Economy

Trade Deficit: Imports from Asia Hit N2.5 Trillion in 3 Months

Nigeria’s trade with other West African countries is ranked as the least among the country’s global trade partners. Foreign trade statistics during the third quarter of 2020 shows that Asian countries head the list of Nigerian trade partners with a total of N2.59tn, according to the National Bureau of Statistics. Import from Europe was at N1.8tn while both America and Africa imports totaled N746.4bn and N175.4bn respectively.

Also in 2019, the country’s economy ended in what seemed to be a huge setback. Trade balance revealed a N579 billion deficit in the fourth quarter of 2019. This equally resulted from the rise in importation during the period. It was at a high 108%. The surge reveals a consistent growth in Nigeria’s foreign trade over the years.

Foreign trade is the value of goods (import and export) a country trades with the rest of the world within a period. A country with higher exports than imports is in a favorable trade position and vice versa.

The current trade deficit situation reveals a continuous drop as imports continue to exceed exports. If the negative balance of trade continues, this may weaken domestic industries to a large extent. Over-dependence on imports could also lead to an economic downturn.

Industrial production has been quite low in Nigeria as oil has remained the major determinant of revenue. Asian economies like Japan, South Korea, Taiwan, Singapore, China among others have depicted how a strong manufacturing sector can speedily boost productivity and improve standards of living.

Dani Rodrik, Harvard economist has written that development is virtually synonymous with producing manufactured goods for export. This compels companies to compete internationally and steadily boost productivity through investment in capital and skills. ‘Industrializing has been the key escalator that has enabled rapid growth,’ the economic expert stated.

Sixty years after independence, Nigeria continues to be a primary exporter of raw commodities. Most imports from China and India are replica of goods previously produced in Nigeria as the once buoyant textile industry in the North has been wiped out. Kano was known for its famous dye pits as the state was major textile producer decades ago. Kaduna was then called the Manchester of Nigeria. Large scale importation has led to the death of several local manufacturing industries like the textile and garment factories, even the toothpick making ventures.

The revealed data has equally shown the rising trade imbalance between Nigeria and China. Tony Ejinkeonye, President of the Abuja Chamber of Commerce and Industry (ACCI) disclosed that the trade deficit imbalances between both countries may continue to increase except Nigeria turned to locally manufactured goods. The trade relation between Nigeria and China was signed in 2001 to boost bilateral trade. However, the huge imbalance has kept the country at a deficit as Nigeria has been unable to keep pace with Chinese exports to the country. The trade imbalance was at about 67.7 percent in 2000 and 87.3% in 2010.

Dr. Frank Udemba Jacobs, President of the Manufacturers Association of Nigeria (MAN) disclosed that while 87 percent of Nigeria’s exports to China were oil and gas products, China on the other hand exported a wide range of goods to Nigeria amongst which are machinery, equipment, manufactured commodities, textile, and even toothpicks.

Despite the country’s agricultural wealth, the importation of processed food continues to thrive. ‘Nigeria imports vegetable oil, which doesn’t make sense,’ business mogul Aliko Dangote stated.

A high 97% of the percentage of milk consumed in the country is imported. The billionaire further revealed that ‘Nigeria still imports 1.6m tonnes of sugar and 97 percent of the milk that we consume’.

‘All the milk factories you see here are just packaging plants. It’s all imported,’ he added. He lamented the country’s distortive incentive structure as local cattle herders sometimes discard milk due to the absence of a buyer.

It almost seems that the discovery of big oil reserves in the 1970s significantly ruined much of the existing industry. Investments in locally made goods have been overlooked. Mr. Kemedi, a Nigerian manufacturer disclosed that innovation and productivity have been stunted as there is a lack of pride in local brands. ‘They make belts in Aba’ he stated, referring to a city in Abia state. ‘But they label them ‘Made in Italy? Why should that be so?’

Innocent Chukwuma, the chairman of Innoson motors revealed that 60% of the car components are sourced locally while import duties on the remaining 40 percent was at a high range.

Ejinkeonye recommends limiting foreign trade generally only to those goods that could not be made in Nigeria. Manufacturing value-added products in the country was about 12 percent of GDP in 2019. ‘The government needs to bring out a very draconian policy where you cannot keep importing milk. Just like they did to us with cement. If they applied it to all these products, you see what Nigeria will be in the next five years,’ Mr. Dangote stated.

This would however be merged with an increase in domestic productivity. There is the need for improvement of basic infrastructure, both physical and institutional or the country will continue in its usual low value-added prison.

Read Also: African Continental Free Trade Agreement: How Nigeria Can Consolidate Her Continental Edge

The persistent trade deficit in the country’s trade account is a call to diversify Nigeria’s export trade. There is a need for improvement of domestically produced merchandise to substitute importation of products. This will help improve foreign exchange earnings, encourage local producers or manufacturers, and also protect infant industries in Nigeria.

Peace Omenka

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