There is a popular African proverb that says, ‘When two elephants fight, it is the grass that suffers’. This comes to mind in studying the implications of the current trade war between the United States and China. In this case, however, both the elephants and the grass suffer, as both countries involved have been negatively affected by this particular trade war. Since Nigeria is not an island, but a player in the global economy, global happenings are likely to affect it. Even though the US-China trade war is between only two countries, there are implications for Nigeria, Africa’s largest economy.
First, how has the US-China trade war affected the global economy? In a series of tariffs imposed by the US and China on goods imported from each other, the global economy has felt the brunt of the trade war between these two countries. The International Monetary Fund (IMF) revised downwards its global economic growth forecast for 2019 and projected a decline in growth for 70% of the global economy. This downward revision is a reflection of trade tensions. Similarly, the Organization for Economic Co-operation and Development (OECD) pointed out that the US-China trade war has already led to a decline in economic growth and a rise in inflation.
Nigeria’s share in the US-China trade war: implications for the giant of Africa. The escalating US-China trade war has not left Nigeria unscathed. It may reduce the demand for crude oil and consequently lead to a decline in the price of crude oil. US and China account for about 34% of the total demand for crude oil. A lower crude oil price may reduce the revenue for Nigeria and also have a negative impact on foreign exchange stability and the inflation rate. The Energy Information Administration (EIA) forecasts a lower average Brent crude oil price in 2019 than in 2018. A decline in the crude oil price below US$60/b could affect the implementation of the 2019 Nigerian budget, which is premised on a US$60/b benchmark. In turn, this could affect the performance of the Nigerian economy.
The US-China trade war has led to a decline in trade between the two countries as both American and Chinese importers have turned to other countries such as Mexico, Japan and Brazil, to meet their import demand for commodities such as soybeans, beverages and rubber. These other countries are perhaps the major gainers in the US-China trade war as they have been able to increase their trade activities. If Nigeria had the capacity to produce the volume that met international standards and at competitive prices, it may have been able to partake in the opportunity that the US-China trade war presented. It may have been one of the ‘other countries’ America and China turn to for their import demands.
Sources: Thomson Reuters, Energy Information Administration (EIA), National Bureau of Statistics (NBS) and the International Monetary Fund (IMF)
A – Actual; E – Estimate; F – Forecast
FSDH Research notes the need to boost activities in the Nigerian manufacturing sector and export-orientated sectors to meet international standards. Data from the National Bureau of Statistics (NBS) show that the growth in the manufacturing sector has been epileptic. According to the Business Expectations Survey Report the Central Bank of Nigeria (CBN) released in May 2019, firms operating in Nigeria highlighted insufficient power supply, the high cost of borrowing, an unfavourable economic climate, financial problems and unclear economic laws as some of the main reasons limiting business activities. In addition, data from the World Bank shows that the ease of doing business in Nigeria is low relative to other countries. The World Bank reveals that Nigeria has improved in some areas of doing business such as registration of businesses, online procedures and enforcement of contracts. We reiterate the need for an increased effort to promote a more conducive business environment with a focus on the major challenges facing businesses operating in Nigeria.
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