sustained a positive trade balance of N1.89 trillion for the fourth consecutive quarter in Q3, exhibiting a remarkable 166.2 percent growth from the previous quarter. This improvement is seen against the backdrop of a year-on-year shift from a trade deficit of N409.4 billion to a surplus.
Naira Devaluation Impact: The analysis highlights the crucial role of the naira’s devaluation in contributing to the trade surplus. The official exchange rate has significantly weakened, increasing from N463.38/$ to N927.19/$. This depreciation has made exports more lucrative, as the country receives more naira for each export dollar.
Trade Activity Increase: The NBS report attributes the surge in total trade to heightened export and import activities, with a notable focus on crude oil exports. Despite a decline in non-oil exports, the overall trade balance benefited from increased trade within the period.
Impact on Current Account: The analysis emphasizes that a positive trade surplus is favorable for Nigeria’s current account, helping to alleviate external pressures. The article discusses the significance of stable crude oil prices and a gradual recovery in oil production in contributing to the overall trade surplus.
Inflation and FX Challenges: The high cost of sourcing foreign exchange (FX) is noted as a major factor contributing to Nigeria’s inflation rate reaching an 18-year high in October. The article explains how a weaker naira is expected to attract more dollar inflows, contributing to an improvement in exports.
Conclusion/Analysis:
Nigeria’s impressive trade surplus in the third quarter of 2023, reaching a five-year high, signifies a significant economic shift largely attributed to the devaluation of the naira. The analysis explores the interconnected factors, such as increased crude oil exports, a weaker official exchange rate, and heightened trade activities, that have contributed to this positive trend. While the trade surplus is welcomed for its potential to alleviate external pressures, the article acknowledges the challenges, including inflationary pressures and the high cost of FX, that accompany this economic transformation. The implications of these developments on Nigeria’s broader economic landscape and its ongoing efforts to stabilize and diversify the economy are crucial considerations as the nation navigates the complexities of global trade dynamics.