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Nigeria in Focus



The latest report from the National Bureau of Statistics (NBS) in its series on foreign trade in goods shows the total value of trade as N13.28trn in Q3 ‘21, representing an increase of 10% on the preceding quarter and a y/y increase of 59%. Compared with Q2 ‘21, the total export value rose by just 1% to N5.13trn, and the import value rose by 17% to N8.15trn.

The net result was a deficit of N3.02trn, which followed a deficit of N1.87trn the previous quarter. This makes eight consecutive trade deficits. The data were drawn primarily from the Nigeria Customs Service.

• Total trade in 2020 declined primarily due to lower exports. The implementation of lockdowns and restrictions had an adverse effect on export activity last year. The total trade value as a percentage of GDP stood at 21% in 2020. In Q3 ’21, total trade as a percentage of GDP stood at 8.7%.

• For Nigeria, the NBS notes that the majority of imports in Q3 ’21 originated from East Asia (China, especially). The value of imported agricultural goods. Manufactured products as well as oil-related products rose by 21% q/q, 14% q/q and 35% q/q respectively.

• Regarding export destination, India remained the top exporting partner for Nigeria in Q3 ‘21. The five top exports partners were India, (14.8%) Spain (12.2%), Italy (8.7%), France (7.1%), and the Netherlands (4.7%). These five
countries accounted for 47.5% of the total exports in Q3 ’21.

• As usual, crude oil accounted for the largest share (78%) of total exports in Q3. However, the value of crude oil exports declined by 1.3% q/q but rose by 66% y/y. The crude oil price (Bonny Light) averaged USD73.8/b in Q3.

• We note that raw cocoa beans, sesame seeds, cigarettes, natural rubber and aluminium featured as non-oil export products in Q3 ’21.

• Nigeria exported goods valued at N347bn to fellow members of the Economic Community of West African States (ECOWAS), compared with N363bn the previous quarter. This represented 52% of total exports within Africa.
Meanwhile, imports from ECOWAS accounted for 11% of the value of total imports.

• The leading port of operation during the quarter under review was the Apapa Port. Goods worth N4.7trn exited the country through this port. The next leading port of operation was Port Harcourt, through which goods worth N308bn were shipped to partner countries. Tin can Island was also very active and goods worth N104bn exited Nigeria through this port.

• The African Continental Free Trade Area (AfCFTA) agreement is expected to contribute significantly towards the development of regional value chains. To maximise the benefits of the agreement, Nigeria’s manufacturing sector needs to be strengthened. Furthermore, local manufacturers need to significantly improve their service delivery and product standards if they are to be competitive in a burgeoning intra-continental marketplace.

• The UN Economic Commission for Africa estimates that tariff reductions under the AfCFTA agreement will boost intra-African trade by over 51% by 2022 (or by as much as 100% if non-tariff barriers are reduced). The Federal Executive Council has ratified Nigeria’s membership of the AfCFTA.

Global/Regional in focus

The COVID-19 pandemic generated an unprecedented global shock, with a devastating effect on global trade largely due to the lockdown measures that were put in place across countries as a strategy to mitigate the pandemic’s spread. The impact on international trade was evident in the decline in commodity prices in the first quarter of 2020 (e.g. crude oil, copper, among others) as well as reduced manufacturing output and disrupted operations across global value chains. Based on data from the World Trade Organisation (WTO), the initial COVID-19 shock led to a -13.3% or USD569.9bn decline in global merchandise trade from USD4.3trn in Q1 ’20 to USD3.7trn in Q2 ’20.

However, due to increase in vaccination as well as reopening of economies, merchandise trade recovered to USD5.6trn in Q3 ’21 compared with USD4.9trn recorded in the corresponding period in 2020. This is also 16.4% above the average recorded over the past eight quarters (USD4.8trn).

Turning to the African landscape, the pandemic also adversely impacted the continent’s trade, particularly in 2020. For instance, in Q2 ’20 when the pandemic was at its peak, and the associated lockdown measures affected a large share of the global population, merchandise trade declined by 15.1% in Q2 ’20 to USD89.7bn compared with USD105.6bn recorded in the preceding quarter. However, there have been notable improvements in African trade in 2021 with global economies reopening and increase in vaccine uptake (African vaccination rate currently stands at 8.6%).

Intra-African trade is currently low as it accounts for less than 15% of total African exports, suggesting higher potential benefits from greater regional trade. However, when informal cross-border trade is taken into account, Africa records higher intraregional trade, particularly in agriculture. In some African countries, informal cross-border trade accounts for c.90% of official trade flow and contributes c.40% to total trade within regional economic communities.

The African Continental Free Trade Area (AfCFTA) agreement has the potential to alleviate the effects of COVID-19 in Africa and intra-African trade. The agreement has several benefits including the potential to boost economies and bolster trade diversity, encourage industrialisation, eliminate tariffs and non-tariff barriers as well as contribute to sustainable growth, among others.

At the last CIBN Banking and Finance conference held in September ‘21, a special session on AfCFTA was taken by Dr. Hippolyte Fofack, Chief Economist and Director of Research and International Cooperation Department at the African Export-Import Bank. He noted the numerous benefits of the AfCFTA agreement ranging from the deepening and acceleration of industrialisation to mutually reinforcing the relationship between regional integration and intra-African trade.

The question, therefore, is “what are the top sectors with high potential within AfCFTA markets?”. From our vantage point, top merchandise trade sectors include vehicles and transport equipment, agro-food products, energy, metals and machinery, as well as chemical products. As for the services sectors, we highlight; ICT, infrastructure and logistics, finance, banking and insurance, education as well as health.

The successful implementation of the AfCFTA to boost both extra- and intra-African trade hinges upon successfully tackling supply-side constraints, closing the trade financing gaps, excessive reliance on foreign currencies, among others. Industry sources suggest that Africa’s current untapped export potential amounts to USD21.9bn, equivalent to 43% of intra-African exports. The AfCFTA agreement can potentially add USD9.2bn worth of exports through partial tariff liberalisation over the next five years. Additionally, the agreement could boost employment and earning capacities among marginalised groups (i.e. women and youth).


CBN Holds Monetary Policy Rate At 11.5%, Leaves Other Parameters Constant



Godwin Emefiele - Investors King

In its continuous efforts to boost the country’s economy and as well, reduce inflation, the Central Bank of Nigeria (CBN) led Monetary Policy Committee (MPC) has retained the Monetary Policy Rate (MPR) at 11.5% with all other parameters unchanged.

Governor of the CBN, Godwin Emefiele, disclosed this while reading the communique of the first monetary policy committee meeting of the year on Tuesday.

The committee unanimously voted to retain the Cash Reserve Ratio at 27.5% and the liquidity ratio at 30 percent.

According to the MPC, the Nigerian economy is expected to continue its positive trajectory following the impressive growth recorded in the third quarter of 2021.

Monetary policy refers to any policy measure devised by the Central Bank to control the cost, availability and supply of credit.

According to the apex bank, the ultimate goals of monetary policy are basically to control inflation, maintain a healthy balance of payment position in order to safeguard the external value of national currency and promote adequate and sustainable level of economic growth and development. These goals are achieved by controlling money supply in order to enhance price stability (low and stable inflation) and economic growth.

Investors King reports that CBN undertakes monetary policy in order to maintain Nigeria’s external reserves to safeguard the international value of the legal currency, promote and maintain monetary stability and a sound and efficient financial system in Nigeria, act as banker and financial adviser to the Federal Government and act as lender of last resort to banks.

The legal backing for monetary policy by the Bank derives from the various statutes of the bank such as the Central Bank of Nigeria Act of 1958 as amended in CBN Decree No. 24 of 1991, CBN Decree 1993 (Amendment), CBN Decree No. 3 of 1997 (Amendment), CBN Decree No. 4 of 1997 (Amendment), CBN Decree No. 37 of 1998 (Amendment), CBN Decree No. 38 of 1998 (Amendment), CBN Decree 1999 (Amendment) and CBN Act of 2007 (Ammended).

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COVID-19: IMF Rolls Out $50 Billion Trust Fund, Targets Low-income, Vulnerable Countries



IMF global - Investors King

The COVID-19 pandemic, no doubt, has had significant economic consequences, especially on low-income and less developed countries.

It is in view of this that the International Monetary Fund (IMF) proposed a $50 billion trust fund to help these low-income and vulnerable middle-income countries build resilience and ensure a sustainable recovery through a Resilience and Sustainability Trust (RST), Investors King has learnt.

The RST’s central objective is to provide affordable long-term financing to support countries as they tackle structural challenges.

According to the IMF, broad support from the membership and international partners will further aid in the approval of the RST by the IMF Executive Board before the upcoming Spring Meetings and for it to become fully operational before the end of the year.

Apart from the pandemic, climate change is another long-term challenge that threatens macroeconomic stability and growth in many countries through natural disasters and disruptions to industries, job markets, and trade flows, among others.

Hence, the RST support aims to address macro-critical longer-term structural challenges that entail significant macroeconomic risks to member countries’ resilience and sustainability, including climate change, pandemic preparedness, and digitalization.

The IMF and World Bank staff have worked closely to develop a coordination framework on RST operations on climate risks, building on earlier experience in supporting countries with structural reforms. Similar frameworks with relevant institutions are expected to be developed in the coming months in this and other reform areas.

Meanwhile, to qualify for the RST support, an eligible member would need a package of high-quality policy measures consistent with the RST’s purpose; a concurrent financing or non-financing IMF-supported program with appropriate macroeconomic policies to mitigate risks for borrowers and creditors; and sustainable debt and adequate capacity to repay the Fund.

The RST would be established under the IMF’s power to administer contributor resources, which allows for more flexible terms, notably on maturities, than the terms that apply to the IMF’s general resources.

Consistent with the longer-term nature of balance of payments risks the RST seeks to address, its loans would have much longer maturities than traditional IMF financing.

Specifically, 20-year maturity and a 10-year grace period has been proposed.


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FG Suspends Removal of Fuel Subsidy Over Inflation Concerns



Nigerian petrol station

The Federal Government has suspended plans to remove fuel subsidy by the end of the first half of 2022 over heightened inflation, according to the Minister of Finance, Mrs. Zainab Ahmed.

The Minister made the statement at a meeting with President of the Senate, Sen. Ahmad Lawan, at the National Assembly on Monday.

She said the removal of fuel subsidy at any time this year could escalate inflationary pressure in the country.

“We discovered that practically, there is still heightened inflation and that the removal of subsidy would further worsen the situation and impose more difficulties on the citizenry,” Ahmed said at the meeting.

“Mr. President does not want to do that. What we are now doing is to continue with the ongoing discussions and consultations in terms of putting in place a number of measures.

“One of these include the roll-out of the refining capacities of the existing refineries and the new ones which would reduce the amount of products that would be imported into the country.

“We, therefore, need to return to the National Assembly to now amend the budget and make additional provision for subsidy from July 22 to whatever period that we agreed was suitable for the commencement of the total removal.”

Agusto&Co, a research, credit ratings and credit risk management firm, had projected the same thing in its economic outlook for 2022 sent to clients. The firm had argued that it was impossible for the current administration to remove fuel subsidy given its little political capital.

The firm said no, the FGN can not remove subsidy in full in 2022 because “this is a tough political decision that we believe is best made by a government with a large amount of political capital. Current government has ruled for seven years, has about a year left and has little political capital to expend.”

Augusto further stated that the federal government is not likely to boost infrastructure spending in 2022 “because the ability of government to invest in infrastructure will still be constrained by weak tax revenues and high operating expenses.”

Therefore, it said the government cannot fully fund Nigeria’s 17 trillion budget as its revenue is limited to ₦5 trillion and funding sources are constrained.

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