Nigeria‘s trade with the rest of Africa rose by 40.8 percent year-on-year in the first half of 2023 (H1’23), soaring to N1.839 trillion from N1.306 trillion in the corresponding period of 2022 (H1’22).

This resurgence marks a decisive departure from the declining trend observed in the nation’s intra-African trade since 2020, in terms of value.

Recent data sourced from the National Bureau of Statistics (NBS) reveals that Nigeria’s intra-African trade in H1’21 stood at N1.47 trillion, accounting for a significant portion of the total foreign trade of N21.79 trillion during the same period.

Similarly, in H1’20, the country’s intra-African trade stood at N1.67 trillion, contributing to the N14.55 trillion total foreign trade recorded within that period.

The NBS data pertaining to Nigeria’s external trade with the rest of Africa also highlights the expanding influence of intra-Africa trade when compared to the nation’s overall foreign trade in the past three years.

The N1.839 trillion recorded in H1’23 represents a substantial 7.42 percent of the total foreign trade, which amounted to N24.789 trillion during the period.

In comparison, the N1.306 trillion recorded in H1’22 accounted for 5.05 percent of the N25.843 trillion total foreign trade during that period.

In H1’21, N1.47 trillion represented 6.75 percent of the total foreign trade of N21.79 trillion, while in H1’20, the N1.67 trillion recorded contributed a significant 11.48 percent to the N14.55 trillion total foreign trade for that period.

It is noteworthy that Nigeria’s trade with the rest of the African continent in H2’2022 reached N2.095 trillion, constituting 8.98 percent of the total foreign trade of N23.32 trillion within the same period.

On an annual basis, Nigeria’s intra-African trade volume had been steadily declining since 2021 when the African Continental Free Trade Area (AfCFTA) was initiated. In 2020, the percentage of Nigeria’s intra-African trade stood at 11.03 percent, but it progressively dwindled to 7.46 percent in 2021 and further dropped to 6.5 percent in 2020. This trend reflects a relatively sluggish start for the AfCFTA.

It’s worth noting that Nigeria is not among the African countries that have commenced trading under the Guided Trade Initiative (GTI) of the AfCFTA.

According to Mrs. Odiri Erewa-Meggison, Chairperson of the Manufacturers Association of Nigeria’s Export Promotion Group (MANEG), Nigeria’s absence from the initial GTI batch stems from the fact that the minimum requirements for participation had not been met at the program’s outset.

In contrast, eight countries—Rwanda, Cameroon, Egypt, Ghana, Kenya, Mauritius, Tanzania, and Tunisia—have already begun operations under the GTI, having satisfied the necessary prerequisites for trade under the agreement.

According to Nigeria’s Debt Management Office (DMO), total public debt increased by 75% q/q or N38.5trn to N87.4trn at end-June ’23. On a y/y basis, public debt increased by 104%. As at end-June ’23, public debt was equivalent to 43.7% of 2022 nominal GDP. This is above the DMOs debt-to-GDP ratio target of 40% within 2020-2023.

However, still below the limit of 55% set by the World Bank for countries within Nigeria’s peer group. We note that Nigeria’s debt-to-GDP ratio is relatively low when compared with other African emerging economies such as Ghana (88.8%), Egypt (87.2%), South Africa (67.4%), Kenya (67.3%).

The rise in the public debt stock can be largely attributed to the recent inclusion of the securitized N22.7trn CBN ways and means advances to the FGN. The fx depreciation triggered by the fx liberalization policy also contributed to the surge in the total public debt stock. To put this in perspective, at end-June ’22 the fx rate closed at N425.1 per USD (NAFEX) vs N769 per USD at end-June ’23.

As for total domestic debt, we noticed a 68% q/q increase to N54trn at end-June ’23. There were q/q increases recorded across FGN bonds (127.7% q/q), FGN Savings bond (10.4% q/q) and promissory notes (3.7% q/q). The DMO had set out to raise a maximum of N3.6trn at end-Q3 ’23 through FGN bonds. However, YTD, it has raised N4.3trn (exceeding its borrowing target by 19.4%). The FY 2023 domestic borrowing target of N7.04trn will likely be exceeded.

The domestic debt for states and the FCT increased by 7.4% q/q to N5.8trn at end-June ’23 from N5.4trn recorded at end-March ’23. On a y/y basis, it grew by 20.8%. The most indebted states include Lagos (N996.4bn), Delta (N465.4bn), Ogun (N293.2bn), Rivers (N225.5bn) and Imo (N220.8bn).

Meanwhile, the external debt stock increased marginally by 1.4% q/q to USD43.2bn at endJune ’23 compared with USD42.6bn recorded at end-March ’23. Multilateral lenders such as the World Bank, IMF, AFDB, as well as bilateral lenders like China, Japan, India, and France collectively accounted for 60.9% of the external debt stock while commercial loans (Eurobonds and Diaspora bonds), promissory notes and syndicated loans accounted for 39.1% Turning to debt servicing, we note that as at end-June ’23, the FGN has spent N2.34trn on debt servicing (N1.44trn on domestic and N900bn on external).

Based on latest data in the public domain (i.e., as at end-March ’23), the debt-service-to-revenue ratio stood at 83%. We expect debt service costs to remain elevated (in nominal terms) due to the impact of the fx liberalization policy and additional borrowing on the back of the FGN budget deficit.

In a separate report by the DMO, the debt-service-to-revenue ratio for 2023 was pegged at 75%, reflecting the urgent need to improve government revenue. According to the DMO, to achieve a sustainable debt-to-GDP ratio, the FGN needs to increase its revenue base from the projected N10.5trn for FY 2023 to c.N15.5trn.

The constraints around government revenue growth have led to overreliance on borrowing to finance the FGN budget. There are deliberate efforts towards strengthening the fiscal landscape. The current administration has set up a Fiscal Policy and Tax Reforms Committee. We expect the committee’s efforts to assist with ensuring a minimum tax-to-GDP ratio of 18% by 2026, expand the tax net, and eliminate the tax gaps. Based on industry sources, it is estimated that Nigeria loses c.N20trn annually on the back of incidences of tax evasion.

Amidst President Bola Ahmed Tinubu’s repeated assurances of subsidy removal, it has come to light that the Federal Government disbursed N169.4 billion as subsidy payments in August to maintain the pump price of petrol at N620 per litre.

This revelation has raised eyebrows and ignited discussions about the future of fuel subsidies in Nigeria.

Investigation, backed by a document from the Federal Account Allocation Committee (FAAC), reveals that the Nigerian Liquefied Natural Gas (NLNG) paid $275 million as dividends to Nigeria through NNPC Limited. Out of this, NNPC Limited allocated $220 million (equivalent to N169.4 billion at N770/$) to cover the Petroleum Motor Spirit (PMS) subsidy, keeping it artificially low.

This move effectively indicates a resurrection of the subsidy system, which the government had promised to eliminate.

Under former President Buhari’s administration, Nigeria saw record-high spending on petrol subsidies. Reports from the Nigeria Extractive Industries Transparency Initiative (NEITI) show that subsidies cost N1.99 trillion from 2015 to 2020.

In 2021 alone, NNPC reported a subsidy cost of N1.57 trillion, with an additional N1.27 trillion from January to May 2022. The government had allocated N3 trillion in the budget to cover subsidy costs from June 2022 to June 2023, amounting to N7.83 trillion spent on subsidies during Buhari’s tenure.

Global oil market dynamics are further complicating the subsidy issue. Brent crude prices exceeded $95 per barrel, while the naira depreciated against the US dollar, undermining Nigeria’s pledge to remove petrol subsidies.

Despite higher international crude prices and exchange rate pressures, the government has held the pump price at N620/litre.

The situation has also strained petroleum marketers, who face rising international prices, a weakening naira, and government-mandated price caps. International petrol prices, exchange rates, and additional costs have collectively driven up the landing cost of PMS to about N728.64 per litre.

The government’s strategy to sustain the N620 per litre price involved a $3 billion crude repayment loan with Afrexim Bank to bolster the naira. However, this loan has reportedly stalled due to the withdrawal of other lenders.

While the government claims the subsidy is a temporary measure to ease the economic burden on Nigerians, experts argue that it highlights the need for a functional refinery and currency stability.

Without these factors in place, petrol prices will remain susceptible to fluctuations in global oil markets and exchange rates, potentially impacting the masses.