Nigeria’s current account trade balance has again contracted. It shrank by ₦2.73 trillion in Q4 2020. This was the fifth consecutive quarter the trade deficits would shrink. The trade contraction in each successive quarter in 2020 was higher than the shrinkage in the preceding quarter. From a contraction of ₦421 billion in Q1 2020, negative trade balance deepened to ₦1.80 trillion in Q2 2020, ₦2.39 trillion in Q3 2020, and ₦2.73 trillion in Q4 2020. Cumulatively, the country’s external trade position shrank by ₦7.38 trillion in 2020.
In Q4 2020, both total imports and total exports rose. While
• Total imports rose by ₦542.71 billion (10.1%) from ₦5.38 trillion in Q3 2020 to ₦5.93 trillion in Q4 2020;
• Total exports increased by ₦201.03 billion (6.7%) from ₦2.99 trillion in Q3 2020 to ₦3.19 trillion in Q4 2020; Also, compared to trade figures in Q4 2019, in Q4 2020
• Total imports rose by ₦576.04 billion (10.8%) to ₦5.93 trillion from ₦5.35 trillion in Q4 2019;
• Total exports fell by ₦1.58 trillion (33.0%) to ₦3.19 trillion from ₦4.77 trillion in Q4 2019;
• Total trade dropped by ₦1.00 trillion (9.9%) to ₦9.12 trillion from ₦10.12 trillion in Q4 2019.
The changes in the metrics for the full year also followed similar direction as the year -on-year changes in the trade figures for Q4 2020.
In 2020,
• Total imports rose by ₦2.94 trillion (17.3%) to ₦19.90 trillion from ₦16.96 trillion in 2019;
• Total exports fell by ₦6.67 trillion (34.8%) to ₦12.52 trillion from ₦19.19 trillion in 2019
The huge decline in total exports and the marked increase in total imports
• Worsened balance of trade position from a surplus of ₦2.23 trillion in 2019 to a deficit of ₦7.38 trillion in 2020
• Led to ₦3.73 trillion (10.3%) drop in total trade from ₦36.15 trillion in 2019 to ₦32.42 trillion in 2020, since the scale of the dip in total exports was higher than the pace of increase in total imports.
In 2020, five of the seven sectoral classifications of Nigeria’s merchandise trade recorded negative trade balances (the only exceptions were crude oil and energy goods sectors):
• The sectors with negative balance of trade were solid minerals, agriculture, manufactured goods, raw material, and other oil products.
─ The dips in net exports across the five sectors (i.e., solid minerals, agriculture, manufactured goods, raw material, and other oil products) were deeper;
─ Crude oil’s exports declined by ₦5.25 trillion (35.7%) from ₦14.69 trillion in 2019 to ₦9.44 trillion in 2020
• In 2020, as in the preceding year, manufactured goods had the highest negative trade balance. While:
─ The value of total exported manufactured goods fell by ₦1.11 trillion (53.7%), from ₦2.07 trillion in 2019 to ₦960.82 billion in 2020;
─ The value of imported manufactured goods rose by ₦779.68 billion (6.5%), from ₦11.94 trillion in 2019 to ₦12.72 trillion in 2020.
Nigeria’s top-10 export partners in Q4 2020 were India (17.12%), Spain (9.81%), South Africa (8.03%), Netherlands (6.09%), United States (5.33%), China (4.91%), France (4.49%), Turkey (4.41%), Canada (4.25%), and Portugal (3.63%). Cumulatively, Nigeria earned 68.07% of its exports’ proceeds from these countries.
Regarding total imports, over the same period, Nigeria obtained 70.77% of its total imports from the following ten countries: China (28. 28%), India (8.54%), United States (7.57%), Netherlands (7.16%), Denmark (5.40%), Belgium (3.87%), Russia (2.74%), Germany (2.44%), France (2.43% ), and Brazil (2.34%).
The negative balance of trade in 2020 was historic: the largest trade deficit on record. It was 25 times the ₦290 billion negative trade balance in 2016; and in absolute terms, higher than the annual trade surplus recorded in the preceding five years.
Clearly, the trade record has revealed a lot about the strength of the Nigerian economy, including the country’s weak productive base, some major reasons for persistent pressure on the naira exchange rate, and the extent to which external shocks may influence domestic macroeconomic conditions. It has also amplified the imperatives of diversifying the domestic economy from oil and gas, and the significance of fiscal reforms.
This year, we expect the country’s trade position to improve, essentially because of the oil price rally.
But the fact that the rise in oil prices, now to the pre-pandemic levels, has been mostly driven by the OPEC+ oil production cut, to which Nigeria has reportedly fully complied, suggests that the government’s oil revenue will remain at sub-optimal level until the second half of the year when oil demand is projected to rise. So, the impact of the increase in oil earnings may only be significant in the later part of the year; and with the base year effect, the net exports may again return to positive territory by that time, if the net gain from the implementation of the African Continental Free Trade Agreement (AfCTA) is not substantially negative.