Nigeria’s trade balance positive after 8 negative quarters
By Jeph Ajobaju, Chief Copy Editor
A decrease in imports led to a $1.1 billion surplus in foreign trade balance in the fourth quarter ended December 2021 (Q4 2021) after eight straight quarters of negative stretching back to Q3 2019.
Data from the Central Bank of Nigeria (CBN) shows that trade balance rose from $327 million deficit in Q3 2021 to $1.1 billion surplus in Q4 2021, and grew 115 per cent positive from $7.57 billion deficit in Q4 2020.
Aggregate trade balance in 2021 is, however, still negative at $6.49 billion although better than $21.37 billion negative in 2020.
Export earnings dropped 3.5 per cent from $13.42 billion in Q3 2021 to $12.95 billion in Q4. Import bill dipped 13.8 per cent from $13.74 billion to $11.85 billion.
This means that the positive trade balance was driven by decline in import bill rather than an increase in export value.
Key points
Total foreign trade declined 8.7 per cent from $27.16 billion Q3 2021 to $24.8 billion in Q4 2021 – but rose 1.4 per cent from $24.45 billion in Q4 2020.
Year-on-year (YoY), it increased 7.1 per cent from $93.26 billion in 2020 to $99.86 billion in 2021.
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Background
Foreign trade shot up 58.6 per cent in Q3 2021, a record high of N13.28 trillion from N8.38 trillion in Q3 2020.
Total trade rode on a 51.5 per cent increase in import bill which led to a deficit of N3.02 trillion balance of trade.
Crude oil export rose 78 per cent from N2.42 trillion in Q3 2020 to N4.03 trillion in Q3 2021.
Nairametrics explains that Nigeria’s recurring foreign trade deficit is attributed to the fall in crude oil prices near the end of 2019 when crude oil prices dropped below $60 per barrel (pb) in October during the first outbreak of Covid.
The bearish performance in the crude oil market extended into 2020 as the price of Brent fell to $15.17 pb in April before picking up later in the year.
Excessive imports weaken trade balance
Reliance on imported items without commensurate export value continues to erode weak earnings, piling more pressure on naira exchange rate.
Crude oil export, which accounts for over 90 per cent of foreign exchange (FX) earnings, is hampered by the combination of market performance and cut in OPEC supply exacerbated by inability to meet production quota.
National Bureau of Statistics (NBS) data shows that daily crude oil production declined to 1.5 million bpd in Q4 2021 from 1.57 million bpd in Q3 2021. Average production witnessed four consecutive quarters of decline in 2021.
Foreign trade
Nairametrics explains that foreign trade captures the monetary value of goods and services between Nigeria and other countries.
It is a very important component of the balance of payment as it shows the amount that comes into the economy through the sale of goods as well as what is spent on the importation of various items.
Foreign trade surplus occurs when export earnings surpass import bill. Trade deficit occurs when import spending surpasses export earnings.
Nigeria recorded its first quarterly trade surplus in over two years in Q4 2021 as crude oil prices, a major source of foreign inflow, edged close to $100 pb.
