Nigeria’s Imports Bill Exceeds Exports Earnings by N7.4 Trillion

Nigeria’s Imports Bill Exceeds Exports Earnings by N7.4 Trillion

Nigeria’s imports bill exceeded exports receipts by N7.4 trillion in year 2020 amidst the outbreak of coronavirus, the National Bureau of Statistics report indicates.

Some analysts told MarketForces Africa that the local currency, naira, issue lies in the trade pattern where demand for dollar exceeds inflow.

It was gathered that to raise Naira position, Nigeria must earn more dollars in in ordinary export trade activities other than from foreign portfolio investment.

Nigeria’s weak external reserves position has reduce the Central Bank of Nigeria’s ability to protect the local currency in the foreign exchange market.

FX supply at Investors and exporters window has remained below pre-pandemic level, thus forced the apex bank to shift post by devaluation of the local currency.

Naira has continue to be struggling to find its true value amidst multi-tiered exchange rate with widening rates across the parallel, BDC and Nigerian Autonomous Foreign Exchange rate.

But analysts appear to see this development where imports bill exceeds exports earnings as one-off, an aftermath of the outbreak of covid-19 in 2020.

In a review, Greenwich Merchant Bank explained that the nation recorded a trade deficit for the first time since 2016, as the value of imports outpaced exports over the four quarters of the year.

Analysts noted that the deficit was ridden by the COVID-19 pandemic in particular.

On a yearly basis, NBS data showed total exports declined by 34.8% to NGN12.5 trillion, down from a 3.6% growth in 2019.

Meanwhile imports rose 17.3% to NGN19.9tn, translating to a 28% drop from the corresponding year in 2019.

The difference, the trade balance, came in at -NGN7.4 trillion which was roughly 5.0% of the 2020 GDP, weaker than the first deficit of NGN290.1 billion recorded in 2016, Greenwich said in a note.

Due to coronavirus-induced stress on the global economy, total trade printed at 10.3% lower in 2020 than the value recorded in 2019.

That said, Crude Oil exports – about 75.4% of total exports- plunged 35.7% year on year in 2020, compared to a 3.1% drop in 2019.

Meanwhile, non-crude exports accounting for about 24.6% of total exports tanked 31.6% after rising 33.4% in 2019.

However, analysts said the sharpest contraction was in non-oil exports, which fell 43.1% from an impressive 111.3% rise in 2019.

Non-oil exports notwithstanding accounted for roughly 11.5% of total exports in 2020.

A closer look shows that Agricultural Goods exports and raw material exports rose 19.2% and 0.7%, respectively, while all other non-oil export components, such as manufactured goods (-53.7%) were down last year.

NBS data indicated that on Quarter-on-quarter (QoQ), imports grew 10.1% in Q4:2020 from Q3:2020, and 10.8% from Q4:2019.

While exports picked up by 6.7% on a quarterly basis in Q4:2020, the year on year value was down 33.0%.

Notably, analysts said the trade deficit worsened to NGN2.7 trillion in Q4:2020 from NGN2.4 trillion, NGN1.9 trillion and NGN329.9 billion in Q3, Q2 and Q1 of 2020 respectively.

It was noted that machinery made up 34.0% of total imports, while Chemicals & related products (24.0%) and associated products followed.

Furthermore, India (17.1%), Spain (9.8%), South Africa (8.0%), Netherlands (6.1%), and United States (5.3%) were the top export trading partners.

China (28.3%), India (8.5%), United States (7.6%), Netherlands (7.2%), and Denmark (5.4%) were top import destinations.

“Trade was negatively impacted by the outbreak of the COVID-19 pandemic, which resulted in major lockdowns, and disrupted global supply chains”, analysts stated.

Greenwich stressed that due to the negative knock-on of the virus on the global oil market, especially in H1:2020, the demand for crude oil crunched as oil inventories rose to their highest in years and oil tankers returned unsold.

“This affected Nigeria’s crude oil exports which accounts for two-third of total exports. Thus, the sharp drop in total exports for the year was not surprising”, it added.

Despite the slowdown in non-oil exports due to lower demand as factories shut down and demand plummeted, a bright spot was the agricultural export which maintained a positive trajectory.

“This is consistent with views that amid the pandemic, the world prioritized food and medicine, ahead of capital goods purchases or other heavy purchases”, Greenwich stated.

On the flip side, the upsurge in imports occasioned the severe deficit for the year.

“While we note that the negative balance of trade is inimical to the country’s current account balance, we expect the drop in crude oil export should moderate over 2021 as economies reopen, and the pace of vaccinations quicken, especially in key export destinations.

“Put simply, surging commodity demand should lead to an improvement in the trade balance.

“But short-term dynamics like the reduction of import duty on vehicles and tractors under the Finance Act 2020, will weigh on demand for these items, and worsen the country’s trade balance”, analysts explained.

What Trade Data mean for Naira

With the current trade pattern where demand for foreign currencies to settle imports bill exceeds earnings from exports, Naira will likely continue to be struggling in the FX market.

As reported by the National Bureau of Statistics, total trade was 8.9% higher in the fourth quarter of 2020 (Q4) compared to third quarter (Q3).

However, it was 9.9% lower than the value recorded in Q4-2019. So, on an annual basis, total trade was 10.3% lower in 2020 than the value recorded in 2019.

In Q4-2020, the value of total imports rose by 10.1% compared to Q3-2020 and 10.77% compared to Q4-2019.

For the full year 2020, the value of total imports was 17.3% higher than the value recorded in 2019.

This translates to heavy dollar outflow which increased at more than 10% in just three month at the time when dollar inflow is lower.

How did this happened?

According to NBS, the increased demand for dollar at the time was driven, in part, by the need to import certain agricultural products.

The value of imported agricultural products was 5.75% higher in Q4-2020 than the imported value of the similar product in Q3- 2020.

Also, it means that in the Q4-2020, amount spend to import agriculture product rose 128.17% compared with the corresponding quarter of 2019.

For 2020, the value of agricultural imports was 78.6% higher than amount used up for the purpose in 2019.

The value of raw material imports grew marginally by 0.75% in Q4-2020 compared to Q3-2020 but was 113.12% higher compared to Q4-2019.

For 2020, the value of raw material imports was 72.5% higher than the value recorded in 2019.

The value of solid minerals imports was 16.82% lower in Q4, 2020 than its value in Q3-2020 but 58.59% higher than its value in Q4-2019.

Imports Bill Exceeds ..Annual Basis

On an annual basis, the value of solid mineral imports was 39.3% higher than the value recorded in 2019.

The value of Energy goods imports was 236.20% in Q4-2020 higher than in Q3-2020 and 199.51% higher than the value recorded in Q4-2019.

On an annual basis, the value of energy goods imports was 24.1% lower than recorded in 2019.

The value of imported manufactured goods grew by 11.43% in Q4-2020 against the value recorded in Q3-2020 but decreased by 2.21% against its value in Q4, 2019.

For 2020, the value of manufactured imports was 6.5% higher than the value recorded in 2019.

The value of other oil products imported in Q4-2020 was 17.40% higher than its value in Q3-2020 but 3.23% less than the corresponding quarter of 2019.

For 2020, the value of other oil products imports was 15.1% higher than the value recorded in 2019.

The value of total exports in Q4-2020 increased by 6.7% against the level recorded in Q3-2020 but decreased by 33. 3% compared to Q4-2019.

On an annual basis, total exports was 34.8% lower in 2020 than recorded in 2019. The value of agricultural exports fell by 8% in Q4-2020 compared to Q3-2020 and 18.2% compared to Q4 2019.

In 2020, the value of agricultural exports was 19.2% higher than the value recorded in 2019.

The value of raw material goods exports in Q4-2020 was 317.6% higher than the value in Q3-2020 and 122% higher than the value recorded in Q4 2019.

In 2020, the value of raw material goods exports was only 0.7% higher than the value recorded in 2019.

The value of Solid minerals exports decreased by 20.7% in Q4-2020 against Q3-2020 but increased by 135% against the corresponding quarter in 2019.

In 2020, the value of solid mineral exports was 46.2% lower than the value recorded in 2019.

The exports of Energy goods increased in value by 13.3% in Q4-2020 compared to Q3-2020 but decreased by 15.5% compared to Q4-2019.

In 2020, the value of energy goods exports was 40.3% lower than the value recorded in 2019.

The value of manufactured goods exports fell by 3.1% in Q4 2020 compared to the value recorded in Q3 2020 and 74.7% compared to Q4-2019.

In 2020, the value of manufactured exports was 53.7% lower than the value recorded in 2019.

The value of Crude oil exports in Q4-2020 increased by 4% compared to Q3-2020 but decreased by 30.5% compared to Q4-2019.

In 2020, the value of crude oil exports was 35.7% lower than recorded in 2019.

The export value of other oil products increased by 22.2% in Q4-2020 compared to Q3-2020, but decreased by 19.3 % compared to Q4-2019.

On an annual basis, the value of other oil products exports was 17.1% lower than the value recorded in 2019.

In the fourth quarter of 2020, Nigeria’s total merchandise trade stood at N9, 120.2billion, representing 8.9% over the level recorded in the third quarter of 2020 but was 9.9% lower when compared to the fourth quarter of 2019.

The value of trade in Q4 was the highest recorded over the past year.

The export component of trade stood at N3,194.5 billion, an increase of 6.7% over the preceding quarter but a drop of 33% over the previous year.

Further, the share of exports in total trade declined to 35% in Q4-2020 from 47% a year earlier.

On the other hand, total imports reached a record high at N5,925.7 in Q4-2020, an increase of 10.1% over the preceding quarter, and 10.8% over the preceding year.

Imports also accounted for 65% of total trade in Q4 2020, compared to 53% the previous year.

As the value of imports nearly doubled the value of exports, the trade deficit rose to its highest level and a fifth consecutive quarterly deficit at -N2,731.2billion, an increase of 14.30% compared to the preceding quarter.

On an annual basis, total trade was valued at N32,420.7 billion in 2020, or 10.3% less than the value recorded in 2019.

The value of total imports in 2020 stood at N19,898.0billion, or 17.3% higher than in 2019, while total exports was valued at N12,522.7billion, or 34.8% less than in 2019.

The annual merchandise trade deficit in 2020 was recorded at -N7, 375.3billion.

Nigeria’s Imports Bill Exceeds Exports Earnings by N7.4 Trillion