Correcting Imbalance in Nigeria’s Trade Relations

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.

About the Author

Samed Olukoya
Samed Olukoya is the CEO/Founder of investorsking.com, a digital business media, with over 10 years experience as a foreign exchange research analyst and trader.

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