Nigeria’s external trade imbalance signposts worsening economy

By UCHE CHRIS

Six years into the administration of President Muhammadu Buhari and the implementation of economic diversification, Nigeria’s external trade balance has declined precipitously, which points to the challenges being faced by the country in the foreign exchange sector.

A recent report by the National Bureau of Statistics, NBS, indicated that Nigeria has become more import dependent in 2021 than it was six years ago when the government came to power, particularly in the area of fuel importation, in spite of banning certain items from accessing forex and closing the borders.

The present government had made a policy commitment to diversify the economy away from its mono-cultural product dependency on oil,and a corresponding dependency on import of virtually everything, which had led to massive deindustrialization of the economy as local manufacturers, constrained by hostile business environment such as infrastructure deficit, like power, and inconsistent policies.

It was such commitment that led to the introduction of Anchore Borrowers Programme and several other interventions, such as in real sector, entertainment etc by the Central Bank of Nigeria, CBN, to reduce the food import bill, which by 2014 was about $3. 5 billion annually. This objective also informed the banning of over 50 import items from accessing foreign exchange by the CBN.

As good as government intentions were, the NBS report said in its third quarter (Q3) that the nation’s trade balance has worsened, as import continued to rise at astronomical rate over export, which has been compounded by the wholesale import of petroleum products for domestic consumption. This has created the worst balance of trade imbalance in history.

In international trade, a country has an unfavourable balance of trade against other countries or a specific country, when such a country imports more than it exports to the world or that country. In the case of Nigeria, the balance of trade is unfavourable with almost every country of the world, as its trade is dominated by imports while its exports is dominated by oil; non-oil export is virtually insignificant.

According to the NBS, fuel import increased by 78.5 percent in the Q3, thus worsening the trade position of the country with total imports at N5.1 trillion. This is also reflected in the import bill which rose from about N2.1 trillion in 2020 to N4.9 trillion in the nine months of 2021. Non-oil imports rose by 21.58 percent to N1.24 trillion. Consequently, the country recorded a trade deficit of N3 trillion in Q3.

Trade deficit is the difference between the import and export positions of the country in any particular period of time. It is expected that this trend may continue till the end of the year and beyond given the economic crisis envisaged on the basis Omicron virus and rising oil price, which has direct impact on the cost of fuel import.

Although agriculture, which is the main diversification drive of this government contributed about N896 billion to the GDP, it ratio of export was a paltry N78 billion in the period under review. The implication of this is that the country still concentrates on primary agriculture produce with little value addition, which is reflected in the abysmal contribution to export in spite of its huge dominance of about 47 percent of GDP.

As a result of Nigeria’s growing import dependence, the value of the naira has come under immense pressure since this government, depreciating from N198 to a dollar in 2014 to the current N470 per dollar, and as high as N550 at the parallel market.

Dr. Godwin Owoh, an economist and policy analyst, says the entire statistical edifice of the nation is questionable, and therefore, the projections are doubtful.

“The reasons are obvious: NBS, which reports such figures has lost credibility because their figures lack collaboration and authentication. NBS has been releasing politically motivated data that do not represent the reality of the economy. Government has compromised its integrity by the monopoly it enjoys.

“In other jurisdictions, other private agencies run by professionals are recognized to double check the official figures by providing secondary sources of data to ensure accuracy and authenticity of figure.

“There are two national GDPs on which to predicate that of the country, namely, the GDP of the 36 states and that of the federal government; our challenge is that most of the statistical input into the nation’s GDP are from a third of the economy, that is the federal government; nothing is hardly known about the GDP of the states, yet the data talks about the country.”

According to him, it is impossible for the data to be true when two-third of the national economy is not factored into the calculations.

“We can’t be talking about trade balance when there is nothing going on in the economy; it is obvious. Where is the production taking place? Who is producing what? What are we exporting except primary goods, including oil? It is a national shame. How can we have a favourable trade balance when all we export is primary produce? We don’t even have the sense to do little value addition.

“Seriously, all the macroeconomic aggregates are negative because it only covers a third of the economy and do not represent the entirety of the picture; and whatever you build on such deception is bound to fail”, he said.

Also another economist and banker, Dr. Boniface Chizea sharedsimilar position by insisting that the country has not made much progress in its trade relations since the days of SAP (Structural Adjustment Programme) introduced in 1986 to 1989, which was the first deliberate policy initiative to diversify the economy.

“Diversification will be meaningless if it does not involve manufactures; we cannot diversify by producing more of the same primary products which value cannot compare with manufactured goods. We cannot have favourable trade balance when we are manufacture nothing for export.

“Look at Covid vaccine production, for example. It is a shame that no county in Africa, including South Africa, which is the leading industrial economy, can produce vaccines. This alone can change the trade balance against most African countries, including Nigeria.

“Even the oil we export, we are not seeing the value and impact on the economy as we fritter the resources away in frivolous imports and corruption. Even when the U.S. allowed African countries to export to the county under AGOA (African Growth and Opportunity Act) during Bill Clinton’s administration, Nigeria was unable to participate because it could not add value to the produce. Really, there is little hope that the economy will improve,” he noted.