Why Nigeria’s trade sector exited recession in Q3 2018

The Central Bank of Nigeria (CBN) intervention in the Foreign Exchange (FX) market, improvement in profit margins of businesses, stability in prices and amongst others may be the reason for the positive growth in the trade sector, economic experts said.

Johnson Chukwu, CEO, Cowry Asset Management Limited said, towards the third and fourth quarter of the year the demand for goods improved.

“The bottlenecks in FX that hinder trade activities to a large extent reduced in the third quarter so there was easier access to foreign exchange and a downward  movement with some stability in price levels, so these factors contributed to the demand of goods and services in the trade sector which corresponded to a positive growth in the sector ,” Chukwu added.

The trade sector exited recession for the first time in 2018 after recording two negative growth rates.

From the report, it grew by 0.98 percent in Q3 2018 after contracting by -2.14 percent and -2.57 percent in Q2 and Q1 respectively, making it the second positive growth since it existed recession in Q2 2017.

“There was a delayed impact of CBN’s intervention in the FX market. So we are now bringing to see the effect now .Dollar supply has improved for businesses generally. For example, there are some businesses in Nigeria that does not produce, they just buy from abroad and sell,” Ibrahim Tajudeem, Head of Research, Chapel Hill Denham said

“So for those ones, a lot of them have been able to have access to FX because of CBN intervention in the market. It has begun to have positive impact in the economy,” Tajudeem further said to BusinessDay in a telephone interview.

The low purchasing power and consumer spending in the economy had been attributed for the two negative growths in the previous quarters which prompted a reduction in trade activities.

From the CBN’s Consumer Expectation Survey (CES) report for Q3 2018, consumers’ overall confidence in the economy grew by 12.0 basis points to 1.5 index point in Q3 2018 a reversal from the -10.5 index point recorded in the corresponding period in 2017.

“The trade sector which is  the second biggest is positive and this is very good meaning that profit margins are improving .I suspect that there is a lot of people are beginning to buy this locally,” Ayo Akinwunmi, Head of Research, FSDH Merchant Bank said

Tajudeem is optimistic that there will be a sustained positive growth in the trade sector for q4 due to the trade conditions that are still existing in the sector.

Bunmi Bailey