Nigeria’s foreign trade deficit widened to a record N1.94 trillion in 2021 as the cost of importing commodities exceeded the value of the country’s exports, official data released on Tuesday show.
This is 986 percent wider than a deficit of N178.2 billion recorded in 2020 as Africa’s biggest economy continues to grapple with low oil production and higher import bills.
The country imported N20.8 trillion worth of goods in 2021, 64 percent higher than the N12.7 trillion recorded in the previous year, according to a report released by the National Bureau of Statistics (NBS) on Tuesday.
Its exports jumped 51 percent to N18.9 trillion in 2021 from N12.5 trillion the year before.
“The wider trade deficit in 2021 is reflective of twin pressures from exports and imports. Despite the rally in crude prices, significant underproduction of crude oil has meant Nigeria is yet to enjoy the full benefits of higher crude prices,” said Ayorinde Akinloye, a research analyst at United Capital Plc.
Oil price averaged $70.54 per barrel in 2021, compared to $39.95/bbl in 2020. However, the benefits have eluded Nigeria as the country’s average oil production plunged to 1.3 million barrels per day (bpd) in 2021 from 1.5 million bpd in 2020. This is low, considering that the country produced 2.5 million bpd in 2011.
Crude oil exports, which account for more than half of Nigeria’s foreign exchange earnings, rose 53 percent to N14.4 trillion in 2021 from N9.4 trillion. On the other hand, non-crude oil exports hit N4.49 trillion, 46 percent higher than N3.08 trillion in 2020. This however did little to close the deficit.
Akinloye noted that import bills continued to rise due to the weak currency and imported inflation.
“Stronger consumer demand following recovery from the pandemic has supported a higher import bill. As a result, import growth continues to outpace export growth significantly, resulting in further pressure on external conditions reflected in wider trade deficit,” he said.
The NBS shows that the country’s total foreign trade grew 58 percent to N39.8 trillion in 2021 from N25.2 trillion the previous year.
“Some of our foreign exchange policies are not also helping to promote export because the exchange rate is not flexible and this is penalising export,” said Muda Yusuf, an economist and CEO of Centre for Promotion of Private Enterprise.
Yusuf, a former head of Lagos Chamber of Commerce and Industry, also explained that some exporters are not declaring their figures officially because when they bring their export proceeds, they would be asked by the Central Bank of Nigeria (CBN) to exchange at N416/$.
“This has led to many underground transactions or many take their goods to neighbouring countries for export.”
Before 2020, the last time Nigeria recorded a deficit was during the recession of 2016. It recorded a surplus of N4.03 trillion, N5.36 trillion and 2.23 trillion in 2017, 2018 and 2019 respectively.
In the fourth quarter of 2021, the trade deficit narrowed to N1.99 billion from N312 billion in 2020.
The top three countries that accounted for the highest share in Nigeria’s total exports in Q4 2021 were India (15.17 percent), Spain (13.69 percent) and France (8.42 percent). China (27.8 percent), Belgium (10.3 percent) and India (7.24 percent) were the countries Nigeria imported the most goods from during the period.
According to Yusuf, for Nigeria to see a better performance in exports, the CBN needs to liberalise its foreign exchange policy so that exporters can have free access to their foreign exchange.
On the import side, he added that Nigeria needs to explore ways to substitute its import by local production. “If we have scaled up our refining capacity, we would be saving a whole lot in terms of oil import and that will help our trade balance,” Yusuf said.