For once, the Nigerian economy has received a boon. From a deficit in the third quarter of 2018, its balance of payment recorded a surplus in Q4 2018, the Central Bank of Nigeria stated in its just-released Q4 report. In real numbers, Nigeria’s BOP was in a huge black hole at $4.54 billion in Q3 2018. Undeniably, it wiped off its losses in Q4, inching up moderately to a surplus of $2.8 million, which the Godwin Emefiele-led bank considers “a significant improvement.” This is promising, but the challenge is how a mono-product economy like this will sustain the gains.
Typically, balance of trade, which is defined as the monetary transactions between a country and the rest of the world, could indicate economic success when it is in surplus. Although the Q4 result is a marginal achievement, it tells only half of the story. Intrinsically, it was driven by crude oil and gas exports. In 2017, for instance, the country recorded a trade surplus of N4.03 trillion. That year, the National Bureau of Statistics noted that this was because oil exports, at over 93 per cent, outweighed imports. “Nigeria’s manufacturing capacity is limited,” the NBS said, “so it imports most of what it consumes.”
Obviously, without oil and gas, Nigeria’s BOP would be in the red. In 2016, when oil sold for an average of $40.68 per barrel, Nigeria logged a BOP deficit of N290 billion. With oil selling higher in 2017 at an average of $52.51pb and $69.52pb in 2018, the country witnessed better trade balances. This is the crux of the matter: the economy would likely collapse in record time if oil and gas (income) were to be taken out. Consequently, with oil selling for about $27pb early in 2016, the economy slipped into what would become a 15-month recession that August.
Repeatedly, government has stated that it would end the dependence on oil, but such avowal has not significantly changed anything. In 2017, the data showed that cocoa beans exports to the Netherlands, Malaysia and Indonesia, contributed fractionally with 0.37 per cent of exports. This crop was a major foreign exchange earner in the three decades to the 1970s, but because of the ruinous fixation on oil, Ivory Coast and Indonesia have taken over the prime spots off Nigeria. Consequently, Ivory Coast netted $3.79 billion from cocoa beans exports in 2017, $1.04 billion from cocoa paste and $634 million from cocoa butter, according to the US-based Observatory of Economic Complexity.
It is a similar debacle in palm oil, rice, wheat, machinery, raw materials for the real sector and information technology. A March 2019 report by the CBN stated that Nigeria – once the global leader in palm oil exports – spent about $500 million to import the product in 2017. Although domestic rice production has climbed up because of the Anchor Borrowers Programme, Nigeria still imports rice to augment the shortfall. There is a hefty bill on this, but the haemorrhage goes on. In cassava, its share of 20 per cent is the highest globally, but it is a net importer of ethanol.
Nigeria’s agriculture and agribusinesses are underperforming. According to the World Bank, many developing countries such as Brazil, Indonesia, and Thailand now export more food products than all of sub-Saharan Africa combined. Also, because domestic production has collapsed, Nigeria spends $4 billion on textile imports annually. It is a net importer of refined petroleum products, though it is Africa’s largest producer of crude oil. The NBS said petrol imports alone cost Nigeria N2.3 trillion in 2018. With its four moribund domestic refineries, this is senseless.
Worse, the prices of locally produced goods are not competitive in the international market because the country lacks good roads, railways and electricity.
For years, the Apapa ports, which host 70 per cent of Nigeria’s maritime trade, have been locked down because of decrepit roads, crude technology and administrative incompetence, evident in a slew of vetting agencies. With lending rates between 15 and 40 per cent, locally manufactured goods are at a massive disadvantage against imported cheaper products.
For Nigeria, therefore, there are overwhelming impediments. Unravelling them demands a strong political will to retune development programmes and a genuine understanding of economics: the only way to attain qualitative BOP is to export more than it imports. Essentially, exports success should not be driven by oil but by other products.
This is why, for decades, China concentrated and built up its export market. Today, it is the largest exporter in the world, making $2.3 trillion in 2017, the World Bank noted. To go with it, it had a BOP of $421 billion in the same year, the global BOP leader. Likewise, Germany, which had the second highest BOP in the world in 2017 at $281 billion, was the third highest exporter-nation, as it recorded $1.05 trillion in exports. Russia and South Korea – the four leading economies per BOP – can flex their economic muscles globally.
To improve on the modest surplus, Nigeria has to return to the basics and ensure that reforms are implemented in a disciplined manner. Our focus should be on export of products that are in high demand worldwide. A coherent and integrated approach that addresses challenges related to productive education, rural infrastructure, land access and tenure, access to financial services and access to markets should be adopted in putting agriculture at the centre-stage of our export drive. The most difficult ingredient in all of this is how to accumulate collective productive knowledge to develop our productive capacity in agriculture. President Muhammadu Buhari should assemble a crack economic management team for his second term.
First, the power sector privatisation has to be reviewed to deliver efficient electricity to the real sector. Without that, both agricultural and manufacturing exports will be imperilled by the high cost of goods. Government should plug leakages in public finance, including the loss-making refineries, and redirect funds to road and railway infrastructure. In this, the seaports have a major role: the associated infrastructure should be reconstructed immediately, the public agencies there streamlined to aid a quick turnaround and technology upgraded to reduce the choking delays.
