Economic Update

Published 05 Dec 2011

It is no secret that China has been increasing its economic links with Africa at an exponential rate in recent years, with hydrocarbons-rich countries such as Nigeria among the chief beneficiaries. The previous decade has seen Abuja concluding multibillion-dollar deals with Beijing-based conglomerates across a variety of sectors. While the relationship does have its critics, China’s role in both trade and investment in Nigeria has become increasingly central – and not only in the oil sector.

According to data released in October by Nigeria’s National Bureau of Statistics (NBS), China was the country’s second-largest source of imports for the first six months of 2011. About N737bn ($4.57bn) of goods entered Nigeria from the Asian giant during the first two quarters of the year, equivalent to about 11% of total imports, NBS reported.

Exports to China for the same period were smaller, at N390bn ($2.42bn), or about 6% of the total. Nonetheless, China was overall the second-largest trade partner for Nigeria during the first two quarters of 2011, second only to the US.

The NBS does not report individual categories of imports by country, but in 2010 Jubril Martins Kuye – then Minister of Commerce and Industry – told local reporters that Nigeria primarily imports mechanical, electronic, textile and light industrial products from China, while goods flowing in the opposite direction include agricultural products, minerals and textile raw materials.

Nigeria may run a sizeable trade deficit with China, but overall the country generally maintains a surplus thanks to its oil exports. In 2010 the country’s imports amounted to N6.65trn ($41.23bn), while exports hit N13trn ($80.6bn), generating a surplus of N6.36trn ($39.43bn). For the first six months of 2011, exports were about on pace with the 2010 figure, amounting to N6.79trn ($42.1bn). However, imports have already reached N6.43trn ($39.87bn), nearly equal to the full-year figure for 2010.

The reason behind the surplus comes from the fact that the vast majority – or more than 70% – of Nigeria’s outbound trade is crude oil, with China one of the biggest customers. However, Beijing has been pouring capital into other sectors, in support of Nigeria’s economic diversification policy, with some visible results.

China already accounts for roughly 25% of Nigeria’s inbound foreign direct investment FDI), equivalent to roughly $6.1bn in 2010, according to the UN Conference on Trade and Development (UNCTAD). In November Nigeria’s minister of trade and investment, Olusegun Aganga, travelled to China and met with Fu Ziying, China’s vice minister of commerce, and Weng Jieming, the director of Chongqing Liangjing New Area, a 1205-sq-km sub-provincial area in south-west China dedicated to industry, manufacturing and logistics.

Jieming told Aganga that, in addition to encouraging local companies to export to Nigeria, the government would also “support the companies, especially in the motorcycle and automobiles industry, to make direct investments in Nigeria for local production.”

During his meeting with Ziying, Aganga said that establishing a manufacturing zone for Chinese products in Nigeria would help correct the trade imbalance that exists between the two countries, with producers able to benefit from the availability of raw materials and a ready market for Chinese goods.

The Chinese are already involved in the Lekki Free Trade Zone (FTZ), which is being developed on a 165-sq-km site located to the southeast of the city of Lagos. Lekki FTZ is being developed by a joint venture between CCECC-BEYOND International Investment and Development Company (a consortium of several Chinese firms) and various Nigerian interests, including the Lagos state government, and aims to attract foreign manufacturers who target both the domestic and regional markets.

However, China’s involvement in Nigeria, as in the rest of Africa, is not without its problems. Agreements between the two countries have been criticised for not being transparent and for not including sufficient detail. Several of China’s announcements for plans to build railway systems, power plants and refineries in Nigeria have not yet come to fruition.

Nigeria, like many countries with substantial oil production, has in the past been able to rely on its hydrocarbons sector to finance the government’s activities and generate foreign reserves. However, as the government shifts its focus to creating jobs, investment in other sectors will be important going forward. An increase in Chinese FDI would go some way towards creating the manufacturing base that Nigeria is keen to establish, and would ostensibly help address the trade imbalance between the two countries.