Ad­dress­ing Nige­ria's trade dis­par­ity with China

If a coun­try is not buy­ing much of Nige­ria’s oil, this would af­fect Nige­ria’s trade balance with that coun­try. This is the case with Nige­ria-China trade.

Financial Nigeria Magazine - - Contents - Nige­rian Pres­i­dent Muham­madu Buhari meets with Chi­nese leader Xi Jin­ping in Bei­jing, China

China's eco­nomic co­op­er­a­tion with Africa has been ex­cep­tional as re­flected in its eco­nomic en­gage­ments with nearly all the 54 coun­tries on the con­ti­nent. Within Africa, Nige­ria is an im­por­tant coun­try for China, if we take into con­sid­er­a­tion the pop­u­la­tion and nat­u­ral re­sources of Africa's largest econ­omy.

Al­though Nige­ria-China trade has grown ex­po­nen­tially over the last few decades, the two coun­tries' trade re­la­tions have re­mained dis­pro­por­tion­ately in favour of China. Nige­ria is a peren­nial im­porter of Chi­nese goods, thus giv­ing rise to cap­i­tal flight and the weak­en­ing of the Nige­rian man­u­fac­tur­ing sec­tor. The key ques­tion is how this trade im­bal­ance can be reme­died.

His­tor­i­cal trend

Nige­ria's trade with China had ex­isted long be­fore diplo­matic nor­mal­iza­tion took place in 1971. Since then, eco­nomic ties be­tween the two coun­tries have con­tin­ued to wax stronger. How­ever, Nige­ria's trade deficit with China has been a knotty is­sue since the 1970s. For in­stance, be­tween 1972 and 1974, Nige­ria ex­ported USD 14 mil­lion worth of goods to China, while im­ported goods from the Asian coun­try were worth USD 249 mil­lion.

Fol­low­ing the nor­mal­iza­tion of diplo­matic re­la­tion­ship, the two gov­ern­ments be­gan to work out modal­i­ties to mit­i­gate the trade im­bal­ance. In Septem­ber 1974, a five-man del­e­ga­tion of the Nige­rian gov­ern­ment, led by the head of state, Gen­eral Yakubu Gowon, went to China to dis­cuss trade be­tween the two coun­tries. Un­for­tu­nately, noth­ing tan­gi­ble came out of the trip, be­cause ten months af­ter that visit, Gen­eral Gowon was over­thrown by (late) Gen­eral Mur­tala Ra­mat Muhammed.

Sub­se­quent ef­forts were made by Gen­eral Oluse­gun Obasanjo in 1978 and 1979. Ac­cord­ing to Nige­rian for­mer diplo­mat and po­lit­i­cal sci­en­tist, Alaba Ogun­sawo, ne­go­ti­a­tions be­tween Nige­rian of­fi­cials and then-Chi­nese Vice Premier, Geng Biao, along with other Chi­nese of­fi­cials, did bring only a lim­ited aid pack­age for Nige­ria.

As an ini­tial step to­wards rem­e­dy­ing the trade im­bal­ance be­tween the two coun­tries, China signed agree­ments of co­op­er­a­tion in the fields of agri­cul­ture, in­dus­try and trade, and fur­ther pledged com­mit­ments in a num­ber of other ar­eas. Some of these ar­eas in­cluded send­ing med­i­cal per­son­nel and agri­cul­tural ex­perts to as­sist in the de­vel­op­ment of new model farms. China also agreed to buy Nige­rian palm ker­nels, co­coa, cashew nuts and cot­ton. A fur­ther agree­ment in­volved man­u­fac­tur­ing Nige­ria-fo­cused farm­ing tools in China. Notwith­stand­ing the above agree­ments, the trade im­bal­ances be­tween the two coun­tries per­sisted and widened.

At the turn of the mil­len­nium, Nige­ria re­newed its eco­nomic diplo­macy. Much ef­fort was put into en­hanc­ing eco­nomic co­op­er­a­tion with China. To give im­pe­tus to the co­op­er­a­tion, in 2001 and 2005, for­mer Pres­i­dent, Oluse­gun Obasanjo, vis­ited China. In 2004 and 2006, Chi­nese Pres­i­dent, Hu Jin­tao, re­cip­ro­cated both vis­its. These vis­its cul­mi­nated in the sign­ing of more agree­ments and Mem­o­ran­dum of Un­der­stand­ing, key among which is the strate­gic part­ner­ship of 2006. The fo­cus of the part­ner­ship was trade ex­pan­sion, in­vest­ments in agri­cul­ture, telecom­mu­ni­ca­tions, en­ergy and in­fra­struc­ture de­vel­op­ment.

By 2005, bi­lat­eral trade be­tween the two coun­tries reached USD 2.8 bil­lion. That year, China's ex­ports to Nige­ria were val­ued at USD 2.3 bil­lion and its im­ports from Nige­ria were es­ti­mated at USD 527.1 mil­lion. And by 2010, Nige­ria-China trade was USD 7.700 bil­lion, mak­ing Nige­ria China's fourth big­gest African trad­ing part­ner, and the sec­ond largest Chi­nese ex­port des­ti­na­tion on the con­ti­nent. How­ever, China's ex­ports to Nige­ria and

im­ports from Nige­ria were USD 6.737 bil­lion and USD 962.5 mil­lion, re­spec­tively.

In 2014, trade vol­ume be­tween the two coun­tries had reached a whoop­ing USD 18.1 bil­lion, thus, mak­ing Nige­ria China's third largest ex­port des­ti­na­tion in Africa, af­ter South Africa and An­gola. Nige­ria-China trade cooled to USD 14.94 bil­lion and USD 13 bil­lion in 2015 and 2016, re­spec­tively. Lat­est trade data has shown fur­ther de­te­ri­o­ra­tion in trade be­tween the two coun­tries.

Ac­cord­ing to the Na­tional Bureau of Statis­tics, be­tween 2013 and 2016, Nige­ria's trade deficit with China was USD 16.9 bil­lion. Al­though the balance of trade is skewed in favour of China, Nige­ria-China trade ac­counts for 8.3% of China's to­tal trade with Africa, and 42% of China's trade with the Eco­nomic Com­mu­nity of West African States (ECOWAS).

Dur­ing a state visit to China in 2016, Nige­rian Pres­i­dent, Muham­madu Buhari, while ac­knowl­edg­ing the tremen­dous suc­cesses in bi­lat­eral trade be­tween Nige­ria and China, re­it­er­ated the large gap in trade in favour of China. The chal­lenge is how to sub­stan­tially re­duce the deficit.

Mit­i­gat­ing the trade im­bal­ance

Solv­ing Nige­ria's trade deficit with China would have to go be­yond rhetoric and diplo­matic meet­ings. In fact, much of the so­lu­tions lie with Nige­ria, al­though not with­out com­mit­ments from China. There are four key fac­tors that need to be ad­dressed.

First, Nige­ria must ad­dress its prob­lem of in­dus­tri­al­iza­tion. In­dus­tri­al­iza­tion is a sine-qua-non for de­vel­op­ment and favourable balance of trade. Highly in­dus­tri­alised coun­tries have un­due ad­van­tage over their less in­dus­tri­alised coun­ter­parts in the area of trade. Lack of in­dus­tri­al­i­sa­tion has per­pet­u­ally kept de­vel­op­ing coun­tries un­der­de­vel­oped and with di­min­ished liv­ing stan­dards.

Lack of in­dus­tri­al­i­sa­tion is what has per­pet­u­ally kept Nige­ria as an ex­porter of com­modi­ties and im­porter of man­u­fac­tured goods from China. Hence, the re­sult­ing trade deficit. For Nige­ria to im­prove its balance of trade with China, it must fo­cus on in­creas­ing its tech­nol­ogy adop­tion and in­dus­tri­al­i­sa­tion. In other words, Nige­ria needs to cut down its de­pen­dency on im­por­ta­tion of man­u­fac­tured goods from China and other more in­dus­tri­alised na­tions.

The sec­ond fac­tor en­tails es­cap­ing the com­mod­ity trap. Nige­ria only ex­ports about 10 per­cent of its man­u­fac­tured goods as against 90 per­cent of crude oil and other raw ma­te­ri­als. The ram­i­fi­ca­tion of this is two-fold. First, any neg­a­tive fluc­tu­a­tion in the prices of the com­modi­ties at the in­ter­na­tional markets would dras­ti­cally af­fect Nige­ria's trade balance, not just with China, but also with some of its trad­ing part­ners. Sec­ond, if a coun­try is not buy­ing much of Nige­ria's oil, this would af­fect Nige­ria's trade balance with that coun­try. This is the case with Nige­ria-China trade. China's crude oil im­port from Nige­ria has been neg­li­gi­ble. It ac­counted for 2% of Nige­ria's to­tal crude oil ex­port in 2014 and 3% in 2015. What the Nige­rian gov­ern­ment should do is to di­ver­sify its econ­omy to boost ex­ports.

A third crit­i­cal fac­tor to be ad­dressed is the lack of pro­duc­tive in­fra­struc­ture in Nige­ria. Ac­cord­ing to the World Bank's Ease of Do­ing Busi­ness Re­port 2018, part of the rea­son Nige­ria ranks 145th out of 190 coun­tries is the coun­try's huge in­fras­truc­tural deficit. In­fra­struc­ture is crit­i­cal for busi­ness to thrive.

For Nige­ria to ben­e­fit from in­ter­na­tional trade and to bring its trade deficit with China to a min­i­mum, the coun­try must re­vamp its in­fra­struc­ture, es­pe­cially its rail­ways, roads and avi­a­tion net­works. This will pro­vide easy ac­ces­si­bil­ity to ar­eas of pro­duc­tion and markets.

The fourth and fi­nal fac­tor that needs to be ad­dressed to im­prove Nige­ria's balance of trade with China is for the Chi­nese gov­ern­ment to de­clare its readi­ness to en­cour­age Chi­nese com­pa­nies to “out­source and off-shore” to Nige­ria.


Trade re­mains a core in­ter­est of many coun­tries and by far an ex­cep­tional ex­ter­nal con­di­tion for eco­nomic growth and de­vel­op­ment. For Nige­ria to cur­tail its trade dis­par­ity with China and to fur­ther max­i­mize the ben­e­fits of in­ter­na­tional trade for eco­nomic de­vel­op­ment, the Nige­rian gov­ern­ment must do the need­ful. It must move away from the com­mod­ity trap, in­dus­tri­al­ize, build its in­fra­struc­ture and make its trade poli­cies with China and other coun­tries a core in­ter­est of the state.

The coun­try also needs as­tute poli­cies to guide all its en­gage­ments in in­ter­na­tional re­la­tions.

Nige­ria-China trade ac­counts for 8.3% of China's to­tal trade with Africa, and 42% of China's trade with the Eco­nomic Com­mu­nity of West African States.

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