Analysing Nigeria’s Q2 Foreign Trade Report

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The news of improved foreign trade appears to be a soothing relief to the bitter taste of recession, even though it may well be taken with cautious optimism, reports Kunle Aderinokun

Amid negative sound bites of recession came the cheery news last week of upward movement in the value of Nigeria’s foreign trade.

Specifically, data from the National Bureau of Statistics, which released the second quarter of 2016 Foreign Trade Report, showed that the value of export trade totalled N1.872 trillion in the period under review, representing an increase of N725.6 billion or 63.3 per cent over the value recorded in the preceding quarter.

The significant improvement in the trade value, analysts posit, may be a sign of good things to come in the economy if the streak is maintained.

NBS said the improvement in export value in the review period was largely due to the depreciation in the value of the naira.

It pointed out that, “the structure of the export trade is still dominated by crude oil exports, which contributed N1,493.2 billion or 79.7 per cent to the value of total domestic export trade in 2016 (estimate figure). Exports by section revealed that Nigeria exported mainly mineral products, which accounted for N1,735.2 billion or 92.7 per cent of the total export value.

“Other products exported by Nigeria include “Animal and vegetable fats and oils and other cleavage prod.” at N55.7 billion or 3.0 per cent, “Base metals and articles of base metals” at N28.4 billion or 1.5 per cent, and “Prepared foodstuffs; beverages, spirits and vinegar; tobacco” at N16.2 billion or 0.9 per cent.”

The bureau explained that, “the export by direction showed that the country exported goods mainly to India, United States, Spain, Netherlands and South Africa whose values stood at N402.7 billion or 21.5 per cent, N235.0 billion or 12.5 per cent, N215.2 billion or 11.5 per cent, N133.3 billion or 7.1 per cent, and N119.9 billion or 6.4 per cent respectively.

According to the agency, “The natural liquefied gas recorded N198.0 billion of the total export value during the period under review. Export by continent, showed that Nigeria mainly exported goods to Europe and Asia, which accounted for N611.7 billion or 32.7 per cent and N606.4 billion or 32.4 per cent respectively, of the total export value during the period under review. Furthermore, Nigeria exported goods valued at N265.9 billion or 14.2 per cent to the continent of Africa while export to the ECOWAS region totaled N86.9 billion.”

On the other hand, NBS revealed that, the nation’s import trade stood at N2.069 trillion at the end of the second quarter, showing an increase of 38.1 per cent from the N1.498 trillion recorded in the preceding quarter.

Just like it was for the export trade, the bureau attributed the increase in import value to a decline in the value of the naira. It pointed out that, “The structure of Nigeria’s import trade by section was dominated by the imports of “boilers, machinery and appliances; parts thereof” which accounted for 34.9 per cent of the total value of import trade in Q2, 2016.

“Other commodities which contributed noticeably to the value of import trade during the review period were “Mineral products” (15.8per cent), “Vehicles, aircraft and parts thereof; vessels etc.”(14.7per cent), “Products of the chemical and allied industries” (7.6per cent) and “Base metals and articles of base metals” (5.1per cent). The import trade classified by broad economic category (Table 7) revealed that “capital goods and parts” ranked first with N663.6billion or 32.1per cent. This was followed by “Industrial supplies (nec)” with the value of N421.2billion or 20.4 per cent, and “Transport Equipment and Parts” with N356.1billion or 17.2per cent. The value of motor spirit stood at N296.1 billion.

Assessing Nigeria’s import trade by direction, NBS showed that the country imported goods mostly from China, Netherlands, United States, India and the United Kingdom, which respectively accounted for N493.5 billion or 23.9per cent, N285.7 billion or 13.8per cent, N199.0 billion or 9.6per cent, N124.9 billion or 6.0per cent, and N119.3 billion or 5.8per cent of the total value of goods imported during the quarter.

Further analysis of Nigeria’s imports by continent revealed that “the country consumed goods largely from Asia with import value of N886.1 billion or 42.8 per cent. The country also imported goods valued at N813.9 billion or 39.3per cent from Europe and N255.3 billion or 12.3per cent from America. Import trade from Africa stood at N89.1 billion or 4.3per cent while imports from the region of ECOWAS amounted to N20.8 billion.

Generally, Nigeria’s merchandise trade grew slightly in Q2, 2016 as trade deficit reduced with rising exports value.

According to NBS, “The total value of Nigeria’s merchandise trade in Q2, 2016 was N3,942.0 billion. This was 49.0per cent more than the value of N2,645.5 billion recorded in the preceding quarter.

This development, the bureau pointed out, arose from “a rise of N725.6 billion or 63.3per cent, in the value of exports (largely due to exchange rate gains) combined with a rise of N570.8 billion or 38.1per cent, in the value of imports against the levels recorded in the preceding quarter.”

Accordingly, “the current trade position brought the country’s negative trade balance to – N196.5 billion during the period under review. This shows a N154.8 billion reduction in the country’s trade deficit over the previous quarter.”

Essentially, with this kind of report coming out at this period, the expectation in some quarters is that economic activities may soon pick up and the economy would be better for it.

Meanwhile, the Q2 Foreign Trade Report has attracted the attention of economic analysts and market watchers, who welcomed the report, highlighted grey areas and advised the government on the way forward.

The Director General, West Africa Institute of Financial and Economic Management (WAIFEM), Prof. Akpan Ekpo, welcomed the report, however frowned on the fact that crude oil exports dominated the foreign trade.

But Ekpo was of the expectation that, “if the structure of our economy changes, the economy would export refined petroleum products or some item in the value chain.”

Pointing out that, “The devaluation of the Naira has not resulted in the export of items that are generally imported,” the renowned economist said, “The same report highlighted the increase in imports of goods and services.”

Going forward, Ekpo advised that, “an environment should be created that would encourage the export of finished goods to at least countries in the West African sub-region.”

“Let us have a productive and not a consuming economy. Devaluation and/ depreciation or weakening of a domestic currency makes sense if the economy has something to export. Furthermore, we need to examine the trade balance holistically,” he added.

Similarly, an analysts and investment manager, Adetola Odukoya, who was not surprised about the report, noted that, “what this suggests is that, for this current structure to be reversed there is an urgent need to put in place – and execute – policies that will not only encourage but equally strengthen and grow domestic production across all the sectors of the economy.”

He added: “Whilst one acknowledges that some of these policies are being executed as we speak, we must however bear in mind that it will take time for the effects to filter into the economy. This will in turn reverse the current trend as will be indicated by several key economic activities, statistics and indicators to reflect the desired benefits thereof to the real economy.”

“Therefore, amongst other key factors, focus and policy consistency is of utmost importance if the country is to derive any benefits in the medium-to-long term as a result of the redirection of the current economic situation,” he proffered.

Aligning with Ekpo and Odukoya, Executive Director, Corporate Finance, BGL Capital Ltd, Femi Ademola, stated that, “the increase in export trades in the second quarter of 2016 is very commendable.”

While saying “this is largely due to the depreciation in the value of the Naira”, Ademola believed “the improvement in the country’s trade balance is the many benefits of the flexible exchange rate policy.”

But he added that, “It would however be good to know the volume of the products exported and imported to compare them to the preceding quarter to determine the contribution of increased exporting activities to the value of trades.

Ademola also noted that, “since our main export products is still crude oil, it is not surprising that crude oil exports accounted for the biggest share of the exports.”

He, however, believed “the increase in the value of exports (although not so in dollar terms), which also include other non-crude mineral exports will encourage more exporting business while importation would be limited to only essential materials; leading to a boost in local production.

“If this is achieved, the most important objective of a floating exchange rate mechanism would have been achieved.”

In the same vein, former Managing Director, Guinness Nigeria Plc, Seni Adetu, noted that, “The revelation in the Q2 foreign trade report relating to the increase in export value over the preceding quarter is good news, and a positive trend.”

He, however, cautioned that, “we mustn’t get carried away.”

According to him, “First the logic is clear – with devaluation, there is every motivation to focus on export drive. Therefore, this out-turn in reality is a matter of course – more of a default than design of our policies.

“Secondly, the export trade expansion was still dominated by crude oil exports – so what has changed? Our bigger joy would come from export of non-oil products.

“Thirdly, with our manufacturing sector suffering serious capacity under-utilisation, we need be careful that our export drive is not geared towards creating scarcity of the relatively small percentage of locally available raw materials for manufacturing through exportation, in the name of earning forex. That would simply imply robbing Peter to pay Paul, with the resultant effect of a further stifling of the manufacturing sector.”

Adetu, who is also director in Fidelity Bank, argued that, “in short, the trend whereby trade deficit narrowed in Q2 as our value of exports surged on the back of further devaluation of our currency is the norm and is nothing spectacular in my view.

“The key questions are: first, when can we pull enough volume of export trade to positively impact on the value of our currency? Secondly, when can we expect to create the foundation for a sustainable economic growth with our export value being greater than imports leading to a trade surplus? Lastly, can the benefits of surge in exports and currency devaluation outweigh the rising cost of inflation?

Nevertheless, Adetu submitted that, “In a nutshell, this is a positive development, no doubt, but it is far from being sufficient to pull us out of the woods economically. We are indeed at a crossroads at the moment.”