Q2-2018 Trade Numbers and Nigeria’s 2019 Outlook, By Uddin Ifeanyi
Could the Buhari administration be achieving more in driving non-oil output than its detractors are willing to concede? Or how else could manufacturing have put in such a decent shift? And could those who argue for a market-determined exchange rate, if the economy is to become competitive, be right after all?
In the fevered ferment that currently passes for politicking in Nigeria, one could be forgiven the presumption that one cause of the tirades that the opposing parties (and their allied political interests) address to each other is a dearth of facts around which more disciplined conversation could take place. But we all know that the economy is awash with data on its performance that point to how healthy or ill it is. Most observers concede that in the matter of political preferences, rarely is the decision to support a candidate anchored on the rational alone. And in the debate over whether to re-elect President Muhammadu Buhari, both facts and reason have been the first and fatal casualties.
Not surprising, therefore, that perched on the fence, neutral observers of the full-blown political hostilities currently evolving are wont to over-emphasise the utility of data and facts. Even then, as with the numbers for external trade for the second quarter of this year, the data are never always as conclusive as those who deploy them in their conversations would prefer (and nearly always imply).
On the upside, our trade balance has been positive and growing since the fourth quarter of 2016 — there was that blip in the first quarter of 2017, though. In the second quarter of this year, total exports stood at N4.46 trillion, while total imports was N2.11 trillion. In other words, the trade balance for the quarter was N2.36 trillion. And for those strongly persuaded of the need to diversify the economy away from its dependence on oil exports, it would have been worth noting that the value of manufactured exports more than quadrupled to N504.2 billion in the first half of this year, from N133.4 billion in the same period last year.
Could the Buhari administration be achieving more in driving non-oil output than its detractors are willing to concede? Or how else could manufacturing have put in such a decent shift? And could those who argue for a market-determined exchange rate, if the economy is to become competitive, be right after all? For one explanation of the manufacturing sector’s strong export performance is that a weaker naira improved the global competitiveness of the sector’s exports.
As usual, there is much devilry in the details… Again, put simply, the better trade numbers in the second quarter is the result of oil prices having risen from an average of US$50 per barrel in the first of last year, to US$77 per barrel in the same period this year.
As usual, there is much devilry in the details. And invariably, the details are rather more nuanced than partisanship would permit. First, 90 per cent of export earnings in the second quarter of this year was the result of crude oil exports. This was up by 45 per cent on a year-on-year basis. Again, put simply, the better trade numbers in the second quarter is the result of oil prices having risen from an average of US$50 per barrel in the first of last year, to US$77 per barrel in the same period this year.
Hard to see what the Buhari government may have done to bring this about?
Now, that is a problem for those who look for the roseate in these numbers. For, disaggregated, four of the seven sectors that drive Nigeria’s merchandise trade exported far less than they imported. Crude oil, solid minerals, and energy all had a positive balance, while other oil products, manufactured goods, raw material, and agriculture all saw negative balances. Indeed, despite the sense of achievement that the earlier numbers from the manufacturing sector may have engendered, of the seven sectors, manufactured goods had the largest negative net exports in the first half of this year. In the first half of last year, we exported manufactured goods worth N133.43 billion, while importing goods worth N2.23 trillion. This year, we imported N2.37 trillion worth of manufactured goods, while exporting N504.24 trillion worth.
To boost domestic productivity enough to produce the goods and services that will make this contest for resources less rivalrous, we will need to invest in both healthcare and training facilities — put differently, to upskill our huge population of youth.
Is there a moral to this tale — indeed, can there be any for narratives structured around matters this arid? There just might be. For whosoever wins the general elections, next year, the central challenge of properly managing the economy would not have been solved. We would still need to wean the economy off its dependence on the export of fossil fuels. There is a larger context to this task now. An increasingly warmer earth threatens further desertification of large parts of our Sahel region, even as it might submerge our littoral ones, while inundating the riparian flood plains.
Left at the subsistence levels that we are, all of these would only reinforce threats to domestic security as competition for increasingly scarce resources worsens and turns violent. To boost domestic productivity enough to produce the goods and services that will make this contest for resources less rivalrous, we will need to invest in both healthcare and training facilities — put differently, to upskill our huge population of youth. This we must do, in order that industry and entrepreneurs will find the human capital and other resources without which the fillip to private sector supply responses would not happen.
The main let to all these is that we will need to find money from somewhere to pay for all of it. And from the promontory that today nearly always is with respect to tomorrow, the auguries for successfully finding the funds to make this much needed transition do not look good. Oil prices may not hold up as well as they have done this year, not even with help from the sanctions to Iran’s energy industry beginning in the next months. Global financing conditions will tighten — the MSCI emerging markets stock index has lost more than a quarter of its value since January — that is if the global economy does not court a deep drop in output. All of which will come on the back of the possibility that the country may already be over-leveraged.