According to the Nigeria Bureau of Statistics, Nigeria recorded a trade deficit of N7.4 trillion – an import and export value of N19.9 trillion and N12.5 trillion respectively. The deficit represented a 436% deterioration relative to 2019. With such an astronomical decline in the trade balance, there is a serious concern for export promotion in Nigeria, especially with take-off of AfCFTA. Diving deeper, imports rose in 2020 by 17.1% while export reduced by 34.9%. while import growth is acceptable, exports should, at least, grow faster than imports and not decline, worse still, with a higher magnitude.
It is imperative to admit that the slump in trade performance in Nigeria in these early days of the AfCFTA is a bad omen. While COVID-19 is a permissible excuse for poor performance, it may be right to consider the ineffectiveness of some of the recent trade policies in Nigeria as the prime cause of the problem. One of the best examples, in this case, is the border closure policy that spanned about fifteen months. The goal of this policy was to slow down imports and encourage domestic production, a concept known as import-substitution. Although imports declined in the next two quarters after the implementation of the border closure, they soon increased again, rising from N4.1 trillion in Q2 2020 to N5.4 trillion and N5.9 trillion in Q3 2020 and Q4 2020. It is apt to submit that the outcome of the border closure was not consistent through time.
Trade policies in Nigeria appear to be focused on reducing the growth of import when export promotion policies should be overemphasized. Nigeria’s growing import is more difficult to address because Nigerians love imports. This import preference did not start in one day and cannot be solved with a single policy or over a short time. With the commencement of AfCFTA, more imports will flow into Nigeria, promoting the import-loving syndrome of Nigerians. Since solving Nigeria’s import crisis require enormous cost and effort, focusing attention on exports is a better approach to engendering a sustainable trade surplus in Nigeria.
There are many challenges with the export promotion in Nigeria, but these are not insurmountable. Among the notable challenges is the dependence on crude oil export, insufficient non-oil exports, low industrialization, inadequate export logistic infrastructure, bottlenecks at the ports, challenging business environment for SMEs in exports, weak backward and forward integration, and low quality of non-oil exports. Considering these challenges, it is no surprise that export is on a lower trajectory than imports. The concentration of exports on crude oil seems to foster most of the other challenges as oil exports account for 77% and 75% of total export in 2019 and 2020. To solve this challenge, Nigeria needs a government committed to non-oil export. Until then, very little improvement can be achieved.
While other African countries are already implementing various measures to tap from the $450 billion gain engulfed in the AfCFTA, Nigeria’s major bet is on crude oil export to African countries under the trade pact. The problem with this is that crude oil will not help Nigeria gain so much from AfCFTA because oil production will remain regulated by OPEC, the oil price will remain volatile with continued tensions in the middle east, the resurrection of militancy remains uncertain in the south-south region, new oil and gas producers are emerging in Africa, and international oil companies are facing business challenges in Nigeria. All these factors have resulted and will continue to keep private investment in the oil and gas sector at an abased level. In summary, Nigeria needs more than oil and gas and Dangote refinery to lead the market chart for gains in the AfCFTA.
An N7.4 trillion deficit in 2020 for Nigeria may expand if Nigeria has no serious strategy for export promotion for 2021 to 2025. To reiterate, the first step is a committed government to non-oil production and export. Further to this, export infrastructures, particularly transportation and ports, must be improved on and this requires private investments, which in turn, requires fiscal incentives. Since Nigeria is not technologically developed, it cannot export technology, which is a high-value export. Therefore, accelerating agricultural and industrial production is important to foster trade. State governments should be tasked to sponsor the production and export of cash crops, big international exporters whose products sell heavily in Nigeria should be given incentives to establish production plants in Nigeria. To achieve the latter, the ease of doing business in Nigeria must be taken seriously.
Written by Michael Ogunremi
Michael is an economist with PricewaterhouseCoopers, Nigeria
Well said, Michael