TODAY'S LEADERS FORUM PRAISE 2019: Effects of Importation on Nigeria Economy- Ajitoni Yusuf Orisunmibare

Definition of terms:

Importation is the bringing of goods or services into a country from abroad for sale or for public usage. 

Economy is the state of a country or region in terms of the production and consumption of goods and services and the supply of money.

Introduction:

Nigerians are known for their high desire for foreign-made goods compare to those produced locally in the country. 

According to National Bureau of Statistics, Nigeria, Imports to Nigeria advanced 16.1 percent year-on-year to NGN 1,140 billion in September 2019, mainly driven by purchases of machinery & transport equipment (111.9 percent); food & live animals (32 percent); chemicals (61.5 percent) and manufactured goods (7.4 percent). Imports in Nigeria averaged 241177.75 NGN Millions from 1981 until 2019, reaching an all time high of 2209385.78 NGN Millions in August of 2018 and a record low of 167.88 NGN Millions in May of 1984.

According to my findings, these are the list of  Nigeria’s Top 10 Imports, Mineral fuels including oil: US$10.8 billion (29.7% of total imports)

Machinery including computers: $5.2 billion (14.2%)

Ships, boats: $3.4 billion (9.4%)

Vehicles: $2.2 billion (6.1%)

Electrical machinery, equipment: $2.1 billion (5.6%)

Plastics, plastic articles: $1.4 billion (3.8%)

Cereals: $1.2 billion (3.3%)

Fish: $686.5 million (1.9%)

Articles of iron or steel: $681.9 million (1.9%) Iron, steel: $618.9 million (1.7%).

Other top Nigerian imports include Miscellaneous manufactured articles (N67.04 billion), Crude inedible materials (N40.03 billion), Oil, fats and waxes N13.11 billion, Beverages and tobacco N9.16 billion, and Commodities n.e.s. N190,000.

We need to understand how passion for imported goods began in Nigeria, before I will start sharing some basic knowledge of Importation.

The passion for imported goods among Nigerians began immediately after the emergence of oil boom  in the early 1970s. With the unexpected and huge inflow of foreign exchange into the economy (due to tremendous increase in the crude oil price then) Nigeria had nothing economically meaningful to do with the oil windfall and began serious importation of foreign goods, which they could not hitherto afford.

Also, the oil boom led to appreciation in the value of the Naira and weakened hard currencies like Dollar and Pounds relatively to the Naira. 

This exchange rate encouraged importation, since imported goods then became cheaper for Nigerians to consume. Unfortunately, when the oil boom ended in 1977, the Nigerian economy had become heavily dependent on imports with almost everything imported,  and the passion for foreign goods has since failed to vanish among Nigerians.

There are a lot theories of International Trade, but I will like to talk about only one for the purpose of this presentation.

Heckscher Ohlin theory

Emphasizes only on the production factors in which the company has expertise and from that produce the goods. This theory stated that a country should export only those goods which are abundance in the country and for which the means of production factors can be utilized more intensively. In contrast the country should import only those goods in which the country is less capable for its means of production factors and also not available in abundance (Nelson and Winter, 2007).

Therefore it has been observed that the factor of endowment and relative variation has key role in the pattern of international trade. 

 

Balance of Trade

Whenever, a country export to other country or import from other country, then the difference between the export and import is known as balance of trade. If the export of goods is greater than the import of goods then the different between the export and import is positive and said that the country has positive balance of trade. On the other hand if the export is less than the import then the balance of trade will be negative and this situation is called trade deficit (Casson, 2008).

 

Effect on our economy

The incessant high taste for imported goods among Nigerian has been detrimental to the Nigerian economy in the past decades. Nigeria is a country where there is no made-in-Nigeria razor blade and also, foreign made toothpicks can still be found in every nook and cranny of the country. My experience as an importer as shown me a lot.

High level of import often leads to forex scarcity, as a result of increase in the demand for dollar by importers which will in turn depreciation in the value of Naira.

High value of import by Nigeria has led to unfavourable trade balances, terms of trade and even trade policies for the country.

Since Nigerians even import goods that can be easily produced locally, many thriving local factories have folded up and are still folding up.

Thousands of Nigerians have lost their jobs, since local industries are closing down. For example, textile industries in the Northern parts of Nigeria used to employ thousands of Nigerians uptill the early 1990s.

Dumping has also affected local products due to the heavy inflow of low-priced foreign goods which are pushed out of imported countries into Nigeria.

The latest import data released by the National Bureau of Statistics (NBS) shows that Nigeria spent a whopping sum of N148 billion to import used Vehicles (popularly known as Tokunbo) in the first quarter of 2019.

According to the NBS report, out of the total N3.58 trillion worth of goods imported in the first quarter of the year, used Vehicles amounted to N148 billion. This represents about 4.63% of Nigeria’s total import in three months.

Importation of goods could also lead the erosion of the domestic markets and national economies specifically when there is trade deficit occurrence i.e. the import is higher than the export. Some of the goods like cars; appliances lead a higher level of domestic automobile and electronic markets and also loss of jobs in the respective markets (Hennart, 2007).

Imports and the Trade Deficit

If a country imports more than it exports it runs a trade deficit. If it imports less than it exports, that creates a trade surplus. When a country has a trade deficit, it must borrow from other countries to pay for the extra imports. It's like a household that's just starting out. The couple must borrow to pay for a car, house, and furniture. Their income isn't enough to cover the necessary expenses that improve their standard of living.

I mean in case of this country,  when proper measure isn't taken into consideration before importing.

Nevertheless, nothing is totally bad, as nothing is totally good. I mean in what human being does. There are also benefits of Importation. 

Despite the enormous negative effects of imports on the Nigerian economy, there are still little advantages attached to it.

Imported goods is sometimes cheaper than some local goods.

Nigerians have access to some products that can never be produced locally, especially with some best technology.

After crude oil, Nigeria’s second highest revenue is generated through the Nigerian Customs Service that collects import duties and tariffs.

Also the importer can have the much cheaper products from the foreign market due to low labor cost, low taxes etc.

In conclusion, the competitive business and political environment enforces the businesses and government to retain their business as well as stability in governance to remain competitive. 

However depending on the need and potential of the country,  it is essential to understand whether to indulge in the import activity.