Nigeria’s Q3 2023 Boasts N1.89 Trillion Trade Surplus, Yet Alarming Export Trends Surface

In a significant economic turnaround, Nigeria has reported a foreign trade surplus of N1.89 trillion for the third quarter of 2023, marking the fourth consecutive quarter of positive international trade balance. This impressive surplus, compared to the N708.9 billion in Q2 2023 and a deficit of N409.4 billion in the same period last year, has been revealed in the recent foreign trade report by the National Bureau of Statistics (NBS), as reported by Infostride News.

Analysts have lauded this positive trend, attributing it to the increased revenue from crude oil exports. The surge is expected to have a constructive impact on Nigeria’s foreign exchange market. Notably, crude oil exports experienced a remarkable 71% increase from N5 trillion in Q2 2023 to a substantial N8.54 trillion in the third quarter. Cumulatively, Nigeria earned N19.7 trillion from crude oil exports between January and September 2023, compared to N16.2 trillion during the same period in 2022. This surge in Q3 2023 represents the highest recorded figure, based on data from Nairalytics, now reported by Infostride News.

Despite the positive outlook, a closer examination of Nigeria’s export components reveals a dependency on crude oil, which constitutes a staggering 82% of total export earnings. This reliance on global oil prices and local production, susceptible to geopolitical factors, presents a challenge beyond the nation’s control, with issues like oil theft and pipeline vandalism further complicating local crude production.

A concerning aspect of Nigeria’s export profile is the fact that approximately 97% of the country’s exports are in raw form. Apart from crude oil, other top exports, such as natural gas and urea, lack significant value addition. Only a meager 0.26% of the top 15 exported items, represented by electricity energy, has undergone value-added processing.

On the flip side, Nigeria’s imports, ranging from petrol, used vehicles, jet fuel, motorcycles, medications, and transformers, are largely value-added products that could potentially be produced locally. For instance, Nigeria’s import of fertilizer worth $362.18 million in 2022 could have been domestically produced, leveraging the abundance of Urea, a major Nigerian export product, as highlighted by Infostride News.

The underperformance of Nigeria’s industrial sector stands out as a key impediment to optimizing export potential. Despite a nominal value of N27.51 trillion and accounting for 13.8% of the economy, the manufacturing sector struggles to meet local demands and generate substantial income from exports. The sector’s growth slowed to 0.48% in Q3 2023, representing the lowest since a contraction in Q3 2022, according to the NBS.

The index of industrial production further indicates a decline in the manufacturing index from 205.31 points in Q1 2023 to 173.51 in Q2 2023, the lowest since Q2 2022. High operating expenses, FX illiquidity, changing customer buying patterns, and limited access to foreign exchange have led some multinational companies, such as Procter & Gamble (P&G), GSK, and Guinness, to halt or scale back their local manufacturing operations.

These challenges underscore the significant impact of an unfavorable operating environment on the growth of Nigeria’s manufacturing industry. Notably, Procter & Gamble recently announced a shift to an import-only operation, while GSK plans to transition to a third-party direct distribution model for its pharmaceutical products. Guinness, too, declared a cessation of the importation of certain premium spirits products.

In conclusion, while Nigeria’s positive foreign trade balance is commendable, the nation faces hurdles in diversifying its export base and adding value to its products. The manufacturing and industrial sector, with a long way to go in meeting local demands and contributing significantly to export earnings, requires strategic interventions. As highlighted by Infostride News, ongoing projects like the Dangote 650,000 bpd refinery and developments in the automobile and fertilizer sectors could potentially drive growth in the industrial landscape. Enhanced collaboration between consumer goods manufacturing and the agriculture value chain is also crucial to addressing food supply gaps and reducing imported food inflation in the country.