Nigeria’s foreign reserves stood at $38.483bn by May 31, 2022, declining by five percent from $40.521bn reported by the end of December 2021, according to the Central Bank of Nigeria’s (CBN) website.
On the other hand, South Africa, Africa’s second-largest economy after Nigeria, grew its foreign reserves to $60.28bn by the end of April 2022 (when it last reported it) from $57.589bn recorded by the end of December 2021.
By the end of April 2022, when South Africa last reported its reserves, Nigeria’s foreign reserves stood at $39.579 billion, having declined by 2.3 percent since December 2021.
According to Investopedia, foreign reserves are assets held on reserve by central banks in foreign currencies. These reserves are used to support the economy and boost the foreign exchange market during emergencies or periods of crunch.
“If you do not want your foreign reserves to decline, then do more exports,” said Professor of Economics and former Assistant Director of the Central Bank of Nigeria, Jonathan Aremu.
“Then, a big question arises, for an economy with foreign exchange challenges and declining foreign reserves, where do political party candidates get dollars to spend in an economy that uses naira?”
Aremu explained that Nigeria’s foreign reserves would keep dropping when more dollars were spent to pay for imports while foreign exchange earnings from exports kept dropping.
Data show that Nigeria is an import-dependent and consuming nation. In 2021, Nigeria’s total trade value stood at $39.751tn, but total imports stood at &20.843tn while exports were valued at $18.907.79tn. However, over 70 percent of the exports were made up of crude, shipped abroad, refined and re-imported.
Nigeria earned $45.56bn from crude and non-oil within the same period, according to the NBS’ Foreign Trade Statistics. Crude oil made up over 76.22 percent of this amount, while the non-oil was 23.78 percent. Non-oil exports were around $10.836bn.
Vietnam earned over $38bn from garments in 2021 and $57.54bn from the export of phones and accessories in 2021, according to the Vietnam Department of Customs. Once regarded as one of the poorest in the world, Bangladesh earned $35.81bn from the export of fabrics and garments only.
According to the World Bank, South Africa’s manufacturing sector contributed 11.74 percent to its GDP in 2020, but Nigeria’s hovered between eight and nine percent that year, according to the NBS data. In 2020, SA’s exports were around $102bn, making it the 36th exporter. Though it is also a commodity-driven economy, it is also prominent in finished products.
“Foreign reserves growth is just about producing more. We are not exporting enough. When we produce, we export. That is the only way to grow reserves,” Managing Director/ Chief Business Officer, Optimus by Afrinvest, Ayodeji Ebo. He explained that Nigeria either had to reduce its spending on imports or begin to make more vital efforts to earn foreign exchange to support its economy.
