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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.

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Economy

IMF Staff Completes Virtual Mission to Lesotho

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IMF

Lesotho has been struggling with the fallout from the pandemic and a sharp decline in revenues from the Southern African Customs Union (SACU); The authorities and the mission team made significant progress in their discussions on policies that could be supported by the IMF under a financial arrangement.

A team from the International Monetary Fund (IMF), led by Mr. Aqib Aslam, conducted a series of virtual missions, most recently from September 7 to October 15, 2021, to discuss the authorities’ economic and financial program and their request for IMF financial support.

The authorities and the mission team had productive discussions on policies that could be supported by the IMF under a financial arrangement. The program under discussion would aim to support a durable post-pandemic recovery, restore fiscal sustainability, strengthen public financial management, and ensure the protection of the most vulnerable. Other key structural reforms to be implemented include strengthening governance and fostering private sector investment to spur inclusive growth and employment over the medium term.

At the end of the visit, Mr. Aslam issued the following statement:

“Lesotho has been experiencing twin economic shocks resulting from the pandemic and a decline in revenues from the Southern African Customs Union (SACU) that have proved to be highly volatile. Public expenditures have been increasing while SACU revenues were buoyant but have not adapted to their decline and the limited growth in other revenue sources. At the same time, the economy has been in recession since 2017. The resulting fiscal and external imbalances, if left unaddressed, would continue to put pressure on international reserves and lead to government payment arrears.

“Discussions emphasized the need to support a robust and inclusive post-pandemic recovery. To this end, the mission discussed with the authorities a number of options for containing the fiscal deficit to a level that is sustainable and can be fully financed. The team noted that the adjustment should be focused on expenditure measures while boosting poverty-reducing social spending to protect the most vulnerable. Complementary actions include efforts to broaden financial access and inclusion; strengthen financial supervision; modernize the legal frameworks for bank lending, business rescue, and restructuring, and digitalize payment systems.

“On the fiscal front, efforts should focus on addressing the public sector wage bill, which is one of the largest in the world compared to the size of the economy; saving on public sector and official allowances; better targeting education loans; streamlining the capital budget and initiating gender-responsive budgeting. Discussions also considered measures to modernize tax policy and improve domestic revenue mobilization. The mission noted the need to address long-standing PFM issues to ensure the provision of reliable fiscal data, the integrity of government systems, and the sound use of public resources.

“Significant progress was made during the visit, and discussions will continue in the coming weeks. If agreement is reached on policy measures in support of the reform program, an arrangement to support Lesotho’s economic program would be proposed for the IMF Executive Board’s consideration.

“The IMF team thanks the authorities for their hospitality and constructive discussions.”

The IMF mission met with Prime Minister Majoro, Minister of Finance Sophonea, Central Bank Governor Matlanyane, and other senior government officials. The team also met with representatives of the diplomatic community, private sector, civil society, and multilateral development partners.

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Nigeria’s Inflation: Prices Increase at Slower Pace in September 2021

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Consumer Confidence

Prices of goods and services moderated further in Africa’s largest economy, Nigeria in the month of September 2021, the latest report from the National Bureau of Statistics (NBS) has revealed.

Consumer Price Index (CPI), which measures the inflation rate, grew at 16.63 percent year-on-year in September, slower than the 17.01 percent rate achieved in the month of August.

On a monthly basis, inflation rose by 1.15 percent in September 2021, representing an increase of 0.13 percent from 1.02 percent filed in August 2021.

Food Index that gauges price of food items grew at 19.57 percent rate in the month, below the 20.30 percent rate recorded in August 2021.

The increase in the food index was caused by increases in prices of oils and fats, bread and cereals, food product N.E.C., fish, coffee, tea and cocoa, potatoes, yam and other tuber and milk, cheese and egg.

However, on a monthly basis, the price of food index rose by 0.20 percent from 1.06 percent filed in August 2021 to 1.26 percent in September 2021.

The more stable twelve months average ending in September 2021 revealed that prices of food items grew by 0.21 percent from 20.50 percent in August to 20.71 percent in September.

Prices of goods and services have been on the decline in Nigeria in recent months, according to the NBS. However. on masses are complaining of the persistent rise in prices of goods and services across the nation.

Some experts attributed the increase to Nigeria’s weak foreign exchange rate given it is largely an import-dependent economy.

 

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Economy

Global Debt Rises by $27 Trillion to $226 Trillion in 2020 – IMF

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IMF - Investors King

The pandemic has led to an unprecedented increase in debt—issued by governments, nonfinancial corporations, and households the IMF estimated in the latest Fiscal Monitor report. In 2020 global debt reached $226 trillion and increased by $27 trillion, the IMF estimated Wednesday  (October 13) in Washington, DC.

High and growing levels of public and private debt are associated with risks to financial stability and public finances, said Vitor Gaspar, Director of the IMF’s Fiscal Affairs Department.

“According to preliminary estimates from the Global Debt Database, global debt by governments, households, and non-financial corporations reached $226 trillion. That represents an increase of $27 trillion relative to 2019. Both the level and the pace of increase are record highs. We know that high and rising debts increase risks to financial stability and public finances,” Gaspar said ahead of the Fiscal Monitor release.

Gaspar emphasized that countries with a high credibility fiscal framework benefit from better bond market access. They also experience lower interest rates on sovereign bonds.

“A strong message from the fiscal monitor is that fiscal credibility pays off. Countries that have credible fiscal frameworks benefit from better and cheaper access to bond markets. That’s a precious asset to have in an uncertain and difficult times like COVID 19. Fiscal credibility pays off!,” added Gaspar.

He also recognized that while the international community has provided critical support to alleviate fiscal vulnerabilities in low-income countries, still more is needed.

“In 2020, the IMF’s rapid financing and the G20 Debt Service Suspension Initiative contribute to make resources available to the countries that need it the most. But more is needed. With a general allocation of SDRs of $650 billion, liquidity has been provided, but much more could be achieved if rich countries would make part of their resources available to the developing world. By doing so, donors would be contributing to fighting the pandemic and to the achievement of sustainable and inclusive growth,” said Gaspar

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