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Correcting Imbalance in Nigeria’s Trade Relations

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NEPC

The continuous trade deficit recorded by the country and the need to safeguard the economy, prevent dumping and enlarge the Nigerian market to other regions of the world has made it imperative for a review of the country’s trade policy writes IFEANYI ONUBA

Last month, the National Bureau of Statistics released the merchandise trade statistics for the third quarter of 2016 with the country recording a trade deficit of N104.14bn with its trading partners.

The report stated that while the country’s total value of merchandise trade in the third quarter of 2016 rose by N661.5bn or 16.3 per cent to N4.72tn, the country’s trade structure was still dominated by crude oil exports.

It said despite the plans by the government to reduce the import bill through its diversification efforts, the amount spent on importation of goods rose by N140, 7bn or 6.2 per cent to N2.41tn.

Nigeria’s import trade by direction showed that the country imported goods mostly from China, with an import value of N478.7bn or 19.8 per cent of total imports.

This was followed by Belgium at N331.3bn or 13.7 per cent, Netherlands with N299.7bn or 12.4 per cent, the United States with N165.5bn or 6.9 per cent and India with N121.3bn or five per cent of total imports.”

In terms of export, the report added that this rose by N520.8bn or 29.1 per cent to N2.3tn in the third quarter with mineral products accounting for a huge chunk of this amount.

India, according to the report, remains Nigeria’s major trade partner in the quarter in review accounting for 25.4 per cent of total exports while the United States and France contributed 17.9 per cent and 10.7 per cent respectively.

While the Federal Government through its zero oil plan said it had identified 22 priority countries as markets for Nigerian products with 11 strategic products to replace oil, analysts said such move would not achieve the desired impact with the current trade policy of the government.

They blamed the negative trade balance recorded in the third quarter of 2016 on the country’s inability to formulate an effective strategy to boost exports.

Those who spoke to our correspondent on the issue were the President, National Association of Nigerian Traders, Barrister Ken Ukaoha, the President, Abuja Chamber of Commerce and Industry, Mr Tony Ejinkeonye and the Head, Banking and Finance Department, Nasarawa State University, Uche Uwaleke.

Ukaoha told our correspondent in a telephone interview that a lot of factors contributed to the decline in trade with the lack of an effective trade strategy as one of them.

He said, “We have for so long remained import dependent. We have also continued to cultivate a mono product economy which is oil and our earnings from oil are presently disappointing.

“Apart from the fact that the price of oil is depreciating, you also find out that the quantity of our export is going so terribly low as a result of vandalism.

“In terms of other non-oil exports, the country has still not got its act together. This is because diversification which should have pioneered our export has not been effective. As we speak today, we don’t have a trade policy in place and we don’t have an export strategy in place.

“We are talking about import substitution but all the strategies needed there are not in place. Also, the delay in the passage of the budget last year made all the private sector operators who are major players in exports to relax, waiting for the budget passage in order to know the next line of action.”

On what could be done to reverse the trend, Ukaoha said the National Economic Management Team should as a matter of urgency come up with a trade policy to reverse the trend.

He said, “The Federal Government needs to work overnight to make sure we have a trade policy document that shows us where we are headed to in terms of import substitution and any other trade policy that we can adopt on trade as a country.

“We must come to terms with our reality of our regional endeavours in terms of regional integration and regional trade by seeing ECOWAS regions as the first point in our regional trade.”

Uwaleke, an associate professor of finance, said the negative trade balance recorded at the end of third quarter of 2016 and the fact that a significant proportion of the exports were mineral products underscore the need to diversify the export base of the economy.

He said. “I have always said that devaluation of the naira will not make any significant impact on our trade balance given the inelastic nature of imports and the country’s shallow export base.

“The NBS report also shows that the bulk of Nigeria’s imports is from China. By implication, a lot of pressure will be taken off the dollar if the Nigeria-China agreement on Yuan transactions is well implemented.

“The naira will also firm up as a direct consequence of settling imports from China in Yuan instead of the dollar.”

Reacting to the negative trade balance recorded by the country, Ejinkeonye called on the government to look inwards on how to resuscitate export activities across the non-oil value chain given the crumbling state of the oil sector.

He said, “As the Nigerian economy remains in despair, it has become worrisome to us in the private sector and indeed entire Nigerians on how we can survive economic hardship.

“The negative trade balance is a clear indication and a wake-up call for the government to swing into action and look inwards on how to resuscitate export activities across the non-oil value chain given the crumbling state of the oil sector.

“It is against this backdrop that we are calling on the Federal Government to consider revisiting the Export Expansion Grant scheme which was originally initiated to motivate exporters and also encourage export based activities in a bid to diversify our economy from the mono-export market.

“It is now evident, given the merchandise trade statistics, that the suspension of EEG would continue to affect the non-oil sector growth which has been recording poor performance in the last four year.”

Speaking on the development, the Trade Advisor to the Minister of Industry, Trade and Investment and Chief Trade Negotiator for Nigeria, Amb Chiedu Osakwe, said the Federal Government would soon commence a comprehensive review of the country’s trade policy in order to correct the trade imbalance with its trading partners.

He said this review would enable the government avoid dumping of substandard products into the economy by some foreign trade partners.

The review which would be done this year would be the first to be carried out since 2002 when the current policy was formulated.

He said the review of the trade policy would be done in such a way that that it would discourage dumping and promote the diversification efforts of the government.

Osakwe said, “We want to restructure our trade policy and reset the economy with it and we will be using trade negotiations to create consistent safeguards to protect the economy.

“So we will be working on our domestic trade laws that will safeguard the economy, prevent dumping and enlarge the Nigerian market.”

He also said that the Federal Government would not be stampeded into signing and ratifying the Economic Partnership Agreement between the European Union and the ECOWAS region

He explained that while Cote d Voire and Ghana had signed onto the agreement, the Federal Government was not in a hurry to do same as the agreement in its current form does not support the diversification efforts of government.

He said the review of the trade policy would enable the government expand market opportunities for Nigerian companies as well as look into the ECOWAS Common External Tariff and the EPA that have been seen to be controversial.

Osakwe said the ministry was also updating Nigeria’s trade policy priorities by working to correct imbalances in the country’s trade relationships and reversing negotiating failures.

Manufacturers and industrialists have taken a strong position that the negotiation that resulted in the CET did not take into account the sensitivities of the Nigerian industrial and manufacturing sector

Stakeholders have taken the position that the Nigerian economy would be damaged if the CET is implemented in 2020 and that the situation would be compounded if Nigeria signs the EPA with the European Union.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

Economy

Nigeria’s Big Oil-Refining Revamp Gets Off To A Slow Start

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refineries

Nigeria’s Big Oil-Refining Revamp Gets Off To A Slow Start

A year after shutting down all of its dilapidated refineries to figure out how to fix them, Nigeria still can’t say how much it will cost to do the work or where the money will come from.

Nigerian National Petroleum Corp. said it has finished the appraisal of its largest facility, but hasn’t completed the process at two others. Refining experts said the extended halt means the plants are at risk of rotting away and unlikely to restart on time.

“Things haven’t been looking good lately,” with Nigeria’s plants probably “completely out of action for some 18 months,” said Elitsa Georgieva, Executive Director at Citac, a consultant that specializes in African refining.

The dysfunction of its domestic refineries has long put Africa’s biggest oil producer in an ironic situation. It exports large volumes of crude to plants overseas, then pays a premium to import the fuels its customers produce.

Failed Attempts

Pledges to fix the facilities have been made and broken again and again over the years. For at least a decade, NNPC’s 445,000 barrels a day of refining capacity barely processed 20% of that amount.

The latest effort to fix the refineries was supposed to be different to the failed attempts that came before. The company had totally shut all three plants down by January 2020 to do a comprehensive appraisal, and set the ambitious target of having them all back up and running at 90% of capacity by 2023.

“The refineries have been deliberately shut down to allow for a thorough diagnosis,” said Kennie Obateru, an Abuja-based NNPC spokesman. “They can be fixed based on what the diagnosis reveals.”

The appraisal of the 210,000-barrel-a day Port Harcourt refinery has been completed and NNPC has called for bids for the necessary repairs, Obateru said. The company hasn’t determined how much the work will cost.

“It is when we close the bids, everything is analyzed and presented that we will know how much we need,” he said.

The diagnosis is underway at the 125,000-barrel-a-day Warri facility and should be complete before the end of the year, he said. After that, the study of the 110,000-barrel-a-day Kaduna plant will commence.

Major Challenge

One year into the process, refining analysts are skeptical that all this work can be done by 2023.

“I don’t think anyone has a good understanding technically of what’s wrong with those refineries,” said Alan Gelder, vice president of refining, chemicals and oil markets at Wood Mackenzie Ltd. “They’re probably corroding, which makes it a very difficult proposition.”

NNPC reaffirmed its deadline and said there’s no reason the refineries, which are at least 40 years old, can’t be restored to full operation.

“There are refineries that are over a hundred years old still running, so age is not necessarily an impediment,” Obateru said.

There are parallel efforts backed by private companies to add to Nigeria’s capacity. Aliko Dangote, Africa’s richest person, is building a state-of-the-art 650,000 barrel-a-day refinery, which Citac estimates will start production in 2023.

Bringing NNPC’s Port Harcourt refinery to the same clean-fuel standards as Dangote’s modern plant would cost about $1.3 billion for the equipment, on top of whatever other repairs are required to get the facility running, Georgieva said.

NNPC is talking to oil-trading firms about $1 billion of prepayment deals that could finance the repairs at Port Harcourt, Reuters reported last week. Obateru declined to comment on the report, but said “I don’t envisage that we will have a problem getting people to invest.”

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Economy

Food Inflation Hits Record High of 19.56 Percent in December 2020

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Inflation

Food Inflation Hits Record High of 19.56 Percent in December 2020

Food Index, which measures prices of food items, grew by 19.56 percent in the month of December 2020 amid herdsmen attacks and flooding.

In the latest report from the National Bureau of Statistics (NBS), increases were recorded on Bread and cereals, Potatoes, Yam and other
tubers, Meat, Fruits, Vegetable, Fish and Oils and fats.

On month on monthly basis, the food sub-index rose by 2.05 percent in December 2020, 0.01 percent from 2.04 percent recorded in November 2020.

The average annual rate of change of the Food sub-index for the twelve-month period ending December 2020 over the previous twelve-month average was 16.17 percent, 0.42 percent points from the average annual rate of change recorded in November 2020 (15.75) percent” the report stated.

Headline inflation number increased by 15.75 percent in the month of December 2020, up from 14.89 percent.

The report noted that increases were recorded in all COICOP divisions that yielded the Headline index.

On a month-on-month basis, “the urban index rose by 1.65 percent in December 2020, same as the rate recorded in November 2020, while the rural index also rose by 1.58 percent in December 2020, up by 0.02 percent above the rate that was recorded in November 2020 (1.56 percent).

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Economy

Nigeria’s Inflation Rate Rises to 15.75 Percent in December

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inflation

Nigeria’s Inflation Rate Rises to 15.75 Percent in December

Inflation rate in Africa’s largest economy, Nigeria, rose at the fastest pace in several months in the last month of 2020, according to the latest report from the National Bureau of Statistics (NBS).

Consumer Price Index (CPI), which measures inflation rate, increased by 15.75 percent year-on-year in December 2020, representing a 0.86 percent increment from the 14.89 percent attained in November.

On a monthly basis, headline inflation rose by 1.61 percent in the month of December, representing 0.01 percent increase from the 1,60 percent posted in the month of November.

Food gauge that measures prices of items in Africa’s largest economy increased by 19.56 percent in December from 18.30 percent in November.

NBS attributed the increase to the surge in prices of Bread and cereals, Potatoes, Yam and other tubers, Meat, Fruits, Vegetable, Fish and Oils and fats.

On a monthly basis, the food sub-index grew by 2.05 percent in December 2020, an increase of 0.01 percent points from 2.04 percent recorded in November 2020.

The more stable annual rate showed Food sub-index over the last 12 months increased by 0.42 percent points from 15.75 percent in November to 16.17 percent in December.

Herdsmen attacks, the rising cost of fuel, flooding and the wide exchange rate are some of the key factors impacting the cost of food items in Nigeria, especially in December when demands were the highest.

Still lack of enough fiscal buffer to cushion the effect of COVID-19 and ease forex scarcity also drag on raw materials necessary for the production of some import-dependent items.

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