The Nigerian economy has been struggling to grow since tumbling into a recession in 2016 and the trade sector may be a key reason why. Nigeria’s trade sector, which is the second largest sector after agriculture, accounting for up to 16 percent of GDP in the country, has witnessed negative growth in eight of the last 12 quarters.
After suffering negative growth in second quarter (Q2) of 2019 for the first time in four quarters, the trade sector is now at risk of reentering a technical recession for the fourth consecutive year.
Analysts told BusinessDay that they see no growth catalyst in sight for the sector as headwinds from poor government policies and weaker consumer spending continue to subdue growth in the sector.
“We expect the trade sector to remain weak in Q3. The impact of the exchange rate revision for duties payment should continue to bite hard while the closure of the border in August would obviously impact negatively as all exports and imports must now be done via the ports increasing congestion of activities within the ports,” said Ayorinde Akinloye, a consumer goods analyst at Lagos-based CSL Stockbrokers.
“The trade sector will drag because import and exportation will be affected because all forms of trade have to go through,” Akinloye said.
The government had recently partially closed the country’s border with Republic of Benin to block the smuggling of goods into the country. What started as a partial ban has now morphed into a total closure of Nigeria’s land borders to the movement of all goods from Benin, Niger and Cameroon, effectively banning trade flows with its neighbours and hurting the local trade sector.
Eronmosele Aziba, consumer analyst at Tellimer Group, said it is very possible that the sector will record another negative because of the border closure. However, he does not think the effect of the border closure will be too significant on the economy.
“The bulk of our trade sector is usually through the seaport, land is maybe 5 percent, but the fact is that it might have an impact on things like food that are imported through the land border. And with the weak economy and income, people spend more on food. Also the border closure has impacted on food prices,” Aziba said.
One analyst told BusinessDay that there may be some benefits to the border closure even though it won’t be too significant.
“It (the trade sector) might actually improve because a large portion of the trade has been taking place informally through the land border. With the shutdown we are now seeing a lot of products coming through the formal borders and the Customs offices have been reporting significant increase in their revenue, so foreign trade is now booming, so perhaps that may have a positive impact on the trade GDP,” Omotola Abimbola, a macro and fixed income analyst, said.
“But on the other hand, the closure of the border is having an impact on retail prices. So, the one which is dominant will determine what the trade sector will be,” Omotola said.
