Oil Exports and Current Account Balance, By Uddin Ifeanyi

Given the disproportionate weight of trade in the calculation of the current account and the fact that approximately 90% of our exports are made up of minerals, the temptation is to read in the current account figures for the first quarter signs of improvement in the state of the national economy. fundamentals. Again, given the other downside risks to the economy (rising insecurity, inflation and unemployment), any such improvement is significant.

What to do with the fact that the nation’s current account balance turned positive in the first quarter of this year after three consecutive quarters in the red? Basically, the current account balance is a measure of the inflows and outflows of three cross-border expenditure lines. The difference between the export and import into Nigeria of goods and services is the first of these expense lines. And, generally, the trade balance accounts for much of the movement and direction of the current account balance. The difference between the income received by national entities abroad and the income paid to their counterparts abroad also appears in the current account balance. Just like net transfers.

Given the disproportionate weight of trade in the calculation of the current account and the fact that approximately 90% of our exports are made up of minerals, the temptation is to read in the current account figures for the first quarter signs of improvement in the state of the national economy. fundamentals. Again, given the other downside risks to the economy (rising insecurity, inflation and unemployment), any such improvement is significant. Basically, a positive current account balance means we’ve increased our claims on foreign assets over the review period, more than foreigners have made their claims on domestic assets – not a bad place for an economy struggling with an increasingly unusable environment. debt burden.

Given the concern in the economy over the apparent disruption of the link between higher crude oil prices on world markets and an improvement in the fortunes of the national economy, what should we think of the that, according to a report, the “value of exports of mineral products in the first quarter of 2022 was two and a half times the product of exports of mineral products in the corresponding period of 2021”?

As it happens, the positive Q1 current account figure was the result of nothing more sophisticated than exports growing faster than imports in the three months to the end of March 2022. At ₦7.10 trillion , the former was up ₦1.33 trillion from the ₦5.77 trillion recorded in the last quarter of last year. During the same period, imports fell by 39.76 trillion naira from 5.94 trillion naira to 5.90 trillion naira. Year-on-year, the respective changes were an increase in exports of 4.12 trillion naira, from 2.98 trillion naira in the first quarter of last year to 7.10 trillion naira. nairas at the same time this year. Imports also increased by N1.03 trillion to N5.90 trillion from N4.88 trillion in the first three months of last year.

As usual, exports of mineral products accounted for 90% of total exports in the first quarter of the year. The crude oil component of it increased by 3.58 trillion naira, from 2.04 trillion naira in the first quarter of 2021 to 5.62 trillion naira during the same period this year. Given the concern in the economy over the apparent disruption of the link between higher crude oil prices on world markets and an improvement in the fortunes of the national economy, what should we think of the that, according to a report, the “value of exports of mineral products in the first quarter of 2022 was two and a half times the product of exports of mineral products in the corresponding period of 2021”?

…despite positive global oil prices and (recently) a current account balance, the country’s gross external reserve balance continues to stagnate. While this may raise additional concerns about the medium-term outlook for the naira exchange rate, it should be recalled that the country’s adoption of unorthodox monetary policies…explains both the depletion of reserves and the naira comatose state.

This question is best answered by identifying the main driver of this development. The Organization of the Petroleum Exporting Countries (OPEC) reports domestic oil production in the first quarter of this year at 1.38 million barrels per day (mb/d). That is to say higher than the production levels of the third (1.34 Mb/d) and fourth (1.32 Mb/d) quarters of last year. Even then, that’s very different from the 1.41 mb/d that OPEC records show the country produced in the first quarter of last year. Clearly, these much lower production levels mean that the increase in the value of exports in the first quarter of this year compared to the same period last year is a higher price play. The structural constraints with which the economy has struggled over the past seven and a half years are still an albatross around its neck. This raises a number of points of concern.

The first is that despite positive global oil prices and (recently) a current account balance, the country’s gross external reserve balance continues to stagnate. While this may raise additional concerns about the medium-term outlook for the naira’s exchange rate, it should be recalled that the country’s adoption of unorthodox monetary policies, particularly with regard to exchange rate management , explains both the depletion of reserves and the decline of the naira. comatose state. Still, it matters that OPEC continues to signal declining crude oil production levels out of the country. Despite the promise of a global energy transition, hydrocarbon exports will continue to impact economic prospects in the short to medium term. Yet in May this year, OPEC reports domestic crude oil production of 1.26 million barrels per day. Down from 1.31mb/d recorded in April, and 1.34mb/d recorded in March.

Uddin Ifeanyi, missed journalist and retired civil servant, can be reached @IfeanyiUddin.