Concern Mounts As Nigeria’s Dependency On China Deepens

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Concern mounts as Nigeria’s dependency on China deepens
Nigerian President Muhammadu Buhari (L) and Chinese President Xi Jinping

BY EMEKA EJERE

Bilateral trade deficit against Nigeria is widening in favour of China, with available data showing a steady increase in Nigeria’s importation from the Asian country, rising by 183.91 per cent from N530.98bn in the first quarter of 2018 to N1.51tn in Q1 2022.

According to the National Bureau of Statistics (NBS) data on foreign trade, China is responsible for the bulk of imports into Nigeria, ranking number one on the list of top 10 countries in the five quarters under review.

However, export to China is negligible, as Nigeria was missing from the nation’s top 10 export destination in Q1 2018 – Q1 2020, and Q1 2022. Only in Q1 2021 did China rank on the top 10 export destination when it ranked third with N190.11bn. In the same quarter, total imports from China were put at N2.01tn.

Imports from China grew across the quarters under review. In Q1 2018, it was N530.98bn, it grew to N979.29bn in Q1 2019, and N1.11tn in Q1 2020. It was highest in Q1 2021 at N2.01tn and dropped to N1.51tn in Q1 2022.

According to the NBS, imports from China include motorcycles, machines for reception of voice, electrical apparatus for line telephony, or line telegraphy, mackerel, parts of machinery for working on rubber or plastics, crude salt, compressed salt used in animal feeding, antibiotics, herbicides and more.

Nigeria’s exports to China in the period under review included, polyethylene, leather, sesamum seeds, cashew nuts, zinc ores and concentrates, lead ores, and more.
In Q1 2022, imports to China accounted for 25.55 per cent of the total import (N5.90tn).

In Q1 2021, it was 29.34 per cent of the total imports (N6.85tn). In Q1 2020, it was 26.28 per cent of the total import (N4.22tn), in Q1 2019, it was 26.4 per cent of total imports (N3.70tn), and 21.1 per cent of the total imports (N2.52tn) in Q1 2018.

African–China trade data

Data from China’s customs agency showed that the top five African countries that imported the most goods from China in 2021 were Nigeria $23 billion or 16 percent, South Africa $21 billion or 14 percent, Egypt $18 billion or 12 percent, Ghana $8 billion or 5 percent, and Kenya $7 billion. Their combined imports made up more than half of all imports of Chinese goods to Africa last year.

On the other hand, Nigeria is not among the top five African exporters to China in 2021 which include South Africa $33 billion or 31 percent of total exports to China, Angola $21 billion or 20 percent, the Democratic Republic of the Congo (DRC) $12 billion or 11 percent, Republic of Congo $5 billion or 5 percent and Zambia $4 billion or 4 percent. Their combined exports accounted for 71 percent of all exports to China last year.

In terms of total trade volume (exports and imports), China’s top African trading partners in 2021 were South Africa at $54 billion representing 21 percent of all China-Africa trade, Nigeria $26 billion or 10 percent, Angola $23 billion or 9 percent, Egypt $19 billion or 8 percent, and DRC $14 billion or 6 percent.
The combined value of trade between China and these countries accounted for more than half of all China-Africa trade last year. Africa’s main exports to China include minerals, metals, crude oil, and agricultural products.

Widening deficit, scary implications

Our checks show that Nigeria’s trade balance had remained relatively healthy until sometime in 2019 when it started recording deficits. The situation got worse last year when it jumped 986 per cent, growing from N178 billion to an all-time high of N1.94 trillion.

The shortfall is about 10 per cent of the total value of exports in the same year. The amount is also about 2.7 per cent of the country’s real gross domestic product (GDP), which was estimated at N73.4 trillion last year.

In 2018, the country recorded a trade balance of N5.37 trillion; the figure slipped to N2.23 trillion in 2019 but that was still considered a healthy position. In 2020, trade volume slumped globally as the world grappled with the restriction of movement of persons in a bid to contain the COVID-19 pandemic.

Expectedly, Nigeria’s exports suffered a dip of 35 per cent, climbing down from N19.19 trillion to N12.52 trillion. Imports also fell substantially but not enough to cancel out completely the wide hole created by the falling crude prices in the export figures. At the close of the year, Nigeria’s hitherto positive balance of trade went into the negative region, leaving a deficit of N178.26 billion only for the figure to balloon to nearly N2 trillion last year.

In 2018, Nigeria’s yearly exports were valued at N18.53 trillion and only gained marginally to reach N18.91 trillion last year, implying that the country’s exports grew by only two per cent. In dollar terms, what the country earned in the form of the export injection last year was less than the value of earning four years earlier. This is because the value of naira had depreciated by, at least, 10 per cent at the official market, within the period.

The position of both export and import on the trade chart in 2018 as against last year is also revealing of a scary future in the near- to medium-term. In 2018, the share of exports in the total foreign trade was 58 per cent. But as of last year, imports had grown by about 58 per cent reversing the ratio to 52:48 in favour of imports.

In economic theory, imports are considered as leakages while exports are injections. While the latter increases local capacity utilisation, including jobs, the former fritters away or creates jobs for other economies.
In the four years reviewed, crude and oil products accounted for an average of 89.4 per cent of the total goods exported, leaving industries and agriculture where the bulk of the jobs are created with about 10 per cent. Despite the renewed campaign for non-oil exports, oil still controlled 88.7 per cent of the export basket last year.

Of the meagre 10 per cent controlled by other sectors, raw materials accounted for 2.68 per cent. The dominance of the country’s export mix by raw materials and commodities, whose prices and volumes are determined by external factors, is compounded by Nigerians’ growing appetite for foreign manufactured goods.

Last year, for instance, manufactured goods accounted for 49.82 per cent of the value of imports. This figure excludes oil products, which took 30.96 per cent. The two items – which are essentially by-products of raw materials sourced from developing countries, including Nigeria – took away N16.84 trillion in foreign earnings from the economy last year.

The amount equates 81 per cent of all the export leakages. In sharp contrast, less than three of the export earnings of last year came from manufactured goods.

This has a huge consequence for the foreign exchange (FX) market and employment creation. The Central Bank of Nigeria (CBN) shared this concern recently when it was compelled to respond to the shrinking non-oil commodity processing through the RT200 FX Programme, a policy thrust that targets yearly repatriation of $200 billion from non-oil exports in the next three to five years.

Nigeria produced about 770,000 metric tonnes of sesame, cashew and cocoa in 2019. Of the number, about 12,000 metric tonnes was consumed locally while 758,000 metric tonnes was exported. Unfortunately, of the 758,000 metric tonnes that were exported, only 16.8 per cent was processed. The rest was exported as raw, thereby denying Nigerian farmers a significant share in the value chain.

Also, the global chocolate industry was estimated at $130 billion in 2019. Sadly, Cote D’Ivoire, Ghana and Nigeria, which control about 72 per cent of the cocoa exports did not receive more than five per cent of the windfall or $6.3 billion. According to the CBN Governor, Godwin Emefiele, the three West African countries in that order generated about $3.6 billion, $1.9 billion and $804 million from the industry in the reference year.

“In contrast to West African countries, Belgium accounted for 11 per cent of global chocolate exports in 2019, at a value of $3.16 billion. Similarly, Germany’s chocolate exports were worth $5.14 billion in the same year. These numbers are the same for other commodities as well,” Emefiele said.

Last year, the country’s unemployment rate relapsed to 33.3 per cent, a figure many analysts described as a crisis level, while youth unemployment exceeded 50 per cent.

Commenting on the balance of trade position of Nigeria with China, Dr. Muda Yusuf, of Centre for the Promotion of Private Enterprise (CPPE), an economic and business advocacy think tank, blamed weak production capacity, low competitiveness of Nigerian firms and unfavourable infrastructure environment for the nation’s deteriorating trade balance with the Asian country.

Changing the narrative

Dr. Yusuf, said: “International trade volume, value and direction are outcomes of business decisions. “Importers opt for imports from countries that offer the best deals. This explains why there is a high level of imports from China which has a strong competitive edge in manufactured products.

“The same is true of exports. Exporters would focus on countries with good bargains for them as they seek to maximize returns on their investments. “Market access issues are also important considerations. These are the factors that shape the flow of trade at bilateral, regional, continental or global levels. These are also factors that determine balance of trade outcomes for Nigeria.

“Balance of trade position is a function of imports and exports. Our recurring trade deficit speaks to the persistent weak production capacity and competitiveness of Nigerian firms. Export is very critical to remedy the situation.

“But for that to happen, our production must be competitive regionally and globally. We therefore need to create the environment for the production of quality goods at a globally competitive price. There is no other way.
On her part, the Director General, Lagos Chamber of Commerce and Industry (LCCI), Dr. Chinyere Almona, said: “It is true that Nigerian import from China has significantly increased in the last decade displacing the West.

“The reasons can be attributed to: The Chinese Government putting in place international trade policies that deliberately fund Chinese exports to third world countries, making their goods readily available and cheaper.

“Exporting from Nigeria is a tough venture considering the bottlenecks in the processes. This must be addressed to compete favourably; and some loans granted by China to Nigeria and other African countries are tied to projects that are executed using Chinese materials. All of these raise the Chinese exports to Africa”.
On what Nigeria needs to do to redress the situation, Almona said: “Nigeria must improve on its export infrastructure to boost exports and seek for cheaper sources of loans that are tied to boosting productive capacities in the country.

“Once we are able to produce more, and export processes are not cumbersome, Nigeria will record higher exports and lower imports towards balancing the trade between the two countries.”

In recent years, the bilateral relationship between Nigeria and China has improved. In the period under review, Nigeria’s borrowing from China increased by 89.94 per cent to hit $3.67bn, making it the nation’s largest bilateral lender.

According to the Debt Management Office, about $3.12bn of the loans from China are project-tied and include 11 projects such as the Nigerian Railway Corporation’s modernisation project, Abuja Light Rail project, Four Nigerian airports’ terminals expansion project (Abuja, Kano, Lagos, and Port Harcourt), and more.

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