• Sunday, May 26, 2024
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BusinessDay

U.S. trade pact extension opens opportunity for FG to strengthen naira

Naira loses 1.47% on black market after rate hike

Nigeria is yet again provided with an opportunity to take advantage of Africa’s trade pact with the U.S. to export its local products to the world’s biggest market as there is a high possibility the agreement would be extended.

The U.S. Congress has put forward proposals that would see the African Growth and Opportunity Act (AGOA) – which allows SSA countries to export up to 7,000 products duty and tariff-free to the U.S. extended to 2041.

Experts say the extension is to enable countries like Nigeria, which did not take full advantage of it to do so now especially in earning foreign exchange and strengthening its naira currency amid acute dollar scarcity.

AGOA, a U.S. trade initiative established in 2000, allows African nations to export various products, especially non-oil goods, to the United States on favourable terms, thereby promoting economic development and trade on the continent. It was supposed to end next year.

It has been a crucial lifeline for many African economies, offering opportunities to access the vast American market.

While the likes of South Africa, Kenya, Madagascar, Lesotho, and Ghana dominated the non-oil AGOA exports, accounting for 90 per cent of the total non-oil in 2022, Nigeria’s non-oil AGOA exports have remained stagnant, primarily comprising a few agricultural products and handicrafts.

Experts attribute Nigeria’s low non-oil AGOA exports to the lack of competitiveness of the country’s manufacturers. They stated that the country must make its products competitive by addressing major challenges limiting manufacturing in the country.

Also, they urge the federal government to be intentional in growing its non-oil exports by building an export capacity and culture that will ensure the country does not miss out on this new opportunity provided by the U.S. government.

“Nigeria’s low AGOA non-oil export is a reflection of the challenges of our manufacturing sector,” said Muda Yusuf, chief executive officer at the Centre for the Promotion of Private Enterprise (CPPE) in response to questions.

“Our cost of production is too high for us to be able to make any significant impact as far as export is concerned and this is why primary products export has continued to dominate,” Yusuf said.

He said the major issue is a lack of competitiveness. “How can you compete when your cost of production keeps increasing daily,” he asked.

“Lack of competitiveness is the reason why most of our manufacturers are inward-looking and more dependent on domestic than international markets,” he added.

Nigerian businesses spend billions of naira sourcing alternative energy to keep their factories alive. In a June 2023 statement, the Manufacturers Association of Nigeria put the annual economic loss caused by the inadequate power supply at N10 trillion, accounting for almost two per cent of the country’s Gross Domestic Product.

The availability of adequate infrastructure is also a major determinant of the success of every country’s industrial sector; however, Nigeria does not have adequate infrastructure to grow businesses, especially developed transport systems such as roads and railways connected to the nation’s seaports.

Logistics is also a critical issue, importing inputs and taking them to factories is a big issue, given the state of Apapa and Tin Can ports in Lagos. Delays and gridlocks at the ports increase companies’ production costs, thereby lowering their productivity.

Funding is also a crucial issue for manufacturers. Nigeria’s benchmark interest rate is among the highest in Africa at 24.75 per cent. Kenya’s is 13 percent; South Africa is 8.25; Rwanda is 7.5 percent; Algeria is 3 percent and Botswana is 2.4 percent.

All these challenges among others have made Nigerian manufacturing remain uncompetitive.

“AGOA is one of many export opportunities that we have failed to utilise to grow our non-oil because we have never been intentional,” said Obiora Madu an export consultant and the director-general of the African Centre for Supply.

“For us to start exporting and do it well, we need to build an export culture and capacity,” he noted.

He stressed the need for the government to be intentional about boosting non-oil exports and urged them to move beyond the talking stages of diversifying the economy to an actionable strategy that brings results.

“Nigerians are very enterprising but there is no strategic intent from the government to boost non-oil.