It is no more news that Nigeria is an Import dependent country. This
is mainly due to the low level of development in the economy. When it comes to
examining the risk of importation to a country, we seem to only focus on the impact
on foreign reserve and the nature of the items being imported and not so much
is being said on where we are importing the goods from. In my opinion, I think the
Real sector Nigerian economy is seriously susceptible to a major risk called
concentration risk because of the over dependence on China as the major source
of our items of importation into Nigeria.
The economist will tell us that the economy of any nation comprises
four interrelated sectors, operating to ensure that resources are best utilised
in the production of goods and services to maximise the welfare of its
citizenry. The sectors are the financial, fiscal/government, external and real.
While all four sectors have important roles in the welfare of the citizenry,
the role of the real sector is particularly significant and strategic. It is
the sector responsible for the production and distribution of goods and
services (from a combination of factor resources), necessary to meet the
consumption demand of an economy. It drives economic growth and development, and
provides an indication on the living standard of the citizens of an economy and
the effectiveness of government’s macroeconomic
policies. Furthermore, it facilitates the creation of economic linkages with
other sectors and helps in capacity building, employment and income generation.
In view of this, a discussion of the real sector is topical as it is the pillar
upon which the government’s objective of
inclusive growth and poverty alleviation hinges, since it contributes the most
to employment generation and growth. However, the real sector of the Nigerian
economy is under threat and no one seem to be observing the trend and bring it
to the front burner and hence nothing is being done about it. The wise man see
evil afar off and do something to avert it but fool will wait until it he feels
the impact before doing something about it.
Looking at the data of Import from China since 2013 to 2016, you
will observe that the volume of importation from China has consistently been on
the increase. As a matter of fact, the volume of importation from China alone
is more than double that from the United State of America (USA) which happened
to be the next to China on the list of top Import origin of Nigeria. For
example, in 2013, about 22% of the total import volume into Nigeria was from
China, while that of USA is 11%. This volume of importation from China
increased to 26% in 2014 while the USA retained the second position with a
volume amounting to about 11%. In 2015 the total import volume from China into
the Nigerian market jump to a whopping 35%, while that of the USA dropped to
about 8%
In 2015 in particular, Nigeria imported goods worth $39.5Billion and
from different parts of the world. Out of this, about $13.6Billion worth of
goods were imported from China and this accounts for about 35% of the total
import into the country. What is of interest to me in this particular year is
the fact that a good chunk of the products inputs at different levels and
stages to the manufacturers and processors in the country. For example, out of
this $13.6Billion, about $2.37Billion was used for the importation of machines
and spare parts, $1.18Billion was used to import metallic and minerals which
are raw materials in industries, about $748Million was used to import raw
materials for the plastics and rubber industries while about $577Million was
spent for the importation of other raw materials that are chemicals.
A number of people might argue that, the reason why many people are
flocking to China to purchase what they need for their factory is because if of
the competitive prices. To the extent that this is true, however, I think the
government has the responsibility to look beyond profitability and focus on the
impact of this concentration risk on the economy. If this trend continues
unchecked and China experience any form of political issues, (which is already
gathering momentum based on the proposed sanction from the USA on China to stop
its trade with North Korea) that has an adverse effect on its economy, then all
the factories that solely depend on China might be in for a very hard time.
The implication of over reliance of the manufacturing sector of the
Nigerian economy on a single country is far reaching. An adverse situation in
the politics and economics of China might mean a decline in the importation of
raw materials and spare parts. This might consequently leads to the reduction
in product output and thus leading to a decline in income and profitability of
such organisation. The result of all these is retrenchment of workers and
increased unemployment in the country. A government that is forward thinking
will not wait until things get out of hand but rather put processes and system
in place to mitigate this before it becomes too late.
Some of the things the government can do is to first commence
sensitisation among the players in the concerned sector of economy to let them
know the implication of what they are doing to their business and the economy
in general. In addition to this, the government can use some of the tools at
his disposal to discourage over reliance on China and encourage the purchase of
similar products from other parts of the world. Some of the government tools
that can be very effective to get this done is Tariff, Tax holidays, VAT
exemption, Import Origin Quota etc.
It is my firm belief that if these tools are dynamically and
strategically deployed, then we can effectively avert the likely doom that
could “bedevil” the Real Sector of the Nigerian economy very
soon. However, if we continue on the current path of unabated increase in the
dependence of the critical sector of our economy on importation from China (or
any other country), then we may be in for a very hard time if this risk crystallises.
Bamidele Ayemibo
bayemibo@3timpex.com
