LEGAL
Balance of Trade (Millions Nigerian Naira)
1000000
1000000
800000
800000
600000
600000
400000
400000
200000
200000
Jan/13
Apr/13
Jul/13
Oct/13
Jan/14
Source: www.tradingeconomics.com | National Bureau of Statistics, Nigeria
Nigeria recorded a trade surplus of 618689.60m Nigerian Naira in December 2013. Balance of Trade in Nigeria averaged
463063.58m Nigerian Naira from 2002 until 2013, reaching an all-time high of 2177794.70m Nigerian Naira in October 2011 and
a record low of -592182.60m Nigerian Naira in March 2011. Balance of Trade in Nigeria is reported by the National Bureau of
Statistics, Nigeria.
markets, it is becoming more important that they trade with one
another.
Standard Bank’s Head of Transactional Products & Services, Vinod
Madhavan, says there is rapid growth in trade between South Africa
and Nigeria.
“It’s not surprising that Nigeria had a lot of trade with Europe,”
he says. “This holds true for many markets in West Africa, especially
Ghana, Côte d’Ivoire and Cameroon. They were trading with the
world through the European Union gateway, while East Africa
would trade with the rest of the world through the Middle East
gateway. It’s quicker to fly to Dubai from Nairobi than from Nairobi
to Johannesburg.”
However, he says the past five to 10 years have seen a change. The
largest economies in sub-Saharan Africa, Nigeria and South Africa
are beginning to trade more regularly. The relationship is skewed,
as South Africa spends more in Nigeria than Nigeria does in South
Africa, but this is changing as trade between the two nations expands
beyond oil and resources, into manufactured goods.
However, there may still be some fears among local business
people about going into Africa’s most populous nation, and there
still exist some challenges that make it tough for businesses in South
Africa to conduct transactions with Nigerian partners.
“I don’t think it’s any more easy or difficult going into Nigeria
than other markets,” Madhavan says. “A corporate in South Africa
should be no more afraid to do business in Nigeria than in Kenya,
especially when you add in the compelling opportunities in Nigeria.
Having said that, there are some unique challenges.”
Payment platforms between the two countries remain a big
challenge, Madhavan says. Banking services in Nigeria are woefully
underdeveloped, and Nigeria remains a cash-dominant economy.
The government there is pushing hard to create a cashless economy
by developing incentives for virtual money, as tough regulatory
measures (targeted at banks) will make it expensive to withdraw
more than a certain amount of money.
“They have a local card-based system and an interesting domestic
settlement system where they want Mastercard and Visa to be interoperable,” he says. “The problem is that the rejection rates on pointof-sale terminals are pretty high. It could be the result of network
problems and a domestic trading system unwilling to handle the
large volumes. However, given time and improved infrastructure,
this issue will be addressed,” he says.
For businesses looking to establish a presence in Nigeria, getting
offices is also tough, as real-estate development is still in a nascent
state. If a bank wants a branch in Lagos, shopping malls still don’t
exist and it makes more sense for a company to buy a piece of land
and build from scratch.
Cross-border payment can be expensive when trading with
customers in Nigeria. Most business is done through letters of credit
(LC), where a bank assures payment for goods or services, provided
that the seller presents a bill of lading (sent by the customer in
Nigeria). But it can take a long time for the money to come through.
According to Nigerian regulation, the seller can receive payment
only once the shipment arrives in Nigeria.
Another option is to make a telegraphic payment, which can be
very expensive, and one needs to trust the customer.
Absa Capital’s head of Trade and Working Capital, Jason Barrass,
says risks in trading with Nigerian customers are low. “In situations
under contract where the exporter loses money, we, as a bank, will
cover the non-payment risk,” he says. “We provide financing and
allow sellers to export and receive money, and we worry about nonpayment.”
However, he says trade finance is considered one of the safer
products and clients would not want to default on trade debt (as
opposed to loan finance), as they need the product.
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2014/06/24 1:50 PM