• Friday, June 21, 2024
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BusinessDay

Manufacturers turn lemons into lemonade with naira devaluation 

Export Wemy and Dangote

Some of Nigeria’s largest manufacturers are reporting a surge in exports to other African countries, spurred by the naira’s devaluation.

The weaker currency has created an additional incentive, boosting their competitive edge in the regional market.

This has pushed them to devise ways to leverage the export opportunity as it helps them get more naira to source for more foreign exchange needed for production.

Some of the ways are opening up depots as subsidiaries in some of the countries, exporting in smaller volumes, building relationships with the countries, understanding the culture territory and the regulatory landscape, and doing more economic and financial analysis to know the right product or service to export.

“To make it easy to export to some countries, we needed to open up depots as subsidiaries to enable the easy flow of goods and distribution into some countries; especially the smaller countries,” Paul Odunaiya, managing director/chief executive officer at Wemy Industries Limited, said.

BusinessDay reported last month that the four biggest publicly-listed manufacturers such as Unilever Nigeria Plc, Nestlé Nigeria Plc, Okomu Oil Palm Plc, and Dangote Cement Plc show that their combined revenue from exports surged by 201.1 percent to N387.2 billion in the first quarter of 2024, the highest in at least nine years.

That’s up from N128.6 billion in the first quarter of last year.

“During the quarter, we intensified our emphasis on exports, dispatching seven ships from Nigeria to Ghana and Cameroon,” Arvind Pathak, CEO of Dangote Cement, said.

“As a result, our Nigerian exports surged by 87.2 percent, reflecting our commitment to expanding our presence in regional markets and capitalising on our export-to-import strategy,” Pathak said.

How Wemy, Dangote Cement ride weaker currency to boost exports

Apart from the export sales of the firms, data from the National Bureau of Statistics (NBS) shows that Nigeria’s trade with other African nations rose by 39.5 percent to N3.71 trillion in 2023, the highest in four years from N2.66 trillion in 2022.

“Relationship building with other African countries is very key to exports,” Uchenna Uzo, professor of marketing and faculty director at Lagos Business School, said.

“So, the manufacturers have widened their networks beyond Nigeria and are able to know the right time and place to bring in a product within Africa,” Uzo said.

He added that understanding the regulatory landscape of the country helps to know where you have a comparative advantage to export versus the other place.

“All these things can also be applied to the smaller manufacturers because there is a mindset that only the big ones can export which is not true. It is not about how big you are but understanding the foreign market you are exporting too.”

The naira suffered a near 30 percent devaluation this year following a 40 percent devaluation last June as a result of the FX reform implemented by the Central Bank of Nigeria (CBN) to revive the economy.

While the currency has continued to depreciate, the West African CFA franc, a legal tender in Benin, Burkina Faso, Côte d’Ivoire, Guinea-Bissau, Mali, Niger, Senegal and Togo, has appreciated

This made some goods produced in Nigeria cheaper than other African countries.

At the official market, the naira depreciated from 463.38/$ on June 9, 2023 to N1,476.95/$ as of June 4, 2024. The naira has also weakened against the West African CFA franc, going from 0.76 per CFA1 on June 9 to 2.48 per CFA1 as of June 4.

“We are working on exporting some of our products that we sub-distribute locally,” Comfort Ogunife, chief executive officer at Joyinten Limited, said. “My company can earn more money by serving the small food industries in some of the African countries.”

Odiri Erewa-Meggison, chairman of the Manufacturers Association of Nigeria Export Promotion Group, (MANEG), said the big manufacturers have stronger stamina due to their internally generated backup.

“Although they are also affected by the wave of government policy not in the same vein with the smaller manufacturer. This informs their ability to weather the storm and still be able to optimise their export potentials,” Erewa-Meggison said.

Experts say the country’s trade policy has been misguided over the years with the focus on curbing imports/import substitution rather than boosting exports.

The Export Expansion Grant (EEG), Nigeria’s only known incentive scheme for exporters, has been marred with allegations of corruption against some government officials and a lack of due diligence by the Nigerian Export Promotion Council before sending the list for approval.

These bottlenecks have made many exporters lose trust in the scheme as they fault the possibility of receiving the issuance of the grant when required.

Without the export grant, it is difficult for Nigerian manufacturers to be competitive in the export market amid a challenging business environment, according to Meggison of MANEG.

“We all have to come together to support exporters to bring in foreign exchange that the country badly needs and not create bottlenecks,” she said.

Obiora Madu, director-general of the African Centre for Supply Chain, noted that the country is neither strategic nor intentional towards exports.

“The EEG is working with one leg and the export development fund that was supposed to help people to export and take them to the international market never worked,” he said.

“Look at Australia, they have a basket of incentives for exports. It is one of the countries that knows that if they don’t export, they are finished,” Madu said.

The Federal Government last December launched the Trade Policy of Nigeria (2023-2027). The policy focuses on accelerating pro-poor growth through the pursuit of market-oriented policies, based on principles that are consistent with Nigeria’s rights and obligations in World Trade Organisation thereby ensuring a fair and equitable platform for catalysing the country’s participation in global trade.

It aligned with the Medium-Term National Development Plan 2021-2025 as well as the Agenda 2050.

But a recent report by Agora Policy, a Nigerian think tank, said one big omission from both the president’s manifesto and the TPN is the failure to show the urgency of boosting exports in the face of rapidly falling domestic demand.

“The export measures put forward by the TPN, such as export processing and free trade zones and tax incentives, are all existing initiatives. They were mentioned in passing, and no audit was done on why these incentives have not worked as expected in the past,” it said.

It added that the policy document was also silent on how best to take advantage of them to boost exports in the future.

According to the firm, the biggest boost to non-oil exports has not been any deliberate policy targeting it, but the rapid devaluation in the naira has boosted competitiveness relative to our West African neighbours.

“Nigeria is also yet to realise and position to take advantage of the competitiveness provided by a weak currency relative to its neighbours which rely on a stronger, pegged currency. Both the president’s manifesto and the TPN still prioritise a strong currency,” Agora Policy noted.

Odunaiya of Wemy Industries recommends that the government should consider trade credits due to the long lead times of trucking goods to these African countries.

“The use of a good African bank that has branches in multiple countries is also critical. For example, the likes of UBA and Ecobank, make a huge difference when making payment and receiving payment,” he added.

Femi Egbesola, national president of the Association of Small Business Owners of Nigeria, said if exports is liberalised, small business owners can become active players in the space which will strengthen the naira.

“If we are able to do intra-Africa border trades, small businesses will grow, upscale, and be able to employ more people. When they are growing, the government will generate more revenue in the form of taxes because they make more profit. We will also become more competitive if the products are seen in different countries.”

On Tuesday, Wale Edun, minister of finance and coordinating minister of the economy presented the Accelerated Stabilisation and Advancement Plan (ASAP) designed to address key challenges affecting the reform initiatives and stimulate development in various sectors of the economy.

Some of the executive orders to bolster the ASAP are tax exemption for repatriated export proceeds of services & intellectual property, zero-rated VAT for all non-oil exports, and relaxation of restrictions on the use of export proceeds.