A member of the CBN’s Monetary Policy Committee (MPC), Balami Dahiru Hassan, has weighed in on the possible effect of the China/USA trade war on the Nigerian Economy.
Balami Dahiru Hassan is a Professor in the Department of Economics at the University of Maiduguri.
According to an excerpt of his personal statement in the MPC communique of May 21/22 2018, the trade war will likely have a negative effect on Nigeria’s crude oil sales.
“The China – US negotiations at the global level has implications for the Nigerian economy. It is likely that China would sacrifice imports from other countries such as Nigeria’s oil in the ongoing arrangement. The Federal Government’s capacity to fund the 2018 budget
would therefore be constrained.”
Nigeria currently runs a massive trade deficit with China as we import 10 times more from China than we export. According to the National Bureau of Statistics, Nigeria’s export to China was just N62.5 billion in 2018 in the first quarter of 2018 compared to an import value of N530.9 billion in the same period. In fact between 2015-2017 combined import from China stood at N5 trillion compared to an export of N500 billion within the same period.
China is also not anywhere close to the top 10 countries Nigeria exports oil to thus one wonders if Balami’s claims are not hyperbolic to say the least.
Effects of a trade war.
United States President, Donald Trump, spooked global markets by slamming a tariff on about $50 billion worth of goods from China, he has followed that up with a $200 billion threat. The Chinese are not taking this lightly as they have also threatened to slam reciprocal tariffs on US exports into China.
Understandably, the world doesn’t like this and has shown its disdain with sell-offs across global markets. When the first and second largest economies in the world are tussling on trade, the grass suffers. If the trade wars escalate further, it could trigger reprisals across the world and open a new vista of economic cold war that no one knows for sure how it would pan out.
You might be wondering how this all affects us in Nigeria, particularly our investments. Nigeria, like most emerging economies, relies on foreign investments for a lot of things, among which includes keeping our exchange rate stable.
If the trade wars, aka Trumpamania, escalate, then we can rest assured that foreign investors will pull out from emerging markets like Nigeria and take flight to safer havens until the turmoil boils over. The impact will be devastating, as we experienced during the oil price crash, sending our market to an albeit temporary tailspin.
If this does happen, stock prices may crash and could irnonically create interesting buying opportunities for investors who missed out on the great rally of summer 2017.