Key highlights
- Nigeria has a combined trade deficit of N18.3 trillion with China in the last 5 years, equivalent to $40 billion in net forex outflows.
- China accounts for 38% of all imports to Nigeria over the last 5 years, making it the dominant destination for Nigeria’s imports.
- China is Nigeria’s largest destination for its forex inflows as billions are spent to import.
- Apart from China, Nigeria runs trade deficits with the US, Germany, and the Netherlands. Nigeria’s crude oil exports represent over 78% of total exports, with India, Spain, and Europe being the main buyers.
Nigeria recorded a combined trade deficit of N18.3 trillion with China in the last five years, equivalent to a staggering $40 billion in net forex outflows to the second-largest economy in the world.
This is according to data from the National Bureau of Statistics.
Overall, Nigeria has operated a trade surplus of about N11 trillion in the last 5 years mostly on the back of crude oil exports, The only trade deficit recorded in the last 5 years was in the Covid-19 the year of 2020 when the country reported a deficit of N522.6 billion.
Since then exports have picked up pushing the trade balance to a surplus of N3.3 trillion at the end of 2022 as higher crude oil prices boosted export revenues. The country is still trailing the 2018 high of N5.8 trillion in trade surplus.
China’s one-sided trade with Nigeria
China has emerged as the dominant source of Nigeria’s imports, accounting for 38% of all imports over the last five years. Total trade with China averages N4.7 trillion annually, with about 90% of it being imports. In 2022, China’s export value to Nigeria doubled from about N2.5 trillion in 2018 to N5.8 trillion in 2022.
Most of what Nigeria imports from China includes manufactured goods and raw material inputs. Nigeria has chosen China as a destination hub for imports mainly due to the lower cost of Chinese goods. China is also the manufacturing hub of the world, making it easier for Nigerians to source their material inputs from the economic superpower.
However, Nigeria’s increasing dependence on Chinese imports has raised concerns about the potential impact on the country’s economic sovereignty. Nigeria currently has about $4.2 billion in external loans from China, up from $3.6 billion in 2022. This has led to fears that Nigeria may be ceding control over key sectors of its economy to China.
China ostensibly is Nigeria’s largest destination for its forex outflows as billions of dollars are converted from Naira to aid imports. Nigeria has faced one of its most difficult periods of foreign currency liquidity as a combination of limited sources and central bank capital controls depleted reserves.
Yet, the country’s import from China has surged since 2021 posting N51. trillion and N5.8 trillion in 2021 and 2022 respectively. Ironically, the central bank has tried to curb import-driven demand but this has not stopped China growing influence as the country’s leading source of imports.
Other trading partners
Apart from China, Nigeria also runs a trade deficit with the US, Germany, and the Netherlands in the last five years. The trade deficit with the US alone is N1.2 trillion. Nigeria has operated a trade deficit with the US every year since 2018, except in 2022 when it recorded a trade surplus of N401.8 billion. But unlike China, Nigeria operates a more symbiotic trade relationship with the US.
Most of Nigeria’s crude oil exports go to India, Spain, and Europe as Nigeria’s heavy reliance on crude oil exports represents over about 78% of total exports. This also explains why trade export to China is very small as the latter prefers to buy its crude oil supplies from the likes of Russia and Saudi Arabian.
China is the world’s top importer of Russian crude oil, buying an average of 1.59 million barrels per day (bpd) in 2022, or 15.5% of its total imports. China accounts for 15.4% of Russia’s total crude oil exports, second only to Saudi Arabia. In May 2022, China imported 8.4 million metric tons of crude oil from Russia, compared with 7.8 million metric tons from Saudi Arabia.
China vs Nigeria Trade relationship
Nigeria has chosen China as a source hub for imports because Chinese goods are considered cheaper. China is also the manufacturing hub of the world, making it easier for Nigerians to source their material inputs. In addition, China’s Belt and Road Initiative, which aims to build infrastructure and boost trade between China and other countries, has also contributed to Nigeria’s growing trade relationship with China.
While there are potential benefits to Nigeria’s trade relationship with China, there are also potential risks associated with this relationship.
- For example, Nigeria’s reliance on Chinese imports exposes the country to fluctuations in the Chinese economy, which can have a knock-on effect on the Nigerian economy.
- Additionally, concerns have been raised about the safety and quality of some Chinese products, including those used in critical infrastructure projects such as railways and power plants.
To reduce its dependence on Chinese imports, most analysts of the economy have suggested that Nigeria needs to invest heavily in infrastructure, including roads, ports, and power plants, which would enable the country to manufacture more of its goods locally.
The country also needs to focus on building up the skills of its workforce to enhance productivity and competitiveness.
Nigeria could also benefit from developing trade relationships with other countries to reduce its reliance on Chinese imports. To this end, the country should build up trade ties with countries such as the United States, the European Union, and Japan, which could potentially create more diversified and sustainable trade relationships.
This is what you get when there is unbridled importation. The backward integration policy of the government failed woefully. The foundation of the manufacturing sector is very weak. The outflow would have been more if not for banning of those 40 items from accessing official FX. More items should be added to the list. We either think deep to develop our country or perish