Emmanuel OchayiIn 2024, Nigeria’s foreign trade surplus soared to an unprecedented $50.4 billion, marking a significant milestone in the nation’s economic history. This surge, as reported by the National Bureau of Statistics (NBS), was driven by a substantial increase in exports, which reached $50.5 billion, up from $39.6 billion in 2023. However, this economic triumph unfolds against the backdrop of a depreciating naira, which closed the previous week at N1,517.93 per dollar in the official market, raising critical questions about who truly benefits from this complex economic landscape.
Nigeria’s Foreign Trade: A Closer Look at the Numbers
The NBS data reveals that Nigeria’s total trade volume in 2024 stood at N138 trillion, a remarkable 106% increase compared to the previous year. When adjusted for the exchange rate, this translates to $89.9 billion, indicating a 22.1% surge in dollar terms. Exports nearly doubled, rising by 96.3% to N60.59 trillion, while imports also saw an increase, reaching $39 billion from $34 billion in 2023. Crude oil exports remained dominant, accounting for $36 billion, or 71% of total exports. Non-oil exports also experienced growth, reaching a four-year high of $5.9 billion, largely consisting of agricultural and mineral products.
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The Naira’s Depreciation: Causes and Consequences
The naira’s depreciation has been a significant factor influencing Nigeria’s trade dynamics. In 2023, Nigeria transitioned to a more market-determined exchange rate, leading to a 50% depreciation of the naira. This shift aimed to adopt a realistic exchange rate policy, reducing the degree of over-valuation of the naira, which had previously encouraged imports and discouraged non-oil exports.
However, the depreciation has also led to increased inflation, affecting the purchasing power of consumers and the cost of imported goods.
Beneficiaries of the Trade Surplus in a Depreciated Naira Environment
The substantial trade surplus, coupled with a weaker naira, presents a mixed bag of winners and losers within the Nigerian economy.
Exporters, particularly in the oil sector, have been primary beneficiaries. The depreciation of the naira has made Nigerian exports more competitive on the international market, leading to increased demand. This competitiveness has been a boon for exporters, as they receive more naira for their foreign currency earnings, enhancing their profitability.
Importers and Consumers Face Challenges
Conversely, importers and consumers have felt the pinch of the naira’s depreciation. The cost of imported goods has risen, leading to increased inflation and a higher cost of living. This situation has been exacerbated by limited access to foreign exchange, making it more challenging for businesses that rely on imported materials to operate efficiently.
Expert Insights on the Economic Impact
Economists have weighed in on the implications of the naira’s depreciation and the trade surplus. Arnold Dublin Green, CEO of Cordros Capital in one of his interview, attributes the recent depreciation of the naira to the exit of foreign portfolio investors from Nigeria’s financial markets. He notes that this trend has had significant implications for the country’s foreign exchange reserves and overall economic stability.
Another expert highlights the broader economic implications, stating, “The persistent depreciation of the naira has been more volatile in the post-structural adjustment programme period due to its excessive exposure to external shocks.”
This perspective underscores the vulnerability of the Nigerian economy to external factors and the need for robust economic policies to mitigate such risks.
The Role of Government Policies in Shaping Trade Dynamics
Government policies have played a pivotal role in shaping Nigeria’s trade dynamics amidst the naira’s depreciation. The transition to a market-determined exchange rate was aimed at adopting a realistic exchange rate policy, reducing the over-valuation of the naira, and encouraging non-oil exports. Additionally, the elimination of fuel subsidies has had a significant impact on the economy, affecting both the cost of living and government revenues. These policy shifts have contributed to the current trade surplus but have also led to challenges such as increased inflation and reduced consumer purchasing power.
Looking Ahead: Strategies for Sustainable Economic Growth
To ensure that the benefits of the trade surplus are widely distributed and contribute to sustainable economic growth, several strategies could be considered:
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Diversification of Exports: Reducing reliance on oil exports by promoting other sectors such as agriculture and manufacturing can create a more resilient economy.
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Strengthening the Naira: Implementing policies that stabilize the naira can help control inflation and improve the purchasing power of consumers.
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Supporting Import-Dependent Industries: Providing support to industries that rely on imports can help mitigate the adverse effects of a weaker naira and ensure their continued contribution to the economy.
However, while Nigeria’s foreign trade surplus is a positive indicator of economic activity, the depreciation of the naira presents both opportunities and challenges. Exporters benefit from increased competitiveness, but importers and consumers face higher costs. Government policies and strategic economic planning will be crucial in ensuring that the gains from the trade surplus lead to sustainable and inclusive economic growth.
Emmanuel Ochayi is a journalist. He is a graduate of the University of Lagos, School of first choice and the nations pride. Emmanuel is keen on exploring writing angles in different areas, including Business, climate change, politics, Education, and others.
