Nigeria’s reduced appetite for imported goods is a paradox. Trade experts observe that the drop in imports, which is good for local production, has inadvertently fuelled inflation and slowed consumption, leading to a drop in trade growth, ARINZE NWAFOR writes

Trade’s contribution to Nigeria’s Gross Domestic Product fell slightly in the first quarter of 2025, despite a modest year-on-year growth, signalling the continued strain of inflation, import costs, and exchange rate volatility on consumption and trade volume.

According to the latest Gross Domestic Product report from the National Bureau of Statistics, trade contributed 18.21 per cent to real GDP in Q1 2025, a slight decline from the 18.45 per cent recorded in the same quarter of 2024. However, it represented a marginal improvement over the 17.18 per cent recorded in Q4 2024.

In real terms, trade grew by 1.78 per cent year-on-year, a slowdown from the 2.31 per cent recorded in Q1 2024, and also lower than the 2.04 per cent achieved in Q4 2024. Quarter-on-quarter, real trade contracted by 14.92 per cent. In nominal terms, the sector’s contribution to GDP stood at 15.52 per cent, down from 16.82 per cent in Q1 2024 and significantly below the 19.19 per cent in Q4 2024.

This data, while showing resilience in some areas, reflects deeper structural issues in Nigeria’s trade ecosystem. Stakeholders who spoke with The PUNCH attributed the dip in trade momentum to high import costs, weak purchasing power, and a volatile exchange rate environment. They were optimistic that recent stabilisation efforts would yield some growth in the coming quarters.

Costly imports slow trade growth

Director of the Centre for Promotion of Private Enterprise, Dr. Muda Yusuf, explained that the slowdown in trade activity is a direct reflection of weakened purchasing power and high costs across the import value chain.

“Generally, the momentum of trading activities is driven largely by purchasing power, whether we are talking about corporate or household demand,” Dr. Yusuf said. “You cannot be producing what people cannot afford because of cost.”

He noted that although the country has witnessed some trade surpluses, these are largely due to declining imports rather than rising exports. According to him, the cost of imports has risen significantly in recent years, which has both positive and negative effects.

Yusuf noted, “The cost of imports is a major factor in the drop or the deceleration in the growth of trade. That, for me, is a very important factor, and the key drivers of cost are one: the exchange rate situation. The truth of the matter is that the cost of imports has risen significantly over the last few years.”

He continued, “It is both good, and maybe it’s also bad in some sense. It’s good in the sense that it reduces our appetite for imports and compels economic operators and citizens to look inwards. It is bad because it is also fuelling inflation within the domestic economy.”

Yusuf identified multiple factors contributing to high import costs, including the exchange rate situation, high port charges, shipping and terminal costs, demurrage fees, and several import levies.

On charges and taxes that are paid on imports, he clarified, “I’m talking about shipping charges, charges by terminal operators, issues of demurrage, the cost of funds, the import duty, the equity levy, and the import levy. These are all costs that importers pay on most of the imports.

“When you add all these costs to your products, it has a way of affecting the price. And if the price is too high, then the demand will drop. So, if the market is not able to absorb this, those who are trading will also reduce the amount of inventory that they carry.”

CPPE’s chief further pointed out that domestic logistics costs and insecurity also negatively affect internal trade flows: “When vehicles are not able to move around, especially in areas where we have security challenges, then of course it will affect trade.”

Nigeria sees weakened demand and poor export performance

Former President of the Chartered Institute of Bankers, Prof. Segun Ajibola, said the trade numbers also reflect the declining dominance of imports, which previously accounted for a large share of the sector’s activity.

“The import segment has always been very high, but now, because of the exchange rate palaver, imports are not as significant,” he said.

Ajibola also linked the decline in imports to the issue of unsold local inventory, saying, “If these stocks are produced locally and remain unsold, what will be the inducement to import at an exorbitant cost?”

The slowdown in consumption has not only affected trade but also local production. In 2024, The PUNCH reported that manufacturers struggle with unsold inventory.

President of the Manufacturers Association of Nigeria, Francis Meshioye, disclosed that the value of unsold inventory rose to N1.4tn by the end of 2024, up from N1.24tn in the first half of the year.

“The manufacturing sector in 2024 faced a myriad of macroeconomic and infrastructural challenges that severely impacted its performance,” Meshioye said. He explained that inflation, which reached 34.6 per cent by November 2024, eroded consumers’ purchasing power and caused a sharp drop in demand for manufactured goods.

“The floating exchange rate worsened the already strained profitability of manufacturers,” he added, citing how the naira devaluation, from N666/$ in mid-2023 to over N1,700/$ by mid-2024, drove up the costs of imported raw materials and machinery.

Meanwhile, Ajibola noted that the export segment, particularly for manufactured and agricultural products, also continued to underperform due to harsh operating conditions.

“The manufacturing sector is struggling, and other sectors are also going through tough times,” he said, adding that purchasing power, which is a key driver of trade activity, remains constrained.

Despite the marginal slump, Ajibola expressed optimism that with ongoing fiscal reforms and wage increases, there will be some improvement in consumption by the second half of the year.

“Most states are now paying the minimum wage of N70,000. That will help. The exclusion of low-income earners from paying tax and other tax incentives for SMEs will also help to improve disposable income and increase consumers’ capacity to buy and consume more,” he said.

Freight group urges govt to boost consumer spending

Chairman of the LCCI Freight Forwarders Group, Alli-Shobande, agreed that trade volume has dropped in recent times despite a relative stability in the naira.

He affirmed, “Goods are coming through the ports but not in the same volume as before. The middle class is struggling.”

According to him, most manufacturing companies that used to operate three shifts have reduced to two, and some are down to a single shift due to weak demand.

“Trade volume generally has gone down,” he said, but added that there is cautious optimism about a rebound. “We hope it will go up again with the stability of the naira. People can now plan better.”

He urged the government to do more to stabilise the foreign exchange market, reduce import-related charges, and ease domestic logistics constraints to boost trade performance.

Stakeholders push for policy adjustments

The consensus among stakeholders is that the marginal decline in trade contribution to GDP in Q1 2025 is a reflection of broader economic challenges that require coordinated policy responses.

They called on the Federal Government to stabilise the naira, reduce the cost of imports by cutting excessive charges and levies, and implement supportive policies for small businesses and local producers.

“Improving macroeconomic stability, tackling inflation, and fixing logistics challenges are crucial to unlocking the potential of trade as a driver of economic growth,” Yusuf concluded.

As Nigeria continues to rely on trade as a significant component of GDP, industry leaders stress the importance of boosting consumer spending and removing cost burdens across the trade value chain to drive sustained growth in the coming quarters.