Explainer: Why Nigeria recorded N7.37trn trade deficit in 2020
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NIGERIA recorded a trade deficit of N7.37 trillion in 2020, according to the fourth quarter (Q4) 2020 Foreign Trade Statistics released by the National Bureau of Statistics (NBS) on Tuesday.
This is the first time Africa’s largest economy has reported a negative trade outcome since 2016.
Nigeria’s export stood at 12.52 trillion naira while imports amounted to 19.9 trillion naira. In other words, Nigeria imported more goods and services than it exported to other countries within the period under review.
According to the NBS report, total trade stood at 32.42 trillion naira in 2020, representing a 10.32 percent, compared with 36.15 trillion naira reported in the previous year.
The report further revealed that between 2016 and 2020, Nigeria’s total trade stood at 23.16 trillion naira, 31.69 trillion naira, 36.15 trillion naira, and 32.42 trillion naira, respectively.
On quarter-on-quarter basis, the 2.73 trillion naira trade deficit recorded in Q4 2020 represents the fifth consecutive quarterly deficit since the 1.38 trillion naira trade surplus recorded in the third quarter (Q3) of 2019.
The value of total imports increased by 17.3 percent to 19.89 trillion naira in 2020, compared with the 16.96 naira trillion recorded in 2019 and more than twice its value in 2017 (9.56 trillion naira).
In 2020, machinery and transport equipment accounted for 36.6 percent of total imports, while chemicals/related products and mineral fuels constituted 18.2 percent and 15.3 percent respectively.
The report further shows that imports from China accounted for 28.3 percent of the total imports, followed by India (8.5 percent); the United States (7.57 percent); the Netherlands (7.2 percent); and Denmark (5.4 percent).
Total exports dropped by 34.8 percent to 12.52 trillion naira in 2020 from 19.19 trillion naira in 2019.
In Q4 2020, Nigeria majorly exported mineral products, accounting for N2.96 trillion. The second-largest component was vehicles, aircraft and parts, which were valued at 111.3 billion naira. Vegetable products worth 39.9 billion naira were exported within the period.
The top five export destinations in Q4 2020 were India, Spain, South Africa, the Netherlands and the United States, with goods valued at 547.0 billion naira, 313.4 billion naira, 256.7 billion naira, 194.5 billion naira and 170.4 billion naira, respectively, shipped to the countries.
These countries collectively accounted for 46.39 percent of the value of total exports in Q4 2020.
In Q4 2020, the bulk of export transactions were conducted through Apapa port in Lagos, accounting for 93.9 percent of total exports, followed by Port-Harcourt, which recorded 4.6 percent of the total.
In terms of imports, Apapa port also recorded the highest transactions at 42.8 percent, followed by Tin Can Island (also in Lagos) which accounted for 17.4 percent, while Port-Harcourt received 10.35 percent of total imports.
Why trade deficit occurred
Analysts attribute the deficit majorly to COVID-19 pandemic, which prompted lockdowns and restrictions at the local and the international levels, dislocating supply chains and economic activities.
“Activities in the global and domestic economy in year 2020 were shaped by the COVID-19 pandemic and responses of various national governments, monetary
authorities, private sector as well as international agencies in dealing with the health and economic effects of the pandemic,” the Lagos Chamber of Commerce and Industry (LCCI) said in a 2020 economic review signed by Muda Yusuf, director-general.
However, COVID-19 cannot take the whole blame for the deficit. The closure of Nigeria-Benin border was seen by trade experts as a significant factor.
“Major players in the beverages, polypropylene, bags, tobacco, cement, toiletries and cosmetics industries are losing markets they had worked very hard to secure in the West and Central African region. This is a position that Nigeria has hoped to leverage on to secure a strong position in the African Continental Free Trade Area(AfCFTA) which kicks off in January 2021,” Mansur Ahmed, president of the Manufacturers Association of Nigeria (MAN), had said in late November 2020.
In August 2019, the federal government shut down major borders with neighbouring countries, foreclosing the possibility of exporting products through the land borders. The border closure lasted till December 2020.
Lagos-based Cadbury, a confectioner, said in November 2020 that it could not bring Hot Chocolates into Nigeria from its Ghana plant, and was unable to export Tom Tom, Buttermint and cocoa intermediaries to West and Central Africa by land. The confectioner reported a 14.42 percent decline in revenues from year-on-year export sales to 3.3 billion naira in nine months to 2020 due to Covid-19 and closure of the land border.
Also, Guinness Nigeria could not move its drinks to West and Central Africa, leading partly to a nine-month to 2020 revenue crash of 78.6 percent.
Okhai Ehimigbai, export manager at Aarti Steel, said that its export segment was shut down in 2020 owing to the border closure.
Most exporters said they could not export by sea because it was expensive and time-consuming. This reporter learnt that Nestle Nigeria spent over eight weeks on sea at one point while exporting its products to Niger Republic, a move that could have taken three days or fewer.
The situation impacted trade negatively. Nigeria earned 823.06 million dollars (296.3 billion naira) from export to ECOWAS countries and 2.72 billion dollars (978.21 billion naira) from shipping out products to Africa in the first quarter of 2020. In the second quarter of 2020, export to the whole of Africa was estimated at 401.4 billion naira, while goods worth 149.3billion naira were moved from Nigeria to ECOWAS member states, representing 82 percent decline from export in the first quarter. Though this was attributed to Covid-19, manufacturers said the border closure was a critical factor.
Seyi Kolawole, an associate at PwC, said the foreign trade statistics released by the NBS might be ‘extremely misleading.’ He said, even to a layman, Nigeria often imported more than what it exported. “I can understand there was the impact of COVID-19 on trade last year. However, the variation is too extreme,” Kolawole said.
“One of the major items that may have affected the figure is fuel. Unless they say that massive difference is all accounted for by fuel, because that is one of the major commodities we export. Therefore, the oil price crash and the reduction in the volume of oil that was exported might be responsible for that,” Seyi said.
However, he went further to say that more explanation was still needed from the NBS because it did not reflect the real picture of the country’s trade reality.
On the other hand, Muyiwa Adesina, another associate at PwC, said the foreign trade was measured on value and not on quantity or volumes. “So if you look at the value of crude export relative to other exported commodities, that might explain that. Therefore, it means Nigeria suffered a plunge in its oil export for us to have a trade deficit.”