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EFFECT AND BENEFITS OF FOREIGN TRADE IN NIGERIA
A. B. Chiamaka, Yu. V. Solovieva1
The good and adverse effects particularly the benefits of foreign trade also known as international trade to the economies of developing countries like Nigeria cannot be overemphasized. The function and contributions of foreign trade to the gross domestic earnings, generation of employment, economic development, and reduction of poverty in these underdeveloped countries like Nigeria, Ghana, Benin Republic, etc. have been too conspicuous especially in agrarian economies with fertile arable lands in each of these countries. The main aim of this paper is to examine in-depth the effects and benefits of foreign trade in Nigeria and more importantly to determine the relationship between international trade and the economic development of developing African countries Nigeria a case study.
Keywords: Foreign Trade, Economic Development, Tariff, Import Duties, Export Duties, Rate of exchange.
Introduction
Nigeria is among one of Africa's largest economies and its leading oil exporter, with the biggest natural gas reserves. Other export commodities are cocoa and rubber. The country's economic process is especially driven by strong performance within the agricultural, trade, telecommunications, manufacturing and therefore the film industries. Although agriculture continues to use on the brink of 70% of the labour force, oil remains the key economic sector. Nigeria's main trade partners are Brazil, China, India, Japan, US and also, the European Union.
The country's long-term economic performance remains widely positive, managed by rising oil and gas production. One of the longer-term challenges would be to accentuate fundamental diversification of the economy, form oil into sectors like ICT and services. Nigeria may be a key economy in the ECOWAS and plays an important role within the regional I-EPAs.
Regional trade development remains a priority. Regional integration partnership between Nigeria and other African countries and institutions like AFDB is an additional evidence of how Nigeria is growing in its African role. Nigeria now contends or competes with South Africa as leading economy in Africa. ITC's current work in Nigeria marks particular needs in the supply chain of sesame seeds and shea nut butter sectors.
Table 1
Domestic and Foreign Market Access
Indicator, Units Rank/136 Value
Enabling Trade Index 127 3,2
Domestic Market Access 120 3,7
1 Chiamaka Anthony Blessing — undergraduate. Solovieva Yuliana V. — Associate Professor, Ph.D. (Economics), People's Friendship University of Russia (RUDN University), Moscow
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Foreign Market Access 123 2,4
Tariff rate (%) 101 9,7
Complexity of tariffs, index 1-7 (best) 21 6,7
Tariffs dispersion (standard deviation) 75 7,4
Tariffs peaks (%) 1 0.00
Specific tariffs (%) 1 0.00
Number of distinct tariffs 10 5,00
Share of duty-free imports (%) 130 5,1
Tariffs faced (%) 113 4,5
Index of margin of preference in destination markets, 0-100 (best) 128 7,3
Source: [10].
Throughout the colonial years, Britain was Nigeria's leading trading partner. After independence, Nigeria broadens its trading partners. Now it trades worldwide with about 100 countries. The United States took over Britain as the primary trading partner in the 1970s. However, Britain still remains Nigeria's leading vendor, selling the former colony more than 14% of its Imports in the 1990s. Other vital trading partners are Germany, France, the Netherlands, Canada, Japan, Italy, and Spain. Nigeria's inadequate trade with Eastern Europe and also the former Soviet Union was declined even further after the collapse of Euro Communism and the breakup of the Soviet Union in the early 1990s. Nigeria's trade with sister African countries—mainly with other West African members of the Economic Community of West Africa (ECOWAS, created in 1975) was only about 4% of its total trade in 1990.
Table 2
Trade (expressed in billions of US$), Nigeria
Exports Imports
1975 7.845 6.041
1980 25.968 16.660
1985 12.548 8.877
1990 13.670 5.627
1995 34.179 34.488
1998 37.029 43.798
2018 62 45
2019 53 47
Source: [7; 9].
Problems of Foreign Trade
There are many problems of foreign trade, the basic problem is language, when goods are imported to another country, the labels, informative literature, packing technical handout, should be made in the language where the goods are marketed. There should be sales persons who are skilled in that language and also know the likings and habits of the people. Another problem is the issue of standardized units, in some countries in the world, the units of lengths, capacity weight, and voltage are not the same. Exporters should have to see that all goods made
and supplied according to the standard specification of the importing country. Another problem is sales in foreign currency it's an issue because every country has its own currency just as sellers prefer to sell in their own currency. The export has to therefore calculate the selling price of the goods into the currency units of the country where the goods are sold also taking into consideration due fluctuations in the foreign exchange by hedging.
Effects of Foreign Trade on the Nigerian Economy
Finally, it was discovered that, foreign trade has had some negative effects on the Nigeria economy. Their problems include;
Unemployment: this affected Nigeria where the demand for imports through income effects were reduced, and in this way, it spread over to the unemployment rates in the country's trading partners.
Increased National Debts: In Nigeria today a large chunk of the country's national budget is still committed to debt servicing. This often affects state spending on other important aspects that have direct and positive impacts on the lives of working-class people such as health, education, social infrastructures and public industries.
Nigeria's foreign debt increased from US$10.3 billion in 2015 to US$22.08 billion in 2018. The African Development Bank in its African Economic Outlook (2019) stated that about 50% of the country's revenue is now spent on external debt servicing. About 2.45 trillion Naira was allocated to debt servicing in the 2020 budget out of 10.33 trillion Naira total expenditure (respectively, US$7 billion and US$28 billion).
Over Dependence: The economy has over dependence on the capital-intensive oil sector, which provides 20% of GDP, 95% of foreign exchange earnings, and about 65% of government revenue for 2005. The general maintenance of the agricultural sector has not been able to keep up with swift growing population, and Nigeria, was once a large exporter of food, now imports little amount of its food products.
The over dependence on oil produce did not only lead to unstable trade but has resulted in economic fluctuations. Nigeria was gravely affected by the global economic meltdown slightly due to the subside of global oil price in 2008, the prices set by the Organization of Petroleum Exporting Countries (OPEC) which can be affected by some political reasons that might not be in favour to the Nigerian economy and the recent Niger Delta Crisis which had a significant role to play in slowing down the economic growth of Nigeria. Economic and trade multiformity may serve as a scheme for reducing the exposure of Nigeria economy to external shock associated with commodity production and trade.
Despite the numerous effects that accrue to Nigeria as a result of foreign trade, there were still some benefits of foreign trade activities in Nigeria.
Benefits of Foreign Trade
• Variety of Goods Available for Consumption: foreign trade allows for different varieties of a particular product from different destinations. Giving consumers wider diversity of choices, which will not only enhance their quality of life but will also help the country to grow.
• Efficient Allocation and Utilization of Resources: Efficient allocation and better utilization of resources since countries tend to produce goods in which they have a comparative advantage.
• Promotes production efficiency: foreign trade helps in promoting efficiency in production as countries will strive to adopt better methods of production in order to keep costs down so as to remain competitive. Countries that make a product at a lowest cost will get a larger share in the market. This will help in increasing the quality of a product and consumers will be able to consumer good quality products.
• Consumption at Cheaper Cost: Through foreign trade consumers can consume things which either cannot be produced within our borders or production may cost very high. Therefore, the cost to import from other countries through foreign trade becomes cheaper.
• Reduction in trade Fluctuations: increasing the size of the market with large supplies and immense demand can reduce Trade fluctuations. The prices of goods therefore remain more stable.
• Utilization of Surplus Produce: foreign trade permits different countries to sell their excess or surplus products to a country and attain foreign exchange.
• Encourage Peace and Goodwill: foreign trade encourages peace and mutual understanding among nations which leads to close cultural relationship and thus, evade war between them.
Benefits of Foreign Trade in Nigeria
The export of products such as crude oil is a major feature behind Nigeria's economic growth, contributing significantly to the growth of export trade in the country. Export trade is an incentive for feasible economic development. Via export trade, Nigeria earns vital foreign exchange, increases its revenue base and may avoid trade deficits.
Conclusion
In conclusion, to the extent that Nigeria has done well out of foreign trade, it has also observed a negative effect of foreign trade on her economy and this is because Nigeria is not industrialized, therefore Nigeria imports much more than it exports. Hence, this is somewhat a caution for Foreign trade to be highly encouraged but, there should be a balance of trade that is the aggregate imports should equal the aggregate exports, so as to have a stable economy and better exchange rate.
The cohesive effort of the Federal Government of Nigeria through the Ministry of Finance, the Ministry of Industry, the Central Bank of Nigeria, trade and Investment and the Nigerian Export and Import Bank contribute extremely to the development of export trade in the country.
By giving greater pricing through export credit services, longer maturity periods, lower transaction costs, risk mitigation, and export financing on better terms for exporters, the Government seeks to enable the development of Nigeria's export trade.
It is anticipated that with the commitment of the Government to boost its World Bank (ease of doing business) ratings by providing organized commodity finance in incorporation to other incentives, Nigerian exporters will not only have access to a range of financing solutions, they will also be able to control export trade transactions with vast ease.
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References
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ПОСЛЕДСТВИЯ И ВЫГОДЫ ВНЕШНЕЙ ТОРГОВЛИ В НИГЕРИИ
магистрант Энтони Блессинг Чиамака, к.э.н., доцент Соловьёва Юлиана Владимировна, Российский университет дружбы народов (РУДН), Москва
Нельзя переоценить позитивные и негативные последствия внешней торговли (международной торговли) для экономики развивающихся стран, таких как Нигерия. Функции и вклад внешней торговли в валовые внутренние доходы, создание рабочих мест, экономическое развитие и сокращение масштабов нищеты в таких слаборазвитых странах, как Нигерия, Гана, Бенинская Республика и т.д., были слишком заметными, особенно в аграрной экономике с учетом плодородных пахотных земель в каждой из этих стран. Основная цель настоящей статьи заключается в углубленном изучении последствий и выгод внешней торговли в Нигерии и, что более важно, в определении взаимосвязи между международной торговлей и экономическим развитием развивающихся африканских стран.
Ключевые Слова: внешняя торговля, экономическое развитие, тариф, импортные пошлины, экспортные пошлины, обменный курс.
