Thursday, November 9, 2017

The Real Sector of The Nigerian Economy is Under Covert Threat.  

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 governments 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 governments 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

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