NSR Q4 2017 (5) – Balance of Payment to Survive Murky Waters

Thursday, October 12, 2017 09:28 AM / ARM Research


With data on the economy set to be released in
coming periods, we expect crude export to consolidate gains from the first full
quarter of Forcados re-opening in Q3. In line with this, recent production
estimates are already pointing to crude production of ~1.9mbpd in Q3 17 (+3%
QoQ). However, with mean crude prices having remained relatively stable over
the past three months (+1% QoQ to $51.28), we see scope for only 4.3% QoQ
growth in exports to $11.3 billion in Q3 17E.

On imports, despite the huge dollar sales thus
far in 2017, CBN’s dollar cash inflow numbers (+5.8% MoM to $3.9 billion in
July alone) still present ample re-assurance that ongoing interventions would
be sustained in the near term. This, combined with continued improvements in FX
liquidity, FPI flows, and rising reserves (+1.8% QTD to $30.8 billion), leaves
scope for continued USDNGN stability and availability in the coming months—with
knock-on effect likely to further buoy imports (+9% QoQ to $9.5 billion in Q3
17) and leave Nigeria’s trade surplus 15% narrower QoQ at $1.79 billion.

Overlaying the implied goods trade surplus with
target services and income deficits of $3.6 billion and $3.2 billion
(respectively 4.1% and 3.6% of forecast Q3 16 GDP) as well as net current
transfers of $6.2 billion, we expect the country’s current account to print at
$1.36 billion (Q4 17: $1.1 billion) and 1.3% of GDP in Q3 17 (Q4 17: 1.1%). On
the financial account, we expect a combination of improving economic picture
and flexible exchange rate system to sustain the demand for naira-denominated
assets over the coming months.

Specifically, flows to equity should be buoyed
by the gradual reduction in clearing rates at CBN auctions, and high levels of
maturities expected over the first half of 2018. In our view, all three
variables should stoke downward pressure on yields and increase the viability
of equities as an investment option—especially with the outlook for earnings
still positive across select names.

Overall, despite the expected moderation in
current account surplus—which should subsist into H1 18 in our view, projected
improvement in financial account picture suggests little downside risk for the
naira in the near term.

Proshare Nigeria Pvt. Ltd.

From ARM’s H2 2017 Nigeria
Strategy Report

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