Policy deficit

The Central Bank of Nigeria (CBN) said Nigeria recorded a trade deficit of $20 million last November. The bank said aggregate export…

The Central Bank of Nigeria (CBN) said Nigeria recorded a trade deficit of $20 million last November. The bank said aggregate export receipts declined by 7.7 percent to $4.33 billion from $4.69 billion in October. Similarly, merchandise imports declined by 6.2 percent to $4.35 billion from $4.64 billion in October. Crude oil and gas export receipts declined to $3.90 billion from $4.30 billion in October. In terms of share in total exports, crude oil and gas accounted for 90.2 percent.

Nigeria’s trade balance was in the surplus between Q1 and Q3 2022, due mainly to high oil prices. Recall that in Q1 the Russia–Ukraine crisis triggered a sustained rally in oil prices amid supply disruption as Brent prices touched highs of $122.71 per barrel in June 2022. However, by July, it was clear that demand had started to wane. First, China initiated another wave of lockdowns that slowed demand. The US then released 180 million barrels from its Strategic Petroleum Reserves (SPR), alongside an additional release of 60 million barrels from the International Energy Administration (IEA). In response to demand concerns, the OPEC+ consortium cut production significantly by 2 million barrels per day from November till the end of 2023. This cut was effective in the short run as it buoyed positive sentiment; however, prices continued their downward trajectory, dropping to $90.2 in September and closing the year at $85.91. LNG exports, a traditional overperformer, have weakened to the point that Nigeria has lost its status as Africa’s biggest exporter of Liquefied Natural Gas (LNG) to Algeria despite record spot prices. On oil, Nigeria does not have a production issue; rather, it has struggled to control non-state entities who distort activities in the value chain while paying lip service to boost its non-oil production. CBN trade data explains why its head, Godwin Emefiele, bemoaned the lack of dollar remittances by the state oil company in November. Across the first 11 months of 2022 that the regulator released data, oil and gas comprised 88–94% of the country’s total exports. In November, Emefiele said the country had earned just $4.98 billion from non-oil exports. From our summation of the non-oil figures across the same period released by the bank, non-oil exports came in at $6.04 billion. The non-diversification of Nigeria’s forex sources has been tough for successive government administrations to chew on and resolve. They have used several policies to solve that problem and boost trade, but none has proved the silver bullet. The Export Expansion Grant (EEG), floated in 1986, had some brilliant ideas, including using a government-issued export credit certificate to settle taxes, purchase bonds and third-party transfers. It didn’t account for crumbling infrastructure, excessive documentation or the overdependence on Lagos as an exit point for Nigerian exports. The CBN launched the Race to 200 (RT200) scheme in February 2022 seeks to get local manufacturers to repatriate $200 billion into the Nigerian economy through the banking system by 2028. In the second RT200 summit in November, Emefiele said the CBN had disbursed ₦81 billion to exporters under the non-oil component of the programme. Out of the $4.98 billion earned by exporters, 1.96 or 39.36% qualified for rebates. Again, the macro challenges are biting hard at those efforts. At that same summit, the Director-General of the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN), Olawale Fasanya, reminded Mr Emefiele that exporters had little quality crops to work with from Nigerian farms — those spared by floods, herders, bandits and terrorists. None of the CBN or government-backed initiatives has programmed a quality assurance framework to upskill export-bound produce’s storage and processing component. The failed exportation of yams to the European Union and the United States in 2017 still hurts some exporters. Ghana’s yams have a duty-free pathway to the EU, while Nigeria, a major tuber producer, is locked out. In summation, Nigeria’s trade balance improved marginally due to oil receipts, with non-oil exports contributing very little to the country’s overall trading position. This unequivocally demonstrates Abuja’s inability to address issues facing the oil & gas industry as well as the failure of its expensive intervention programmes. Figuring out a way out will require dealing with the primary deficit driving these shortfalls — a deficit of will.