Five ways to improve Nigeria’s trade balance

Nigeria’s trade profile was characterised by high imports and less exports resulting in a trade imbalance in 2020, as the country recorded a trade deficit of N329.93 billion. This continued in the other quarters with N1.924 trillion in the second quarter; N2.389 trillion in the third quarter, and N2.731 trillion in the last quarter of 2020.

Similarly, in 2021, the trade deficit at the end of the first quarter was N3.943 trillion; N1.870 trillion in the second quarter, and N3.023 trillion by September 2021, the highest trade deficit recorded over the last five years according to data garnered from the foreign trade report by the National Bureau of Statistics (NBS).

According to experts, Nigeria’s trade deficit is self-inflicted for a number of reasons, especially the over-dependence on oil and export of raw commodities.

“Despite these relatively high crude oil prices, the reason why trade will remain negative is that import continues to outpace our export,” Laolu Boboye, an economist at Cardinal Stones, said.

As long as Nigeria is not self-sufficient in some key imports, Africa’s largest economy will continue to import more leaving it to receive fewer resources than it gives out, Boboye noted.

Muda Yusuf, the CEO of Centre for the Promotion of Private Enterprise (CPPE), stated that in line with anticipated economic recovery, Nigeria needs a favourable balance of trade in the coming year.

Together with other experts, the former director-general of the Lagos Chamber of Commerce and Industry (LCCI), highlighted some ways Nigeria can boost its trade balance in 2022.

Fast-track export processes: Yusuf advised that there is a need to fast-track processes for exporters at the ports, as it is being done for imports. The export processes remain very frustrating at the ports, as shipping companies and terminal operators do not accord the desired priority to export, he noted.

“We should provide access to intermediate inputs on concessionary terms to exporters in order to make their exports competitive both in quality and on price,” he said.

Increased value addition practice: Ngozi Okonjo-Iweala, director-general, World Trade Organisation (WTO), said in a recent meeting that if Nigeria is to fully benefit from trade activities, its exports must become value-added.

Nigeria’s export has been dominated by raw products over the years and it has resulted in poor export receipts. Between 2010 and 2019, manufacturing value addition activities in Nigeria averaged 38.98 percent, according to the Global Economy ranking. This is below the average mark of 50 percent, signifying that more efforts need to be made in growing the value addition culture.

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If Nigerian exporters make an effort to drive value addition, not only will they be able to export more valuable products, the monetary returns will also be many times more, well justifying efforts and investments. It will also help lessen the country’s trade deficit.

“We need to improve our primary production so we can increase and expand the value chain. We are not generating enough income from exports, and we need to explore research and incorporate value addition in our export in order to effectively utilise it,” Ebenezer Onyeagwu, group managing director/CEO, Zenith Bank, said at a trade forum.

Address foreign exchange challenges: In 2021, the forex challenge was a major multidimensional predicament that manufacturers and exporters had to contend with, this affected production and export activities adversely.

These challenges ranged from the sharp depreciation of the Nigerian currency to the liquidity crisis in the foreign exchange market, which manifested in the acute shortage of foreign exchange in the official window.

“Due to the forex challenges, profit or dividend repatriation becomes difficult, creating huge backlogs, in addition, capacity utilisation is impacted when access to forex is constrained,” Yusuf said.

He advised that exporters be given unrestricted and unconditional access to foreign exchange, while a flexible exchange rate policy regime is adopted.

Export diversification: A fundamental issue in Nigeria’s trade profile is the over-dependence on oil and gas and the weak competitiveness of the non-oil economy.

Over the years, Nigeria’s top exports have revolved around petroleum oils obtained from bituminous minerals, natural gas, other petroleum gasses, etc.

Nigeria needs to diversify its export profile and leverage its non-oil exports for increased proceeds, Yusuf advised, this he believes can be achieved through the revitalisation of crucial sectors like agriculture, manufacturing, etc.

In addition, he said Nigeria can optimise products it has a comparative advantage – a circumstance that puts a country in a favourable or superior business position – such as commodities and natural resources in order to provide value-laden products that can thrive on the global supply chain, increase demand as well as trade partners.

Aiding exports through policies and agenda implementation: Yusuf advised that the government performs the role of an enabler by aiding exports activities through the use of policies and programmes.

“We should provide access to intermediate inputs on concessionary terms to exporters in order to make their exports competitive, both in quality and in price. Furthermore, export clusters should be established to deepen the activities of export processing zones,” he said.

In addition, he asked that Nigeria’s trade policies be reviewed in order to reduce the cost of some intermediate products for manufacturers.