For the first time in four years, Nigeria’s trade position was negative in 2020 as COVID-19 pandemic crushed oil demand, sending the revenue of oil-exporting countries tumbling.
Africa’s largest oil producer posted a N7-trillion trade deficit in 2020, with exports falling as much as 35 percent, according to data published Tuesday by the National Bureau of Statistics (NBS).
That compares to a surplus of N2.23 trillion recorded in 2019, with imports outweighing the county’s value of exports. Crude oil exports fell to N9.4 trillion from N14.7 trillion in 2019, while Nigeria’s non-oil exports fell to N1.4 trillion from N2.52 trillion in 2019.
A trade deficit occurs when a country’s import exceeds its export during a given time period.
When that happens, the said country is denied the gains of foreign exchange, which comes from the exports of commodities to other trading countries.
The huge trade deficit largely explains why Nigeria’s naira ran into troubled waters last year, as Africa’s most populous nation was starved of the needed foreign exchange that would have helped in the accretion of the external reserves, and give monetary authorities the legroom to defend the naira from falling against the dollar.
“Whether or not the country is going to have a good trade balance depends largely on what happens to the oil and gas sector,” notes Muda Yusuf, director-general, Lagos Chamber of Commerce and Industry (LCCI).
“The import had been somewhat steady because no matter what happens, we still have quite a number of imports, it is not as volatile as the exports,” he says.
According to Yusuf, who spoke in a mail response to BusinessDay, what can change the picture with regards to the import segment will be if the country can get its refineries up and running, and that is very unlikely.
“Oil prices are looking fairly good and if this is sustained, then we are largely to see a much better situation than what we had in 2020,” he states.
Nigeria’s export earnings are heavily reliant on developments in the oil sector, as the commodity accounts for more than 75 percent of Nigeria’s total export.
With the pandemic halting global demand last year, along with a standoff between two of world’s biggest exporters of oil, Saudi Arabia and Russia, oil-dependent nation like Nigeria were hard-hit, with the crash in oil prices halving revenue and pushing Africa’s biggest economy in its worst recession since the 80s.
Nigeria’s economic growth contracted for two straight quarters, in Q2 and Q3, as the fall in both oil prices and production aided with the pandemic-induced lockdown rained havoc on the oil-dependent nation.
Although, Nigeria showed some resilience, exiting recession with 0.11 percent growth in Q4; the country however closed the year contracting by 1.92 percent in 2020.
Nigeria’s trade balance stood at N32.4 trillion with imports rising 17.32 percent to N19.9 trillion in 2020 from the N16.96 trillion in 2019, while exports fell 34.75 percent to N12.5 trillion from N19.2 trillion in 2019.
Aside from agricultural goods that increased, Nigeria recorded huge decline in the exports of raw material goods, solid mineral goods, energy goods, crude oil, other oil products, as well as in manufactured goods.
The last time the country witnessed a deficit in its trade was in 2016, when a collapse in the oil market and restiveness back home in the Niger Delta region, slowed the growth of oil exports, the country’s biggest export commodity.
At that time, Nigeria recorded a deficit of N290 billion.
But it is barely three months into 2021, and oil prices, which to a large extent determine Nigeria’s balance of trade position, are looking up.
From the low of $12 per barrel last year, Brent crude, the international benchmark for Nigeria’s crude, has risen to $64 to a barrel, according to Bloomberg data, with big investment banking firms including Goldman Sachs and JP Morgan, all betting on the price to soar above $75 this year.
With that, Nigeria is expected to turn the tide by recording an improvement in performance with the emergence of vaccines against COVID-19, according to Moses Ojo, chief economist/head, investment research, PanAfrican Capital Holdings Limited.
“That, alongside the opening of the land borders and the take-off of the free trade pact Nigeria entered with other African countries, will lead to a recovery in economic activities and a boost in global trade,” Ojo said.
While analysts, who spoke with BusinessDay, see a sweet trade year for Nigeria, which appears to be contrary to Damilola Adewale, a Lagos-based economic analyst.
According to Adewale, with the bulk of Nigeria’s imports coming from manufactured goods (about 64%) and the bulk of exports coming from crude oil (75%), it is most likely trade balance will be in the negative territory.
His expectations are premised on further increase in manufacturing imports as economic activities in the sector continue to pick up.
On the export side, OPEC+ agreement is expected to impact crude oil exports (our major export), and consequently total exports.
“OPEC is not in a hurry to ease supply cuts. So, production volume is expected to remain somewhat lower, thereby impacting crude earnings. So, putting these factors together, I see trade balance staying in the negative territory in 2021. Although there might be moderation in the deficit. But it will be in the deficit region,” he said.
According to Adewale, the trade balance raises questions if Nigeria will even benefit from AfCFTA. “With total trade worth N32.42 trillion in 2020, imports are 61 percent of that figure, and exports are 39 percent. It is a bad signal that we will be worse off in the deal.”