Weak non-oil exports dampen naira devaluation gains

Weak non-oil exports from Africa’s most populous country are dampening the gains from its central bank’s decision in June to allow the naira to trade more freely.

The naira has lost more than 40 percent of its value against the dollar since June, the biggest loss over that period among currencies tracked by Bloomberg.

According to experts, one real impact of devaluation is increased exports, as it serves as an incentive while imported products typically become expensive.

However, the share of non-oil exports in Nigeria’s total exports in the third quarter of this year remained abysmal despite the recent naira devaluation. Data from the National Bureau of Statistics shows that non-oil exports accounted for 6.5 percent of total export proceeds for the period, the lowest since Q2 2019.

“We aren’t reaping the possible naira devaluation gains because of our low non-oil exports. This is one of the areas the country is supposed to benefit from the naira float of the Central Bank of Nigeria but that is not the case as we speak,” said Obiora Madu, CEO of Multimix Group.

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He sees a big challenge for Nigeria, whose non-oil exports and agricultural sector are mainly weak while the manufacturing sector cannot meet the demand of the ever-growing 200 million people amid expensive imports and increasingly depleting oil exports.

“Nations at times deliberately decide to devalue their currencies to increase their exports but we are not benefitting from the recent devaluation, and this is because of the lack of competitiveness of our products,” Madu said.

According to him, Nigerian commodities are more expensive than others in the international market as producers constantly struggle with poor infrastructure that often makes their products costlier when compared to their peers globally.

The availability of adequate infrastructure is a major determinant of the success of every country’s industrial sector; however, Nigeria lacks the necessary infrastructure needed to grow businesses, especially developed transport systems such as roads and rails that are connected to the nation’s seaports.

This has constantly made production costs higher in the country, making locally manufactured goods unable to compete in the international market.

“Naturally, one would expect that non-oil exports will increase massively in naira terms post-devaluation, but we have some bottlenecks that could sort of negatively impact it or reduce the benefits that naturally should accrue to that sector,” Tajudeen Ibrahim, director of research and strategy at ChapelHill Denham, told BusinessDay in October.

When the naira is weaker, exporters can earn more naira for each unit of export. This can make it more profitable for them to export, but challenges persist and limit their ability to increase production volume, he noted.

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While it appears that the value of the country’s non-oil exports increased by 54 percent year-on-year owing to the naira devaluation, it does not necessarily mean that its export volume increased over the period. Its contribution to total exports declined both year-on-year and on a quarter-on-quarter basis.

On a quarter-on-quarter basis, it declined by N11 billion from N688.7 billion in Q2 2023 to N677.6 billion in Q3 and its contribution to total exports also declined from 10.7 percent to 6.5 percent in the same period.

Nigeria’s non-oil exports were valued at N2.02 trillion ($2.02 billion) in the first nine months of 2023, according to data from the foreign trade report.

Brazil, a country whose population is just nine million larger than Nigeria and with similar agricultural potential, earned $6.3 billion in October alone from just three commodities—sugar, soybeans, and maize—data from the Observatory of Economic Complexity shows.

The South American country’s one-month export of three commodities alone is twice as high as Nigeria’s earnings from its total non-oil exports in nine months. Brazil earns so much from just three commodities, and this is partly owing to value addition.

The low-value addition in the Nigerian agriculture sector has seen the sector operate far below its potential, with produce that gets sold valued less than what would have been obtained if some processing was done.

The situation has seen the value of agriculture not only lower than could have been realised but also contributing to high post-harvest losses and low export proceeds.

Ikechukwu Kelikume, an economist and lecturer at the Lagos Business School, said Nigeria must stop exporting raw commodities without value addition, adding that the greatest opportunities in the agricultural value chains lie in processing.

According to Kelihume, the higher the value chain that is closer to the consumer, the greater the value of earnings for investors.

“Most of the things we export raw, we virtually import them back as finished products,” he said during BusinessDay’s recent agribusiness conference, adding that it has made the country unable to get value for its export.