CPPE cautions government against forcing value addition without processing capacity

The Centre for the Promotion of Private Enterprise (CPPE) has cautioned the Federal Government against enforcing compulsory domestic value addition on primary products without first ensuring the existence of adequate, efficient and competitive local processing capacity.

In a policy brief titled “Primary Product Export vs Value Addition: Imperative of Proper Policy Sequencing”, issued on Tuesday Muda Yusuf, Chief Executive Officer of CPPE, acknowledged the growing policy emphasis on domestic value addition as a pathway to industrialisation, job creation, export diversification and improved foreign-exchange earnings.

However, he warned that poorly sequenced policies could distort markets and harm key actors in the value chain.

According to Yusuf, while moving Nigeria up the value chain is consistent with the country’s economic transformation agenda, any framework that mandates compulsory processing before export must be guided by sound economic principles.

“Efforts to move Nigeria up the value chain in the production and export of primary commodities are both legitimate and consistent with the country’s broader economic transformation agenda.

However, any policy framework that mandates compulsory domestic processing prior to export must be guided by a fundamental economic principle, which is that adequate, efficient, and competitive domestic processing capacity must exist before export restrictions on primary products are imposed.

“The core principle underpinning sustainable value-addition policy is clear: compulsion must follow capacity, not precede it,” Yusuf said

He explained that domestic processing should evolve organically, supported by sufficient installed and operational capacity, competitive production costs, reliable infrastructure, especially power and transport access to affordable long-term finance, modern technology, skilled labour, and efficient commercial linkages between producers and processors.

Yusuf warned that imposing export restrictions in the absence of these enabling conditions could suppress domestic prices of primary products, leading to income losses for farmers, aggregators and rural communities.

“Restricting exports without adequate local demand creates excess supply and depresses farm-gate prices. This effectively transfers value from primary producers to processors through policy-induced price suppression rather than productivity gains,” he noted.

He described such outcomes as inequitable, distortionary and unsustainable, adding that they weaken incentives for production and investment, threaten rural employment and deepen poverty in agrarian communities.

The CPPE boss also cautioned that value addition only delivers economic benefits when processed goods are globally competitive in price, quality and reliability. Processing sustained mainly by protectionist export restrictions, he said, often results in high production costs, weak export demand, unsold inventories, declining foreign-exchange earnings and increased smuggling of primary products.

Yusuf further warned that sudden or premature value-addition mandates could undermine investor confidence and damage policy credibility, particularly at a time when Nigeria’s non-oil export sector has recorded strong growth following recent foreign-exchange reforms.

He stressed the need for a more sustainable policy pathway that prioritises competitiveness before compulsion. This, he said, requires deliberate investment in processing capacity, decisive action to reduce structural costs, and policies that protect the economics of primary producers.

“Industrial policy must not depend on depressing farm incomes to support downstream industries,” Yusuf said.

He advocated a gradual, predictable and market-responsive transition toward compulsory value addition, anchored on measurable increases in domestic processing capacity and developed through broad stakeholder consultation. He also argued that trade restrictions should be treated as flexible fiscal and trade-policy instruments rather than rigid legislative measures.

According to CPPE, a balanced, capacity-driven approach would promote shared prosperity across the value chain, safeguard rural livelihoods and support sustainable industrial development.

“Domestic value addition remains essential to Nigeria’s long-term industrial transformation. However, policy sequencing is decisive. Processing capacity, efficiency, and competitiveness must precede compulsion. Reversing this order risks suppressing primary-product prices, penalizing rural producers, discouraging aggregators and weakening export performance.

“Sustainable industrialisation is achieved by building competitive capacity that enables Nigerian processed products to succeed locally and globally on the strength of efficiency, quality, and cost competitiveness.

A balanced, inclusive, and capacity-driven strategy will deliver credible export growth, resilient rural livelihoods and durable industrial development for Nigeria,” he added.