Nigeria’s exports to Africa fell by 25% in H1 2021 Y-o-Y; this is according to foreign trade data released recently by the National Bureau of Statistics (NBS). The fall in African exports was despite the African Continental Free Trade Agreement (AfCFTA), which started in January 2021.
Analysts had expressed optimism about the country’s trade prospects under the free trade agreement, expected to increase intra-African trade by 50% in 2022. Meanwhile, total merchandise trade, which steadied at N12.03tr in Q2 2021, saw an increase of 88.71% Y-o-Y. The rise in trade merchandise came about because of sharp growth in exports, which soared by 26% Y-o-Y. Compared to the first three months of the year, Total trade increased by 23% from N9.75tr in Q12021 to N12.03tr in Q22021. Meanwhile, the country’s import bill rose by 1.45% from N6.85tr in Q1 2020 to N6.95tr in Q2 2020. The rise occurred as exports rose by 74.7% from 2.9tr in Q12021 to 5.07tr in Q22021.
Getting down to Nitty Gritty- A Sector Analysis
The NBS data for Q2 2021 shows that Crude oil transactions accounted for 80.29% of total merchandise trade- the largest in volume. Other products traded amounted to 10.6%, while Manufactured goods contributed 4.17% of the total merchandise trade. The Agricultural sector contributed 3.25% to total trade in the period under review. Analysts are of the view that the contribution of the crude oil sector increased in the period under review under the influence of rising crude oil prices. (See Chart 1).
The proportion of total export attributable to crude oil grew in the first half of the year from 68.7% in January to 80.8% in April before dropping slightly to a little less than 80% of total trade in June. Meanwhile, oil exports rose by 33.5% between Q1 and Q2 2021, though non-oil exports only grew by 6.3% between Q1 2021 and Q22021.
The Trade Deficit Landmine
Analysis of the trade data showed that while exports accounted for N6.95trn (57.78% of total trade), the complementary 42.22% valued at N6.95trn was contributed by imports bringing trade deficit for the period to N1.87trn.
Nigeria had recorded a trade deficit of N3.94trn in Q1 2021, indicating a -52.5% reduction in trade deficit Q-o-Q. Together, imports rose year-on-year (Y-o-Y) by 60% from N8.59trn in H1 2020 (during the pandemic) to N13.8trn in H1 2021. Exports rose in the same period but by only 26%. Expectedly, the trade deficit rose year on year by 157% from N2.25trn in H12020 to N5.81trn in H1 2021 (See Chart 2).
Exports by Destination: An India-inspired Recovery
From the NBS data released earlier in the week, exports to all regions excepting Africa increased in the period under review. Exports to Africa reduced from 1.38tr in H1 2020 to 1.03tr in the first half of 2021, implying a -25% reduction Y-o-Y. The country’s exports to the US increased by 109% from 163bn to 342bn; a similar trend occurred in Europe where total Nigerian exports rose from 2.55tr in the first half of 2020 to 2.82tr in H1 2021, amounting to a 10.4% rise in exports.
However, Asia saw the highest rise in exports – a 46% leap in exports from 2.03trn in H12020 to 2.98trn in H12021. The surge resulted from the recovery in the Indian economy, which is the largest importer of Nigerian goods. The South-East Asian economy grew by 20% after contracting by 7.1% in the January -March 2021 (See Chart 3).
Leveraging AfCFTA to Boost Exports
Following Nigeria’s ratification of the AfCFTA in 2020, the agreement took effect on January 1, 2021. Hopes were high that the country would take advantage of the removal of up to 90% of tariff (under the agreement) to access the 1.3bn African market and increase exports and reduce its trade deficit.
However, trade analysts have maintained that the trade agreement is a zero-sum game that creates winners and losers. The recently released NBS data shows that Nigeria’s export to Africa reduced by 25% between H1 2020 and H1 2021, which has raised posers about how well prepared and positioned Nigeria is to take advantage of the Free trade agreement.
Nigeria’s agricultural sector offers exciting opportunities. However, the level of insecurity in and around the country has incredibly threatened growth in the industry and stifled investment that could have created jobs and wealth for many Nigerians. Nigeria has a comparative advantage in Rice, Yam, Cassava and Ginger. Currently, Nigeria is the second-largest producer of Ginger globally and the largest producer of yam in the world. Still, two-thirds of the produce rots away mainly due to the lack of modern facilities. The right policies can unlock a massive agricultural value chain to see farmers raise productivity through efficient technology. The complexity index of the country’s exports can also be improved by encouraging processing, placing the country in pole position to make the most of the AfCFTA.