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Developments in the External Sector of the Nigerian Economy - Q3 2013

Category: Regulators


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Developments in the External Sector of the Nigerian Economy - Q3 2013

Wednesday, February 5, 2014 05.28PM / CBN

Introduction

The major developments in the external sector of the Nigerian economy during Q3 2013 are highlighted in this Report in comparison with developments in Q2 2013 and Q3 2012.

The external account was slightly under pressure as reflected in the draw-down in external reserves and reduced capital inflows although the overall position posted a lower deficit of US$0.9 billion compared with US$2.94 billion in Q2 2013.

The current account was however, in surplus, equivalent of 12.7 per cent of GDP while the transactions in capital and financial account resulted in a net capital inflow of US$1.1 billion in Q3 2013 compared with US$1.8 billion in Q2 2013. The foreign exchange market remained relatively calm as the premium between the wDAS and inter-bank rates was below the tolerable limit of 5.0 per cent.

External debt stock continued to trend upwards at US$8.26 billion, but within sustainable level. Policy direction should be on an efficient debt management strategy as well as reinforcing the institutional arrangements that would attract long-term foreign capital (FDI) while effectively managing the likely shock from the volatile short-term inflows.

Current Account

The sustained current account surplus at US$9.04 billion, equivalent of 12.7 per cent GDP, was lower than the 14.01 and 13.46 per cent of GDP recorded in Q2 2013 and Q3 2012, respectively.

The main drivers were the reduction in imports, lower deficits in the ser-vices and income accounts and increase in cur-rent transfers all of which compensated for the decline in the earnings from oil and gas exports.

Aggregate exports declined from the level in the preceding quarter by 7.1 per cent accounted for by both the oil and gas (7%) and non-oil (13%) components.

Similarly, imports and deficits in the services and income accounts contracted by 8.9, 1.9 and 10.5 per cent, respectively. The surplus in the current transfers in-creased marginally by 1.1 per cent above the level recorded in the preceding period.

Capital and Financial Accounts

Transactions in the capital and financial account recorded a lower net liability of US$1.10 billion or 1.5 per cent of GDP. Total financial assets representing financial outflows declined by 43.8 per cent from US$6.78 billion recorded in Q2 2013 to US$3.81 billion in the review period, and were much lower than the US$15.39 billion posted in Q3 2012.

Direct investment abroad increased by 34.6 per cent from US$0.15 billion in Q2 2013 to US$0.21 in the review period. However, portfolio investment assets declined by 20.9 per cent from US$2.72 billion in Q2 2013 to US$2.15 billion.

Aggregate financial liabilities representing foreign capital inflows stood at US$4.91 billion in Q3 2013 as against US$7.5 billion and US$8.58 billion in Q3 2012 and Q2 2013. Both foreign direct investment and portfolio investment components declined, by 41.3 and 52.3 per cent, respectively, below the levels recorded in the preceding quarter.

External Trade

Provisional data revealed that Nigeria’s trade balance declined from US$10.60 billion in Q2 2013 to US$9.86 billion in Q3 2013. Trade balance as a percentage of GDP declined from 19.07 per cent in Q3 2012 to 16.20 per cent in Q2 2013 and 13.79 per cent in Q3 2013.

This development could be attributed to the decline in aggregate export proceeds induced by the fall in oil exports and reflected the country’s over-dependence on oil exports and the need for the diversification of the Nigerian economy.

Integration of the Economy

The indicators of integration- share of total trade, exports, imports, total foreign exchange flows and net flow as percentage of GDP declined in the review period to 57.7, 33.7, 18.1, 72.5 and 35.2 per cent, respectively, compared with their levels in Q2 2013.

This implies that the Nigerian economy is well integrated into the global economy and should be sustained through policies that will enhance increased domestic production.

FDI and Portfolio Inflows

At US$4.91 billion in Q3 2013, aggregate foreign capital inflow declined by 42.8 per cent from US$8.58 billion in Q2 2013 due to the decline in both direct investment and portfolio investment inflows. Direct investment inflow declined from US$1.47 billion in Q2 2013 to US$0.86 billion in the review period.

Similarly, portfolio investment inflow declined by 52.3 per cent from US$6.52 billion in Q2 2013 to US$3.11 billion in the review period. Other investment inflows increased by 59.5 per cent from US$0.58 billion in Q2 2013 to US$0.93 in Q3 2013.

Portfolio investment inflow remained dominant and accounted for 63.4 per cent of total foreign inflows while direct investment inflows accounted for 17.6 per cent of total. Other investment inflows accounted for the balance.

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Tags: Nigerian Economy,  external sector,  CBN ,  financial account,  net capital,  wDAS,  inter-bank,  stock,  FDI, 



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