Nigeria’s trade surplus shrank by 99.7 percent last year as imports surged to the highest in at least 16 years, a BusinessDay analysis of the latest foreign trade data shows.A report by the National Bureau of Statistics (NBS) shows that Africa’s most populous nation recorded a positive trade balance of N2.9 billion in 2023 for the second straight year, down from N1.21 trillion in the previous year.However the country recorded a trade deficit of N1.4 trillion in the fourth quarter for the first time since Q1 last year.A trade surplus, also known as a positive balance of trade, occurs when a country’s exports exceed its imports, while a deficit is the opposite.A breakdown of the NBS report shows that total trade was N71.9 trillion in 2023, of which imports were valued at N35.9 trillion and exports stood at N36 billion

Further analysis revealed that on a year-on-year basis, imports rose by 40.2 percent and exports by 33.9 percent.

The import growth for last year is higher than the 23.1 percent increase recorded in 2022, while the export growth is lower than the 41.7 percent increase in 2022.

“The value of total imports stood at N14.1 trillion in Q4; this represents an increase of 56.0 percent compared with the value recorded in Q3 (N9.04 trillion) and by 163.1 percent compared to the value recorded in Q4 2022 (N5.36 trillion),” the NBS report said.

It said the increase in import was largely due to the import of ‘tanks and other armoured fighting vehicles, motorised, whet’ worth N5.06 trillion.

“The significant rise in imports caused a decline in trade surplus. But it is a one-time thing. I expect the surplus to reverse in Q1,” Ayorinde Akinloye, a Lagos-based investor relations analyst, said

He added that in terms of impact on the economy, the decline in surplus meant that low net foreign exchange came into the country which affected the external reserves and the FX rate.

Israel Odubola, a Lagos-based research economist, said exports rose slightly in Q4, partly due to a marginal increase in crude oil prices in the quarter.

“It should be worrying that the trade deficit in Q4 is the highest quarterly deficit since Q1 2021.The slim trade surplus we had seems like a narrow escape. Overall, our external position is still relatively weak,” he added.

Last June, the Central Bank of Nigeria merged all segments of the FX market into the Investors and Exporters window, and reintroduced the willing buyer, willing seller model.

The naira has continued to depreciate against the dollar and other major foreign currencies since then

The official exchange rate fell from N463.38/$ to N1,627.4/$ as of March 8, 2024. At the parallel market, the naira depreciated to above 1,600/$ from 762/$.

The high cost of sourcing FX was one of the major factors that pushed Nigeria’s inflation rate to a record high of 29.90 percent in January from 28.92 percent in the previous month, according to the NBS.

“The naira devaluation is a major factor that contributed to the deficit. Imports have become more expensive now. So, even if there is a reduction in volume, the naira value has almost doubled,” Muda Yusuf, chief executive officer of Centre for the Promotion of Private Enterprise, said.

He added that from the classic economist’s point of view, once a currency is devalued, exports are expected to increase but unfortunately for Nigeria, the structure of its economy does not respond to that kind of incentive because of its insufficient productive capacity.

“Most of our production is related to imports in a large way. So, we have not, to a large extent, taken advantage of the devaluation of the currency, although there have been some advantages

The Manufacturers Association of Nigeria said in a report last year that manufacturing activities continued to suffer due to the persisting scarcity of FX and further depreciation of the naira.

The association added that the lingering FX scarcity and continuous depreciation of the naira have left manufacturers bleeding and limited their capacity utilisation since the importation of non-locally produced critical input has become a nightmare.

The tough business environment is also pushing multinationals to exit Africa’s biggest economy as Procter & Gamble, GlaxoSmithKline Consumer Nigeria, Equinor, Sanofi and Bolt Food have announced plans to leave the country this year.

The trade report also highlighted that the Netherlands, India, Spain, Canada and France were Nigeria’s top export destinations in Q4 with N1.91 trillion, N1.10 trillion, N1.03 trillion, N907.6 billion and N799.8 billion respectively

“Altogether, exports to the top five countries amounted to 45.3 percent of the total value of exports. The largest exported product was ‘petroleum oils and oils obtained from bituminous minerals, crude’ valued at N10. 3 trillion representing 81.2 percent, this was followed by ‘natural gas,’ with N1.01 trillion accounting for 8.0 percent, and ‘Urea, whether or not in aqueous solution’ with N251.9 billion or 1.98 percent of total exports,” the report said

In terms of imports, the top five trading partners were Singapore with goods valued at N5.09 trillion, followed by China with N2.06 trillion. Belgium had N1.14 trillion, India had N908.6 billion and the United States with N512.9 billion