Redirecting trade: New partnerships offer much potential for growth

Western investors have not been the only ones to notice Nigeria’s resilient growth. While global demand has gradually rebalanced towards large emerging economies such as the BRICS, Nigeria’s trade patterns are shifting. The displacement of the US by India as Nigeria’s largest trading partner in the first quarter of 2012 (for the first time since 1964) is symbolic of a wider shift in trade. The authorities hope to expand the share of non-oil exports to match the rise in imports and have launched a wide-ranging review of the country’s trade policy in 2012. The total value of trade grew a healthy 47.09% year-on-year (y-o-y) in 2011 to reach N29.07trn ($186.05bn) on the back of rebounding oil exports as well as sustained growth in non-oil trade. Though Nigeria exports some 117 non-oil products to 103 countries, it continues to rely overwhelmingly on a single commodity. The dynamics of the global oil and gas industry have dictated a redirection of trade towards Asian consumers. Yet some growth in non-oil exports indicate potential for gradual diversification of export products to match the redirection of trade.

FUTURE REBOUND: In 2012 trade levels have been affected by domestic demand, which has been weakened by higher core inflation and import bans on certain agricultural commodities. Total trade is expected to decline by 11.03% y-o-y in 2012, according to the National Bureau of Statistics (NBS). However, growth is projected to rebound sharply as of 2013. The statistics agency forecasts successive annual growth of 11.25%, 20.6% and 16.44% in the three years from 2013. While oil remains the country’s largest source of export earnings, non-oil exports have been growing rapidly, from N486bn ($3.11bn) in 2007 to N5.5trn ($35.2bn) by 2011, according to the NBS. The key non-oil drivers of growth have been products such as packaging, leather, footwear, sesame seeds, vegetable oil and fat, cigarettes, wood, natural unprocessed rubber as well as shrimp and prawns, according to the Ministry of Trade and Investment (MTI). While export growth slowed in the second quarter of 2011 in the run-up to the presidential elections, it rebounded in the second half of 2011 with a y-o-y doubling of oil exports in the third quarter and growth of 176.6% y-o-y in non-oil exports in the final quarter, according to the NBS.

IN WITH THE NEW: Following the 2011 presidential elections, the MTI was set up to foster a more concerted approach to trade. The authorities see the growing South-South links as a means of decoupling the country’s economic prospects from international oil prices and volatility in developed economies’ domestic consumption. “Our main priority moving forward is to promote South-South trade,” said Bawa Lere Lawal, the deputy director of the MTI’s trade department. “This has already been bearing fruit, as Nigeria did not suffer a major slowdown in the aftermath of the global economic crisis.” In 2012 the MTI conducted the first comprehensive review of Nigeria’s trade policy in 10 years. The ongoing review seeks to link trade and industrial policies to increase the value-added components of Nigerian exports, while identifying priority growth markets – for the most part larger emerging economies like India, China, Turkey, Brazil and South Africa.

WESTERN DOWNTURN: This shift in government policy is driven by the new realities of a global rebalancing of demand. Though the US and the 27 members of the EU still account for the largest combined portion of Nigeria’s trade, their share has fallen dramatically since 2003. That of China and Asia as a whole, the Americas and Africa, however, has risen sharply, according to the WTO. The leading export destinations in 2011 were the US, India, Brazil, Spain and the Netherlands, although the UK became the largest export market in the final quarter. While Europe as a region remained the top export destination in the first quarter of 2012, accounting for 36.6% of the total, the Americas and Asia made up 27.9% and 22.4% of the total, respectively. Exports to the rest of Africa accounted for just 10.8% of total exports, of which 46.1% went to the West African region.

Exports to the US declined from 38.3% of the total in 2003 to 27.9% at the start 2012, while exports to the EU dropped from 49% to 36.6% in the same period. “The US is still a major trading partner, although it has been diversifying out of Nigeria somewhat,” Lawal told OBG. “But new trade partners are emerging like China and India, which is redirecting Nigeria’s trade patterns.”

Indeed, growing demand from Asian and non-US markets, particularly China, has filled the gap that could have been left by the reduced US demand. Exports reached N3.09trn ($19.78bn) to Asia, N2.03trn ($12.99bn) to Africa and N1.63trn ($10.43bn) to Brazil in 2011, according to the Central Bank of Nigeria.

SOUTH-SOUTH TRADE: Imports from Asia have been growing fast, from 22.7% of the total in 2003 to 37.4% by the first quarter of 2012, far higher than the EU’s 32.5% or the US’s 23.9%. India became the largest single export market at the start of 2012, importing some N688.5bn ($4.41bn) of Nigerian goods compared to N609.7bn ($3.9bn) by the US. Indian imports are dominated by oil and gas, although cashew nuts and unprocessed rubber are also in rising demand. While Indian firms have been successful in carving out a niche for products such as pharmaceuticals, electronics, machinery and rice on the Nigerian market, the trade balance remains heavily in favour of Nigeria. As India’s 14th-largest trade partner in 2011, according to Indian government figures, Nigeria is certainly capturing the South Asian nation’s attention. While both Indian exports and imports have been growing at similar rates (38% and 34%, respectively in 2011), the priority is to raise Nigerian demand for Indian products, recreating the success enjoyed in pharmaceuticals.

UNBALANCED PARTNERSHIP: China’s growing importance for African trade is also evident in Nigeria. Total trade between the two countries increased from N70.5bn ($4.51m) in 2007 to N392.6bn ($2.51bn) in 2011. Imports from China accounted for 3% of total imports in 1995, increasing to 17% in 2011, according to the UN Conference on Trade and Development. The value of trade with China remains highly unbalanced in favour of the Asian giant, as it exports seven times more products to Nigeria than it imports. Other partners like Brazil, Korea and Turkey are also driving trade growth. Trade with Brazil, which grew from N241bn ($1.54bn) in 2007 to N1.63trn ($10.43bn) in 2011, is dominated by oil, making it the third-largest importer of Nigerian crude after the US and India.

Korea and Turkey have far more balanced trade relations with Nigeria. Turkish bilateral trade reached N206bn ($1.32bn) in 2011 on the back of Nigerian imports of food, automobile parts and clothing as well as exports of sesame seeds, semi-processed leather and rubber. South African trade has risen steadily to reach $30bn in 2011 and is set to grow further as the country moves to raise imports of Nigerian oil in coming years.

While by no means insulated from the volatility in Western markets, Nigeria’s rebalancing of trade patterns has created welcomed space for policymakers to formulate new growth plans. Demand in emerging economies may be affected by a prolonged slowdown in the West, but growing South-South integration is creating a more multipolar trading landscape for Nigeria.