Nigeria recorded a trade surplus of N5.81 trillion in the third quarter of 2024, driven by strong export earnings, primarily from the oil and gas sector.

This is according to the latest data from the National Bureau of Statistics (NBS).

While the surplus marks a notable improvement from the previous year, it represents a decline from the N6.95 trillion recorded in the second quarter of 2024. Experts caution that the surplus, although seemingly positive, underscores persistent structural challenges in Nigeria’s economy.

The NBS revealed that Nigeria’s total merchandise trade for Q3 2024 stood at N35.16 trillion, reflecting an 81.35% increase compared to Q3 2023 and a 13.26% rise from Q2 2024. Exports accounted for 58.27% of total trade, amounting to N20.49 trillion, while imports stood at N14.67 trillion.

“Nigeria’s total merchandise trade stood at N35,160.44 billion in Q3, 2024, representing an increase of 81.35% compared to the value recorded in the corresponding period of 2023 and a rise of 13.26% over the value recorded in the preceding quarter,” the report stated.

Crude oil exports accounted for N13.41 trillion, representing 65.45% of total exports. This was a 57.06% increase compared to Q3 2023, while exports of liquefied natural gas (LNG) and other petroleum products surged by 303.93%, totaling N4.58 trillion.

Despite the substantial trade volume, economists argue that Nigeria’s heavy reliance on crude oil and gas for export revenue highlights the country’s failure to diversify its economy. They added that the trade surplus is not something to celebrate yet. This is because over two-thirds of the export earnings come from oil and gas, Nigeria’s dominant source of revenue, a clear signal that diversification efforts are not yielding significant results.

While the government has made efforts to boost non-oil exports, such as agriculture and solid minerals, these sectors still contribute a relatively small portion to total exports. Agricultural exports reached N884.07 billion, a 301.87% increase from Q3 2023, but only accounted for 4.31% of total exports. Similarly, solid minerals exports rose by 86.58% to N15.79 billion, reflecting their limited impact.

Rising Import Bills

On the import side, Nigeria’s total import bill for Q3 2024 was N14.67 trillion, a 62.30% increase from N9.04 trillion in Q3 2023 and an 8.71% rise from Q2 2024.

The surge in imports was driven by manufactured goods, which rose 76.44% to N6.98 trillion, and raw materials, which increased by 66.11% to N1.58 trillion. Imports of agricultural products totaled N882.24 billion, reflecting a 37.06% increase year-on-year.

China remained Nigeria’s largest import partner, followed by India, Belgium, the United States, and Malta. Key imports included motor spirit, gas oil, durum wheat, and used vehicles. Nigeria is still heavily dependent on imports for essential goods, including machinery, raw materials, and food products, further highlighting its economic vulnerabilities.

Challenges in Diversifying the Economy

Nigeria’s heavy reliance on oil has left its economy vulnerable to global price fluctuations, coupled with production challenges that have kept output low. Diversification has been a cornerstone of economic policies for decades, but progress has been slow. The dominance of oil exports in the trade surplus suggests that recent initiatives, such as promoting agricultural value chains and manufacturing, have yet to achieve the desired outcomes.

Policy analysts note that diversification requires significant investment in infrastructure, technology, and human capital.

Countries like Malaysia and Indonesia have successfully diversified their economies by transforming their agricultural sectors and investing in manufacturing. For Nigeria, inconsistent policies, weak infrastructure, and limited access to finance for small and medium enterprises have hindered progress.

While the trade surplus underscores Nigeria’s growing export potential it also highlights the need for strategic interventions to reduce import dependency. With crude oil still dominating export earnings, diversifying into other sectors like agriculture, manufacturing, and solid minerals has been touted as critical for sustainable growth.

The government has been urged to address the trade imbalance by enacting bold reforms, including enhancing export credit schemes, improving infrastructure, and creating a more favorable business environment. Additionally, boosting local production was recommended to reduce import dependency.

Good People, it’s graduation day at Tekedia Institute and Tekedia Mini-MBA edition 15 will conclude today. It has been a great academic excursion on the mechanics of market systems. Yes, over the last 13 weeks, more than 80 faculty members have led those excursions across different business topics and domains.

We have mastered the fundamental constructs of business management & leadership, and acquired skills and knowledge from executives in leading global and local companies, on innovation, business growth and operational execution.

Today, we will have the digital grand finale* with a lecture titled “It’s Graduation Day – It’s Time to Build”. Yes, opportunities everywhere; let’s build solutions and unlock them. Zoom link in the class board.

Sat, Dec 7 | 7pm – 8.30pm WAT | It’s Graduation Day – It’s Time to Build – Ndubuisi Ekekwe | Zoom Link

The #knowledge of a people is the #wealth of a people. To our co-learners, graduating today, you are #ready2lead .

*Some physical graduation events will be held next week including the one planned in Lagos. I thank all the sponsors for making this possible. To the Local Organizing Committee (will get all the names later), well done for raising all the funds you need for this. You studied Business Fundraising here, and I am happy someone is already deploying the capabilities. Our graduation events across cities are independently organized by learners.

Taiwo Oyedele, the Chairman of the Presidential Tax Reform Committee, has once again provided answers to frequently asked questions about the presidential tax bills that have generated a lot of controversy across the country.

In a post he shared on social media, titled: “Proposed VAT Reform Will Reduce, Not Increase Inflation”, Oyedele outlined 10 answers, explaining why the proposed tax bills will not lead to inflation as many have claimed.

“Some people have expressed the view that the proposed VAT rate increase as part of the Tax Reform Bills will fuel inflation and lead to more hardship for the people,” he said.

He provided answers to the following frequently asked questions:

Question 1: There are concerns that the VAT reform contained in the tax bills including the proposed increase in the VAT rate will lead to inflation. Is this so?

Answer 1: No. The VAT reform, including the proposed increase in the VAT rate, is part of a package involving several measures designed to reduce, NOT increase prices and therefore will not lead to inflation.

Question 2: But this position seems inconsistent with the views expressed by major actors in the current reforms when the previous government planned to increase the VAT rate in 2019. What has changed?

Answer 2: The major actors argued at the time that an increase in VAT rate would lead to inflation, which would reduce the purchasing power of Nigerians and increase economic hardship in the country.

However, unlike the 2019 VAT rate increase proposal which was not accompanied by measures to reduce costs, the current proposal is a package of reform, which is much broader than just a rate increase. The reform involves several measures to reduce production costs, reduce the incidence of VAT on most essential consumptions, and exempt more small businesses from charging VAT.

Question 3: Can you make it make sense?

Answer 3: Inflation occurs when there is a general increase in the prices of goods and services. An increase in VAT rate may lead to an increase in prices thereby causing inflation. However, the proposed VAT reform is not just about an increase in rate, it contains several proposals to eliminate VAT or reduce the rate which altogether is unlikely to cause inflation.

Specifically, the VAT reform measures include:

a) A reduction in the VAT rate to 0% and exemption for essential items accounting for 82% (about 4 out of 5 items) consumed by the masses including food, medical services and pharmaceutical products, tuition and other educational expenses, transportation, fuel products, and rent. (See the Consumer Price Index basket of goods and services).

b) Businesses will be granted tax credits for VAT paid on their assets and all expenses incurred to produce VATable goods and services. This means up to a 7.5% reduction in the cost of production compared to the 2019 proposal where companies were not allowed to claim tax credits for their VAT costs which they then passed on to customers by way of higher prices. This proposed measure will eliminate the VAT cost currently borne by businesses and should therefore lead to lower prices. Going forward, this measure will ensure that businesses in Nigeria no longer bear VAT costs regardless of the rate.

c) An increase in the VAT exemption threshold for small businesses from N25m to N50m. This will remove the VAT burden on the margin of goods and services sold by such businesses which are usually patronized by the masses.

d) An increase in the VAT rate on a limited number of goods and services constituting only 18% (about 1 in 5 items) of average consumption items in the inflation basket such as beverages, entertainment, cars, etc. These items are consumed more by the middle and high-income earners than the poor.

Question 4: Okay, but won’t a business that pays a higher VAT rate for any item such as company vehicles, other assets, and raw materials, eventually pass it on to its customers by way of higher prices?

Answer 4: No. Remember that under these proposed reforms, businesses will be allowed to claim input credit for any VAT paid for the purpose of producing their VATable goods and services, so such businesses will become VAT cost-neutral. This input VAT credit will also reduce the financing cost of assets and working capital for businesses, and encourage formalization for the informal sector given that a business needs to be registered with the FIRS to claim input VAT on its assets and other costs. In addition, the reform will improve Nigeria’s competitiveness and ability to attract investment within the African region and globally.

Question 5: Isn’t there a risk that businesses may not get the VAT credit on time or ever from the tax authority? What is the assurance that this will be effectively implemented?

Answer 5: There is no risk that a business will be denied credit for its valid VAT claim. The VAT system has an inbuilt mechanism whereby a business is allowed to offset its input VAT by itself against its output VAT. The permission or approval of the tax authority is not required. In the event that a company does not have sufficient output VAT to offset its input VAT, a faster refund process is contained in the tax bills to grant such refunds within 30 days either in cash or with the option to utilize it for the payment of other taxes, at the discretion of the taxpayer.

Question 6: Alright, but why is it necessary to increase the VAT rate on any item? Why not just reduce VAT and move on?

Answer 6: The various rate reductions and VAT credits will result in a significant decline in government revenue from VAT which is a major source of government funding particularly for the states and local governments who share 85% of VAT (proposed to increase to 90%). Without an increase in the rate for some non-essential items to partly offset the reduction in revenue, many of the states and local governments may face financial difficulties. The limited rate increase also ensures that the VAT regime is progressive, whereby the masses bear little or no VAT burden while high-income earners progressively bear a higher incidence of VAT based on their consumption patterns and preferences. This promotes fairness and equity in the system by redistributing income, a major objective of the tax reforms.

Question 7: So, rather than generalizing that the proposed VAT rate increase will lead to inflation, we need to check the details of the reforms before drawing such conclusions.

Answer 7: Absolutely. Unlike the previous proposal to increase the VAT rate, the current VAT reform seeks to:

• Reduce VAT to 0% and exempt basic items constituting 82% of consumptions

• Grant input VAT credit on assets and other costs to businesses making them VAT neutral

• Increase the VAT exemption threshold for small businesses

Context matters. Any generalization that the reforms will increase poverty is unfounded. Rather, these reforms will actually provide relief for the masses, reduce inflation, enhance purchasing power, and reduce poverty.

Question 8: So, what happens if some businesses take advantage of the rate increase to raise their prices in order to make more profit despite a reduction in their costs?

Answer 8: This is where a basic understanding of the proposed VAT reform and its impacts is important to avoid creating an expectation of price increase which some businesses may exploit. We should all therefore equip ourselves with the basic knowledge and ask questions to discourage any such exploitation or price gouging.

Question 9: Okay. Can you summarize everything in a simpler manner?

Answer 9: Yes. Let’s do this using a VAT Reform Equation; assuming:

• Current prices of goods and services are (CP)

• Input VAT credit amounting up to 7.5% reduction in the cost of production is (IC)

• Reduction of VAT rate to 0% and exemption on 82% of all items consumed by the masses is (RR)

• VAT exemption for small businesses on all their goods and services mostly patronized by the masses is (SB)

• VAT increase on 18% of consumptions is (RI)

Therefore, CP – IC – RR – SB + RI = Lower Prices

Question 10: Anything else we should know about the reforms?

Answer 10: Yes, a lot. Please visit our website http://fiscalreforms.ng and social media accounts for more information including copies of the tax reform bills.