Efem Nkam Ubi, Research Fellow, Nigerian Institute of International Affairs
Subjects of Interest
- Economic Development
- Geopolitical Analysis
- International Affairs
- International Trade
Addressing Nigeria's trade disparity with China 09 Jan 2018
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.
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.
Efem N. Ubi, PhD, is a Research Fellow at the Nigerian Institute of International Affairs, Lagos.