Nigeria’s exports have continued recovering from the shock caused by the COVID-19 pandemic. Total merchandise exports continued recovering to USD 47.2 billion in 2021. Nigeria has a highly concentrated export profile and earnings from crude oil have begun recovering despite being below the medium-term average at USD 35.0 billion (approx. 74.1% of total exports) in 2021. Other top exports from Nigeria include natural gas and ships and vessels. These exports contributed USD 6.9 billion (approx. 14.6% of total exports). Nigeria’s export earnings from natural gas have begun recovering to USD 5.2 billion in 2021; and earnings from ships and vessels have continued increasing to USD 1.7 billion in the same period. Nigeria’s trade deficit continued widening beyond the historical medium-term average of -USD 23.2 billion for 2018 to 2020, to -USD 40.7 billion in 2021.
Total merchandise export earnings have begun recovering despite being below the medium-term average which ameliorated the relieved pressure caused by net FDI inflows (foreign capital being invested domestically). Nigeria’s FDI inflows increased to USD 4.8 billion in 2021. Hence, Nigeria’s FDI stock has begun recovering from an annual average of USD 94.1 billion for 2018 to 2020, to USD 91.9 billion in 2021. This bodes well for Nigeria as a country that is aiming to attract more foreign investment to diversify its economy away from the reliance on crude oil exports. This signifies the abundance of investment opportunities throughout the economy, which could lead to some progress for the national economic diversification strategy.
Remittances receipts have begun recovering despite being below the historic medium-term average over the period. Personal remittances received have begun recovering from COVID-19 from an annual average of USD 21.8 billion for 2018 to 2020, to USD 19.5 billion in 2021. Personal remittance payments to foreign nationals have begun moderating despite being seemingly unaffected by the COVID-19 pandemic, from an annual average of USD 83.5 million for 2018 to 2020 to USD 82.5 million in 2021. Nigeria has had net remittance inflows (net remittance receipts from the diaspora) which decreased to USD 19.4 billion in 2021. This has affected the current account balance and strength of the NGN over the period.
The NGN has continued depreciating. In nominal terms, the NGN depreciated by an annual average of -5.1% against the USD for 2018 to 2020. The NGN depreciated by -19.7% to an annual average of NGN 381.0 per USD in 2021. Nigeria’s current account deficit narrowed below the historical medium-term average. In 2022, Nigeria’s current account deficit continued narrowing. In particular, Nigeria has benefited from the higher crude oil prices which continued appreciating due to lower global supply following the sanctions against Russian exports after its military exercises in Ukraine. Global crude oil prices appreciated by 44.6% to USD 102.4 per bbl in 2022 (2021: 63.5%; USD 70.8 per bbl). This is also reflected in the projections for Nigeria’s current account balance.
In 2023, Nigeria’s current account deficit is projected to widen despite being below the historical medium-term average at -USD 3.7 billion (approx. -0.7% of GDP). In the medium-term from 2024 to 2026, Nigeria’s current account deficit is project to narrow to an annual average of -USD 2.7 billion (approx. -0.4% of GDP). This illustrates a persistent improvement in the current account balance due to the current rebound in commodity prices which is primarily driven by the impact of sanctions against Russia on global oil prices. Oil prices are expected to remain relatively elevated in 2023. However, this could change in the medium-term due to the expected easing of geopolitical tensions and the gradual transition away from fossil fuels. Therefore, Nigerian authorities will have to take advantage of the current reprieve and invest in further diversification of the country’s exports away from the continued reliance on oil.
The issue of diversifying the Nigerian economy remains an elusive obstacle for the country. Nigeria still has a significant potential to grow its exports from natural gas and ships and vessels. These represent the highest growth potential towards diversifying the Nigeria’s economy and export earnings. Apart from this, Nigeria should also deepen its integration in the ECOWAS region and increase its intra-regional trade. This will provide an opportunity for Nigeria’s exports to compete against goods and services of comparable quality from the local region. Moreover, Nigeria can offset the risks with its traditional export markets by increasing its dependence on the local region for its exports.