Africa’s most populous country and biggest economy, Nigeria is a multi-ethnic and culturally diverse country with 36 states and the federal capital territory. A major trading hub in the continent, Nigeria trades with over a hundred countries around the world, and vast amounts of trade take place within the country as well.
Nigeria’s economy (GDP) is dominated by the Agricultural Sector (25.08%), trade sector (16.86%), and the real estate sector (6.85%). Oil accounts for over 80 percent of exports value, a third of banking sector credit, and more than half of government revenues
After the country’s independence in 1960, Minerals (mainly petroleum) accounted for an increasing proportion of exports through the 1970s, increasing from 13 percent in 1955 to 35 percent in 1965, to 93 percent in 1975, and then to 96 percent in 1985. The dependence on oil and a few other export commodities made Nigeria particularly vulnerable to world price fluctuations. Today, Nigeria’s economic outlook remains highly uncertain. According to the World Bank, Nigeria was highly vulnerable to the global economic disruption caused by COVID-19, particularly due to the decline in oil prices.
The Observatory of Economic Complexity (OEC), in 2015, ranked Nigeria as the 49th largest export economy in the world, having exported goods/products worth well above $47.8 billion. As of the 4th quarter of 2021, Nigeria’s top 5 import trading partners were China, Belgium, India, Netherlands, and the United States, accounting for 58.1% of total import value. While the country’s top export trading partners were India, Spain, France, Netherlands, and Indonesia, accounting for 49.7% of total export value.
Trade within Nigeria is growing and the logistics sector is one of the fastest-growing industries in the country, though it is still in its nascent stage. This is due to growth in e-commerce, development in manufacturing and export sectors, improvement in ties with other countries, and infrastructure development in railway and airways.
Within the country, the nature of domestic trade in staple foods is largely North-South due to different ecological zones, but also between major urban areas in the southeast and the southwest. Southern states supplied cassava, plantains, kolanut, fruits to the northern states, which in turn supplied onions, beans, and livestock to other parts of the country. Yams from the central region are supplied to both the north and south.
Currently, the importation of 44 items into Nigeria are restricted from accessing foreign currency from the CBN’s official window. These goods are hence more expensive for consumers as importers have to source more expensive forex from the parallel market.
Nigeria in the African Continental Free Trade Area (AfCFTA)
The AfCFTA was adopted at the African Union Assembly meeting in Kigali, Rwanda in March 2018 and became operational in January 2021. The free trade agreement seeks to create a liberalized single market for goods and services across the continent by eliminating tariffs on 90% of products among other efforts to facilitate intra-African trade.
Although Nigeria was reluctant to sign the agreement, it eventually did so in July 2019, more than a year after it was adopted. It took Nigeria another 16 months before the Federal Executive Council ratified the agreement in November 2020.
The Free Trade Area presents enormous opportunities to African countries and the people if done right. The World Bank has estimated that the AfCFTA alone could add more than $450 billion to the continent’s GDP, and lift more than 30 million people out of extreme poverty by 2035.
Due to its position, population size, abundant energy, and agricultural resources, Nigeria can significantly benefit from selling goods and services to millions of consumers across the continent. Particularly, the country can focus on manufactured goods and agricultural products such as sugar, vegetables, fruits, nuts, beverages and dairy products.
Almost half of the trade within Africa is in manufactured goods. This presents an opportunity for Nigeria to leverage its bigger population and available labor force to provide manufactured goods to countries across the continent. Already, Nigeria is the largest producer of cement and fertilizer in the continent. With lower barriers to trade across Africa and export-oriented policies, this will mean a larger market for Nigerian manufactured goods.
The Imperative of Free Trade
International trade is very important for the growth of the economy of a country because it facilitates the development of markets, employment creation, poverty reduction, and reduces the prevalence of monopolies by discouraging the domination of a market by a few.
Export trade which entails the transportation of goods produced in one country to another country for sale or trade is a catalyst for sustainable economic development. It facilitates economic expansion, promotes international cooperation, improves the balance of payments, and boosts foreign currency earnings. Import trade which entails the transportation of goods from another country helps to provide commodities that are not locally produced or not locally sufficient.
Despite Nigeria’s enormous potential to leverage trade for economic growth and overall development, several barriers and factors continue to limit the country. There is a need to implement policies and programs that will reduce the barriers to foreign and local trade.
42.6% of Nigerians are estimated to be living in poverty. The lack of job opportunities is at the core of the high poverty levels, regional inequality, and social and political unrest. Greater trade will spur job opportunities and wealth creation. It is imperative that barriers to trade and investments, especially in the form of bureaucratic delays and regulations be removed to spur needed prosperity for the people.
Although trade freedom is improving in Nigeria (according to the 2022 Index of Economic Freedom), the country is not yet where it should be. Of all the indicators used in the measurement, only trade freedom saw an improvement. However, other indicators such as property rights, judicial effectiveness, government integrity, business freedom, and fiscal health need to significantly improve in order to reap the benefits of economic freedom as a whole.
The Nigerian government must intensify efforts to diversify the resource base of the economy by growing non-oil investments and exports, which will lead to jobopportunities and wealth creation.