Nigeria’s trade deficit and the urgency of value addition

International trade is an arena for global wealth distribution-at least in the theoretical sense. The wealth in this sense is distributed from countries that are weak in planning to others who aspire to be among the best in the world.

It is not news that in the last few quarters, Nigeria has repeatedly reported huge trade deficits, which imply that the rest of the world collected resources from Nigerians more than Nigerians received from the rest of the world. The direction of the flow of the resources in question determines who is rich or poor. It is therefore, not a coincidence, that Nigeria and Nigerians are becoming poorer because we continue to transfer most of our resources to other countries through trade.

In 2020, Nigeria recorded N7.38 trillion worth of trade deficit, indicating that we exported N12.52 trillion worth of goods and imported N19.89 trillion worth of goods. Since 2020 was when the COVID pandemic started, one might want to conclude that the global lockdown caused it. However, a deeper analysis of Nigeria’s external trade in 2019 will reveal that the 2020 lockdown only aggravated it.

In the last quarter of 2019, Nigeria recorded N579.06 billion worth of trade deficit. In that quarter, the nation’s N4.77 trillion export proceeds were offset by the N5.35 trillion imports recorded for that quarter.

At the end of the first quarter of 2020, even before most countries imposed a lockdown, the trade deficit in Nigeria was N329.93 billion. The trade deficits in the remaining quarters of 2020 are as follows: N1.924 trillion in second quarter; N2.389 trillion in third quarter and N2.731 trillion in the last quarter of 2020.

There was no change in trend in 2021 because 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.

It should be noted that to a large extent, Nigeria’s trade deficit is self-inflicted. Imported petroleum products especially motor spirit ordinarily accounted for the largest chunk of Nigeria’s imports in every quarter.

In the third quarter of 2021, over N1.05 trillion was expended on the importation of petroleum products representing 12.91 percent of the total imports. It is embarrassing that previous governments did not implement any policy towards reversing this trend.

It is therefore, not a coincidence, that Nigeria and Nigerians are becoming poorer because we continue to transfer most of our resources to other countries through trade

And despite the promises made by the current APC led administration, with almost seven years in power, the situation has not changed. The refineries remain comatose. Not only that, the scores of modular refineries which could have come to the rescue of the country at this critical time are yet to see the light of the day. Everything boils down to the policy implementation failure of the past and current federal governments.

Read also: Rising import worsens Nigeria’s trade deficit

Another reason why the deficit is self-inflicted is because Nigeria’s exports are still mainly commodities. Cocoa beans, whether superior or fermented, are in their primary form. It has been proved that primary commodities are price elastic, which leaves the producers with little or no bargaining power at the international markets. Little wonder why most Nigerian produce are rejected at the international markets. The buyers know quite well that with primary produce, the sellers have no options but to dance to their tunes.

With the omicron variant of COVID 19 emerging leading to flight bans across by some Nigeria’s strategic trade partners, there is no guarantee that new deadlier variants might not emerge and that affected countries could put up harsher reactions that might affect export of primary produce from Nigeria.

It is against this background that the Nigerian government at federal and state levels must, as a matter of urgency, start to implement policies that will produce quick wins for the nation. The focus must be the nation’s agriculture sector where the primary produce should be processed further for value addition.

The economic opportunities in the agriculture sector keep expanding. For instance, Globe Newswire estimates that the value of the global chocolate market is expected to reach $200.4 billion by 2028 from $138.5 billion in 2020. The market in question encompasses white chocolate, milk chocolate and dark chocolate distributed through convenience stores, supermarkets, hypermarkets and online sales. Nigeria is among the top five highest cocoa producers in the world, these opportunities should not slip us by.

By and large, the way to address the surging trade deficit is by value addition to agricultural produce that we have comparative advantage in such as cassava, cocoa, sesame among others. Properly pursued, value addition will enhance employment and also reduce our dismal trade deficit.