Oil Production Narrowing Current Account Deficit


BMI View: Niger's gaping current account deficit is beginning to narrow as oil production begins and economic growth accelerates. While still wide - we forecast a deficit worth 19.3% of GDP in 2013 - the shortfall seems to have bottomed out , even if strong demand for imported capital goods will keep the current account in deficit for the foreseeable future. This view is highly dependent on the speedy reactivation of the Arlit uranium mine, and assumes that the May 23 terrorist attack will not derail planned investments.

The completion of an oil refinery near the town of Zinder in 2012 made Niger one of Africa's newest oil producers. While volumes are still modest at less than 20,000 barrels per day they are enough to make Niger essentially self-sufficient in oil, significantly improving the country's balance of payments position. BMI predicts that a combination of oil exports and increased production of uranium, Niger's key export, will see the country's current account deficit shrink from the 19.3% of GDP we forecast for 2013 to 15.4% in 2017.

Our core forecast is that the recent terrorist attack on the French-owned Arlit mine will not prevent uranium exports from growing due to rising demand, especially in China. Mines in Niger have been targeted before, but the strategic importance of uranium fuel - especially for nuclear-dependent France - has prevented the withdrawal of investment. Were highly damaging attacks to continue, however, a fall in the foreign investment that covers Niger's current account deficit could become possible. This would be highly destabilising. (see 'Twin Attacks Highlight Regional Risk', 25 May).

Darkest Before The Dawn
Niger - Current Account Deficit, US$bn (LHS) & % of GDP (RHS)

Niger's balance of payments position has deteriorated sharply in recent years, with the country's current account deficit reaching 27.7% of GDP in 2011. This was largely due to surging imports, which increased at an average annual rate of 21.6% between 2002 and 2011. While some of this growth was due to a rapidly rising population - Niger's weak agricultural sector makes the country a net food importer - much of the growth was fuelled by the extractive sector's voracious demand for capital goods.

The Worm Has Turned
Niger - Net Oil Exports, US$mn

Niger's economy has been based on uranium exports since the 1970s, but recently the country has been attracting interest in its potential as an oil producer. In 2012 China National Petroleum Corporation (CNPC) succeeded where Western rivals had failed since the 1960s, producing the country's first oil in the Agadez region.

Even though the country's oil production is relatively modest in terms of volume, BMI predicted at the time that the new sector would have a significant impact on Niger's small economy ('Oil Production Could Transform Country', 15 March 2012).

Though large-scale exports will require the construction of a new pipeline, the country has already ended its oil imports and the IMF reports that some oil is being exported by road. The further development of this industry, which has the potential to diversify exports away from uranium, is a key reason why BMI believes that Niger's current account deficit will shrink over the coming years.

We also believe that uranium exports should continue to grow on the back of rising demand from emerging economies seeking to upgrade their energy infrastructure through the development of nuclear power stations. China alone will require a massive increase in uranium imports , suggesting that security fears will not be sufficient to pre vent investment in this rapidly growing industry. That said, Niger will likely face competition from more stable jurisdictions, such as Kazakhstan and Australia.

Import Substitution Unlikely
Niger - Selected Goods, Share of Imports

While exports will continue to grow, BMI believes that Niger's high demand for imports is also likely to remain elevated. Niger's president hopes that planned agricultural reforms will boost food production, reducing imports and even earning foreign exchange by shipping food - notably tomatoes - to Nigeria 's booming consumer market . Rapid population growth and a harsh physical environment, however, make the creation of an economically significant food export sector difficult to envision.

The majority of Niger's import bill is spent on capital goods, however, which the country is incapable of producing domestically. The expansion of uranium mines and the potential construction of an oil pipeline to Chad will keep demand for these goods high , putting strain on the current account even as exports grow . Foreign investment should cover the shortfall, but these imports will prevent the country's current account deficit from narrowing beyond 10.0% of GDP between 2013 and 2017.

NIGER - CURRENT ACCOUNT
2009 2010 2011 2012e 2013f 2014f 2015f 2016f 2017f
Notes: e BMI estimates. f BMI forecasts. 1 Imports plus exports, % of GDP. Sources: 2 ADB/BMI.
Goods imports, US$bn 2 1.8 1.8 2.2 2.3 2.7 3.1 3.5 3.9 4.4
Goods imports, % of GDP 2 33.3 31.5 34.4 34.2 35.5 39.1 41.8 43.5 44.3
Goods exports, US$bn 2 1.0 1.0 1.2 1.7 2.1 2.4 2.7 3.1 3.6
Goods exports, % of GDP 2 18.5 18.1 19.4 25.1 27.8 30.2 32.4 34.3 35.6
Goods exports, % of imports 2 55.6 57.3 56.4 73.4 78.3 77.2 77.5 78.8 80.3
Balance of trade in goods, US$bn 2 -0.8 -0.8 -1.0 -0.6 -0.6 -0.7 -0.8 -0.8 -0.9
Balance of trade in goods, % of GDP 2 -14.8 -13.5 -15.0 -9.1 -7.7 -8.9 -9.4 -9.2 -8.7
Income account balance, US$bn 2 -0.0 -0.0 -0.0 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1
Income account balance, % of GDP 2 -0.6 -0.8 -0.7 -0.8 -0.9 -1.0 -1.0 -0.9 -0.8
Net transfers, US$bn 2 0.2 0.5 0.4 0.4 0.7 1.0 1.1 1.3 1.4
Net transfers, % of GDP 2 2.8 8.1 5.8 6.1 9.5 12.2 13.3 13.8 14.1
Current account balance, US$bn 2 -1.3 -1.1 -1.8 -1.6 -1.5 -1.5 -1.6 -1.6 -1.5
Current account balance, % of GDP 2 -24.3 -20.2 -27.7 -23.5 -19.3 -19.3 -18.5 -17.2 -15.4
Openness to international trade, % 1,2 51.7 49.6 53.9 59.3 63.3 69.2 74.1 77.7 79.9
This article is tagged to:
Sector: Country Risk, Oil & Gas
Geography: Niger