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Diversification of the Nigerian economy: Let our policy makers walk the talk-Adefeko

The nation’s agricultural sector has a major role to play in the diversification of the Nigerian economy. This is because a sizable amount of the nation’s non-oil exports are primary products. Therefore, what does the nation need to do to gain optimally from the nation’s agricultural sector? ADE ADEFEKO, one of the leading players in the sector, makes some vital suggestions in an interview monitored by TELIAT SULE and other journalists. Excerpts:

Adefeko please can you introduce yourself to our readers ?

I am Chairman Agricultural Trade Group at the Nigerian Association Of Chamber Of Commerce Industry Mines And Agriculture (NACCIMA) and equally participate in several Organized Public Sector Fora to highlight the impact of policies on the non-oil export sector and drum up support for value addition to Agro-allied products. NACCIMA is a key stakeholder in the EEG Inter-ministerial committee

What is the impact of COVID-19 pandemic on Nigeria’s economy?

COVID-19 pandemic is having a devastating effect on the economy of the country. The economy is just emerging from the impact of three months of total inactivity. With the situation of things, IMF has projected that the Nigerian economy which had barely recovered from a slowdown since 2016, will contract by 3.4% in 2020. To the sceptics this may even be an optimistic prediction in view of the prevailing global crisis. According to NBS, Nigeria’s GDP in Q1 2020 sank by (-14.27%) against 5.59% growth in Q-4 2019. Although the pandemic had caused a global economic lockdown, the situation in Nigeria seems to be peculiar because of over-dependence on crude oil exports. The devastating effect of COVID-19 on the economies of India (Nigeria’s No.1 buyer of crude oil by far), EU and North America will have a lasting impact on Nigeria’s export earnings in 2020.

What are the avenues for diversification of Nigeria’s economy?

Although the current administration has stepped up the diversification of the country’s economy, it needs to be emphasized that it is the only way out. Agriculture and the manufacturing sector are the two pillars of the non-oil economy contributing about 22 % and 13% to GDP. The constraints facing these two sectors need to be removed to unlock their potential.

In particular, non-oil exports accounted for only about 6% of exports in 2018. We need to exploit the potential of non-oil exports consisting of mainly semi-processed and processed agro-allied products. In recent years, Nigeria had started exporting to many non-traditional markets such as Viet Nam, Brazil, China, India and Japan. Sesame has been a success story where Nigeria recorded spectacular growth … Alas, Nigeria non-oil exporters face a lot of constraints.

What are the major constraints facing the non-oil export sector?

The challenges facing the non-oil exporters can be categorized into general and specific. The former consists of infrastructural constraints and high cost of doing business which affect all sectors in Nigeria and are well known. Ultimately, these translate into high cost of production and make our products uncompetitive. I wish to however dwell on five specific bottlenecks facing the non-oil sector.

  • Logistics- The World Bank Doing Survey 2020 placed Nigeria at 131 among 190 countries, with a score of 56.9 with Kenya having marched ahead to 56th place with a score of 73.2. A particular disadvantage faced by Nigeria is the high cost of trading across borders – a parameter on which Nigeria was ranked 182 among 190 countries. The cost of import of a container at Nigerian ports was estimated at US$ 1640 whereas for exports it was estimated at US$ 645. The comparative cost at Ghanaian ports were 60% and 40% lower and the turn round time at their ports faster.

 

  • Incentives- Most developing countries support their export-oriented industries with fiscal and other incentives. China, which is the world’s largest exporter with merchandise exports in 2018 at US$ 2.5 trillion gives an export tax rebate of up to 17% to neutralize the incidence of indirect taxes and levies on its exports. India, likewise, with merchandise exports of US$ 326 bn offers a package of incentives, especially to its labour intensive industries such as textiles & garments as well as leather & footwear.In Nigeria, incentives are needed to cushion the effect of infrastructural and other cost-disadvantages. The challenge we are facing currently in the non-oil exports sector is the non-implementation of the laid down policies by government agencies. Let’s assess the Export Expansion Grant policy that was introduced as an Act in 1986 and for which revised policy guidelines were issued in 2017

 

  • Promissory Notes- The present administration expressed commitment to honour the debts owed to various sectors and announced the Promissory Notes programme to redeem the backlog of EEG claims for the period 2017-16.The PICA(Presidential Initiative on Continuous Audit) under the aegis of the Federal Ministry of Finance, verified outstanding claims amounting to about 350 billion Naira and factory visits were made in May 2018. Of this, claims of N 195 billion were ratified by the National Assembly. As per procedure, the ratified claims were subjected to another audit by KPMG and a partial amount was disbursed through a “reverse auction” system executed by the DMO in 2019. However, the remaining promissory notes are still awaiting disbursement, 18 months after NASS approval and a lengthy due process. Justice delayed is justice denied, goes the old saying. In China, it takes one week to redeem the exporters’ export tax rebate.

 

  • EEG Budget
    The new policy calls for an allocation to be made each year in the Appropriation Bill to provide for EEG. This has not been implemented effectively. First, the amount budgeted is grossly inadequate to cover total exports, and secondly, whatever was budgeted was never disbursed. In fact, the meagre budget of N 200 million for 2020 came as a rude shock and makes a complete mockery of the policy. The table below illustrates the problem the exporters face.
    Year
    Allocation (N bn)
    Status/remarks
    2017
    16.0
    Lapsed due to non-disbursement
    2018
    13.2
    Only N 4 bn released for disbursement
    2019
    5.1
    Nil disbursement
    2020
    0.2
    Nil disbursement
    Source: Federal Ministry of Industry, Trade & Investment

 

  • Market access
    Nigerian exporters face a tariff disadvantage up to 10% in the EU market as Most favored nation (MFN) duties are applied whereas our competitors such as Ghana, Cote d’Ivoire and Kenya enjoy duty free access as they have signed an EPA with the EU. This makes our products such as cocoa, leather and textile fibers and yarn uncompetitive.

 

  • Sectoral impact – My biggest concern is that our policy makers do not appreciate the economic impact of the non-oil export sector. I am sure, if the impact on millions of rural livelihoods, value addition, forex earnings and diversification is well understood, the sector will get the deserved attention.

What does AfCFTA mean for Nigeria?

I believe in liberalization but also in compliance with rules. African Continental Free Trade Area (AfCFTA) can be a great opportunity for Nigeria to access the regional and continental market of 1.2 billion people. But this will be a function of our competitiveness. Therefore, opportunity and risk are two sides of the same coin.

What is the impact of incentives on non-oil exports?

Well, this is important to understand. I wish to dwell on 3 big impact areas.

Growth of exports

The EEG scheme was introduced in 1986 however its real impact was felt only in the last decade when, as per CBN records, non-oil exports amounted to 3.1 billion USD in 2011. In the following years, the decline started due to erratic policy implementation. However, since the announcement of new policy guidelines by Nigerian Export Promotion Council (NEPC)in 2017, exports picked up again. According to CBN data, non-oil exports doubled from N 675 million in 2016 to N1.367bn in 2018.

Employment generation and boost to rural income

The non-oil export value chains in Nigeria employ over 10 million people, most of them in rural areas. The sector also fosters gender equality as a lot of women are employed in the harvesting and processing of exportable agricultural produce. Sesame is a shining example. Thanks to the EEG policy, the output quadrupled from 137,000 MT to 399,000 MT between 2007-18(CBN) As 22% of our GDP comes from agriculture, putting more money in the hands of farmers creates a trickle-down effect.

Transparency

The present government must be commended for its commitment to due process and transparency in policy. The EEG scheme has helped to formalize the export channels as goods undergo pre-shipment inspection by agencies appointed by the government. Moreover, the forex proceeds are repatriated through banks and verified by CBN. Everything is documented and even the names of Top 100 exporters are published in the CBN’s annual report. This is a case study for industry best practices.

What kind of stimulus would spur the Nigerian economy, particularly the non-oil sector?

It is imperative for the government to intervene and save the economy from a total collapse caused by this pandemic. Governments all over the world have come up with relief packages to balance their lives and livelihoods. However, it does not have to be grandiose plans; simple, practical things can help. Look at China’s example. Their Trade ministry reduced the processing time of export tax rebate from 10 days to one week to ease the working capital funding. No wonder, China is the No.1 exporter in the world.

So, could you list your key recommendations where you want the policymakers’ intervention?
Indeed, let me clarify that we are not asking for anything new or unreasonable. In fact, our wish list is straightforward. Our plea to the Government via the Trade and Finance ministries is to sincerely implement extant policies and make good their commitments. This means a) the issuance of the outstanding Promissory Notes b) Disbursement of Export Credit Certificates for approved budget till 2020 and c) Provision of adequate budget and finally, half-yearly meetings of the Inter-ministerial committee on EEG to assess impact. In one word, we are only asking our policymakers to walk the talk and be ACCOUNTABLE.

Thank You.

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