Weaker naira drives up foreign demand for local products

The recent naira devaluation, which is dampening the production capacity of many businesses in the manufacturing value chain, has however driven up foreign demand for some products.

While the naira 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 in value.

“The currency depreciation is helping my business in terms of exports. When your currency is weak, your goods become cheaper which will make a country with a stronger currency to easily buy your products,” Paul Odunaiya, managing director/chief executive officer at Wemy Industries Limited, said.

He said one of the African countries that the company exports to is Mali. “The devaluation of our currency actually helped us to enter the market because of the CFA.”

George Onafowokan, managing director/chief executive officer at Coleman Technical Industries Limited, said manufacturers are looking at going into other countries to source for foreign exchange to remain in business.

“But how many manufacturers have the luxury to export. Majority of small and medium-scale ones don’t have that luxury; it’s only the top ones that might be able to export,” he added.

He said although it is a good idea to look at the export incentives and opportunities, how many companies are capable of converting or quickly doing things that are export-related.

Experts say the increase in the demand for goods from other African countries creates more naira for manufacturers to source for inputs for their production.

“The devaluation is helping exporters to bring FX back into the country which means more naira for them. But you have to remember that their cost of production is increasing,” Odiri Erewa-Meggison, chairman of the Manufacturers Association of Nigeria Export Promotion Group, (MANEG), said.

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“When you produce and export, you are competing with other countries that don’t have the currency issues you are having. So, before you can send those products outside, you are going to produce it here and suffer the impact of the increase in the cost of production,” she added.

The Central Bank of Nigeria’s collapse of all segments of the FX market into the Investors & Exporters window in June has yet to curb the shortage of dollars in Africa’s biggest economy.

The naira depreciated from 463.38/$ on June 9 to 759.20/$ as of October 12. At the parallel market, popularly called the black market, the naira depreciated to N1,040/$ from 762/$.

The naira has depreciated against the West African CFA franc, from N0.76 to CFA1 on June 9 to N1.23 to CFA1 as at October 12.

“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.”

According to Muda Yusuf, chief executive officer of Centre for the Promotion of Private Enterprise, the majority of manufacturers’ products are dependent on the domestic market because of its large size compared to African countries.

“But the weakness of the currency creates opportunities for exports as it is much cheaper for countries using CFA to buy. And when something is cheap, the volume increases,” he said.

Nigeria’s exports exceeded its imports for the third straight quarter in the second quarter. Data from the National Bureau of Statistics show that total exports, which contributed 55.1 percent to total merchandise trade (N12.7 trillion), grew by 8.2 percent to N7.01 trillion in Q2 from N6.48 trillion in the previous quarter.

Imports accounted for 44.9 percent of total trade as it rose marginally by 2.9 percent to N5.72 trillion from N5.55 trillion.

But the exports were dominated by crude oil sales valued at N5.57 trillion, which accounted for 79.6 percent of total exports, while non-oil products contributed N688.7 billion or 9.82 percent.

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Non-oil exports rose marginally by 5.52 percent to N688.7 billion from N652.7 billion in Q1. It also increased on a year-on-year basis by 2.88 percent from N669.4 billion. The exportation of manufacturing goods grew to N212.1 billion from N131.2 billion.

“We cannot export manufactured goods to Europe, Asia or the United States of America. Our primary market is the Economic Community of West African States. And with the coming of the African Continental Free Trade Agreement (AfCFTA), the entire Africa becomes our market, particularly the Sub-Saharan African region,” Obiora Madu, the chairman of Multimix Academy, a logistics and supply chain management company, said.

He added that the opportunity already exists and that people, who know their way around it, will take advantage of it.

“AfCFTA is a big opportunity. It’s just for manufacturers who want to go into the external market to get the capacity or technicalities for export,” he said.

Onafowokan of Coleman Technical Industries added that growth in manufacturing is not dependent on how much tax is imposed on the sector, but how much incentives are implemented to encourage the initial risk taking.

“We need to encourage that investment. Once that is done, we should think of how to crystalise and protect those industries to grow from whatever size they are, to a larger scale as quickly as possible, with the right encouragement and fiscal policies that will get these businesses to grow organically the right way,” he said.

Erewa-Meggison of MANEG added that the government needs to engage manufacturers and exporters directly through the Manufacturers Association of Nigeria, to identify at least five critical and immediate interventions that are required from the government.

“There are steps that they can take (including FX availability, single digit loans and payment of Export Expansion Grant) that will help exporters to become more competitive in the short term, while we work on the mid-term/long-term solutions,” she said.

Standard Chartered, in a recent report, projects that Africa’s total exports will reach $952 billion by 2035 from $645.3 billion in 2022 and that AfCFTA’s full implementation could increase the figure by a further 29 percent.

“Rising regional trade levels and greater connectivity will unlock high‑growth corridors across Africa and beyond. Intra-Africa trade is expected to reach $140billion by 2035, equating to 15 percent of Africa’s total exports,” it said.