*Puts increasing pressure on forex — Analysts
*Reflects Nigeria’s weak production capacity – Ex-LCCI DG
*Fall-out of COVID-19, economic recession — NACCIMA
By Yinka Kolawole
A surge in imports has resulted in over 158 percent increase in Nigeria’s trade deficit year-on-year (YoY) in the first half of 2021 (H1’21).
Financial Vanguard findings from the National Bureau of Statistics (NBS) show that Nigeria’s trade deficit rose to N5.81 trillion in H1’21 from N2.25 trillion in H1 2020.
The increase in deficit is, however, much lower at 13.5 percent when compared with N5.12 trillion recorded in H2’20.
NBS data shows that in Q2’21, total merchandise trade stood at N12.03 trillion which is 23.28 percent higher than the N9.76 trillion recorded in Q1’21 and 88.71 percent increase compared to Q2’20.
Total imports rose YoY by 67 percent to N13.8 trillion in H1’21 from N8.24 trillion in H1’20. The import value rose by 22 percent when compared with the N11.31 trillion recorded in H2’20.
Specifically, total import was valued at N6.85 trillion in Q1’21 and N6.95 trillion in Q2’21, adding up to N13.8 trillion for the half-year.
The 67 percent rise in imports is however in contrast to the value of total exports which also rose YoY but by only 26 percent to N7.99 trillion in H1’21 from N6.34 trillion in H1’20.
NBS stated that in Q2’21, the total merchandise trade stood at N12.03 trillion which is 23.28 percent higher than the N9.76 trillion recorded in Q1’21 and 88.71 percent increase compared to Q2’20.
Total import in Q2‘21 is valued at N6.95 trillion indicating 1.45 percent higher than N6.85 trillion in Q1’21 and 67.49 percent increase over N4.02 trillion recorded in Q2’20.
Overall, in Q2’21 imports amounted to 57.78 percent of the total trade, 70.18 percent in Q1’21, while in Q2’20 the imports amounted to 64.42 percent of total trade. Total export in the quarter was valued at N5.08 trillion representing 42.22 percent of the total merchandise trade.
In Q1 2021, total import was valued at N6.85 trillion representing 70.21% of the total trade. This was a 15.61 percent increase compared to Q4 2020 and 54.30 percent compared to Q1 2020. The value of total exports in Q1’21 stood at N2.91 trillion, representing 29.79 percent of total trade.
Trade by sectors
Further analysis of the NBS data showed that the total value of trade in agricultural goods in H1’21 stood at N1.57 trillion. The import component of this trade totaled N1.28 trillion while the export was valued at N292.47 billion.
The total value of trade in solid mineral goods in H1’21 stood at N113.18 billion. The import component of the trade stood at N88.95 billion while the export was valued at N24.23 billion.
The value of manufactured goods trade in H1’21 stood at N9.29 trillion. Out of this, the import component accounted for N8.83 trillion while the export component was valued at N462.07 billion.
Also, total trade in raw material was valued at N1.62 trillion in H1’21. The import component was valued at N1.51 trillion while the export component stood at N106.71 billion.
The total value of trade in Other Petroleum Products in H1’21 was valued at N3.17 trillion. The import component was N2.09 trillion while the export component stood at N1.08 trillion.
Meanwhile the widening trade deficit places increasing burden on the country’s foreign exchange (forex) management, as scarce forex is being expended to import merchandise, while earnings from exports continue to dwindle.
Analysts at Nairametrics, a financial information company, stated: “The nation’s continual foreign trade deficit continues to pile more pressure on the country’s exchange rate as negative trade dampens Nigeria’s current account position and the foreign reserves.
“Despite moves by the federal government and the Central Bank (CBN) to diversify the economy and create substitute export value for crude oil, it seems to have not reflected substantially in Nigeria’s international trade numbers.
A cursory look at the data showed that crude oil still accounted for 90 percent of Nigeria’s export value in the first half of 2021, after multiple investments in other sectors of the economy to ensure local production, especially in the agricultural sector.”
Commenting, Dr Muda Yusuf, an economist and former Director General, Lagos Chamber of commerce and Industry (LCCI) said: “The N5.81 trillion trade deficit speaks to the persistent weak production capacity and competitiveness of Nigerian firms.
“Export is very critical to remedy the situation. But for that to happen, our production must be competitive regionally and globally. We therefore need to create the environment for the production of quality products at a globally competitive price. There is no other way.
“The infrastructure environment must support this aspiration. The policy and regulatory environment must align with this vision. It is a cause for concern that despite all the rhetoric about economic diversification, crude oil exports still accounted for about 90 percent of our export earnings. Our non-oil exports are still primary commodities with very little value addition.
“Productivity is still very low. Technology application is still incredibly low. Above all, cost of production is quite high, especially because of the quality of infrastructure.”
He further stated: “There are also issues on the import side. The highest import bill remains that of petroleum products imports. Nigeria is perhaps the only oil producing country that depends solely on imported petroleum products for its domestic energy needs.
“This is perhaps the biggest problem we have as far as our balance of trade is concerned. It is gulping our scarce foreign exchange, putting pressure on our foreign reserves and worsening the strength of our currency. It is an irony that we find ourselves in this situation.
“Hopefully, the petroleum industry Act may bring a new dawn in this regard. A functioning petroleum industry would also reduce the import dependence of our manufacturing sector especially around petrochemical products.
“This would impact positively on our balance of trade as well. There is a lot we need to do to scale up export and reduce our import dependence. This is the only way to reverse the persistent deficit in our balance of trade.”
Also reacting, Amb. Ayo Olukanni, Director General, Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), said: “The NBS Foreign Trade in Goods statistics continues to show a dominance of imports over exports indicating a clear evidence again of our import-dependence as a nation. And we must find an enduring solution to our problem of an import dependent nation.
“However, statistics of the first half of the year 2021 also reflect the dip in economic activity in 2020 brought about by the COVID-19 pandemic and the brief bout of economic recession thereafter. Also we must remember the depreciation of the Nigerian currency by over 40 percent in the same period.
“Notwithstanding all of these, the position of our Association remains clear. The surest path to sustainable economic growth and development in our economy is through industrialization especially by strengthening small-scale businesses and creating an enabling environment with policies that have cross-sectoral impact on education, employment, investment and trade, all geared towards promoting industrialization.
“The management of foreign exchange falls within the purview of policies to create an enabling business environment and its impact on the private sector can be seen in the instantaneous increase in the cost of production simply due to the devaluation of the Naira.”