Nigeria is the largest economy in Africa, with a nominal GDP of $479.2 billion (2022 estimate). The country has a population of over 200 million people and a diverse range of natural resources, including oil, gas, minerals, and agricultural products, yet the economy grows at a tepid rate (3.25% in 2022).
Trade is an important sector of the Nigerian economy, contributing about 12.3% to the real GDP and 16.9% to total employment in the country. Interestingly, foreign trade plays a huge role in the growth of the Nigerian trade sector, helping in driving economic development and diversification.
According to the National Bureau of Statistics (NBS), Nigeria’s total trade in goods amounted to N52.4 trillion in 2022, representing 26.3% of the nominal GDP. The breakdown of the data shows that imports accounted for 48.8% (N25.59 trillion) of the entire trade, while exports accounted for 51.2% (N26.79 trillion). This leaves a trade surplus of N1.2 trillion in 2022, in contrast to a deficit of N1.94 trillion in the previous year.
Further analysis showed that most of Nigeria’s exports go to Europe, which accounts for about 44% of the total export, while the African region only accounts for less than 10%, representing the second lowest region behind Oceania (0.4%). A cursory analysis of the data from the NBS showed that exports to other African countries by Nigeria has been on a downtrend over the years, averaging at N2.74 trillion in the last five years.
This statistic is significantly underwhelming considering that Nigeria is a member country of the African Continental Free Trade Area (AfCFTA) agreement, which was aimed at improving regional trade in Africa.
The AfCFTA, which is more of a regional trade agreement came into effect on the 1st of January 2021 and covers 54 out of 55 African countries. The Agreement aims to create a single market for goods and services, facilitate the free movement of people and investment, and establish a unified customs union across the continent.
It is projected to boost intra-African trade by 15-25% between 2021 and 2040 by removing tariffs and non-tariff barriers. Nigeria signed the AfCFTA in July 2019 and ratified it in December 2020. Expectedly, Nigeria stands to benefit from the AfCFTA by expanding its export opportunities, diversifying its economy, attracting foreign investment, and integrating into regional value chains.
According to the United Nations Economic Commission for Africa (UNECA), the AfCFTA could boost Nigeria’s exports by 19%, increase its income by 2.5%, and lift 3.6 million people out of poverty by 2035. However, Nigeria is yet to see the effect of the agreement, owing to some challenges in implementing the AfCFTA, such as improving its infrastructure, enhancing its productivity and quality standards, addressing security issues, and harmonizing its policies and regulations with other members.
Challenges against regional trade in Nigeria
Just like many other policies and reforms, the AfCFTA have also been met with several challenges, especially for the Nigerian economy. Some of the challenges impacting Nigeria’s trade with other regions include infrastructure deficit, relating to transportation, logistics, communication networks amongst others.
The lack of adequate infrastructure In Nigeria has negatively impacted the cost of production and transportation, which disincentivizes the importation of Nigerian goods. Also, the performance of the manufacturing sector over the years, which involves adding value to raw goods through industrialization, has limited the availability of valuable goods for export. The manufacturing sector slowed to 2.45% in 2022 from 3.35% in 2021, having endured recurrent contractions in recent years, an indication of low level of transformational activities in the manufacturing industry.
Low diversification is also a major challenge affecting trade in Nigeria. Nigeria’s export basket is dominated by crude oil, which accounts for about 90% of its total exports. This makes Nigeria vulnerable to external shocks, such as changes in oil prices and demand. Low diversification also limits the potential for value addition and industrialization in Nigeria’s economy.
In addition, some other factors include exchange rate volatility or the lack of a single trading currency, insecurity, smuggling amongst others.
Bottom line
To overcome these challenges, Nigeria needs to implement various reforms and policies that will improve its infrastructure, reduce trade barriers, stabilize its exchange rate, curb corruption and insecurity, ensure policy coherence, and diversify its export base. These measures will enhance Nigeria’s international trade performance and contribute to its economic growth and development.