At the recently held TATRIG webinar, international trade and fiscal experts and other participants explored the theme “Floating Naira and New Economic Policies: Renewed Hope for Nigeria’s Non-oil Exports?” The trade experts included Engr. Titus Olowookere, President & CEO of the US-Africa Trade Council, Mr Wilson Erumebor, Senior Economist at The Nigeria Economic Summit Group, and Dr Omolara Akanji, former director of Trade and Exchange at the Central Bank of Nigeria & Member of the Executive Board of the International Chamber of Commerce and Olufemi Boyede, as the moderating expert and Convener of the TATRIG webinars.
Like many other resource-dependent countries, Nigeria has long relied on oil exports as the primary driver of its economy. However, the volatility of oil prices and global efforts towards sustainable energy alternatives have prompted the Nigerian government to explore new avenues for economic growth.
Non-oil exports have emerged as a promising solution to diversify Nigeria’s export landscape, stimulate job creation, and drive sustainable economic development. In this blog post, we highlight the experts’ perspectives and examine Nigeria’s challenges and opportunities as it seeks to enhance its non-oil export sector.
1. Overcoming historical reliance on oil:
Nigeria’s first major challenge is overcoming its historical reliance on oil exports. For decades, the country’s focus on petroleum resources has resulted in neglect of other sectors, hampering the development of a robust non-oil export industry.
However, with the global decline in oil demand and increased volatility in oil prices, the Nigerian government urgently needs to diversify the economy and prioritize non-oil exports. Wilson Erumebor also noted, “ If oil is still not doing well, and non-oil exports still account for just 10% of total exports, I think we have a long way to go.”
The statistics presented by Engr Olowookere during the webinar showed that in 2021, over 88% of Nigeria’s foreign trade was from oil, leaving a significant gap in non-oil exports.
The floating Naira is one of the new fiscal policies the new administration has established to deal with this problem by letting market forces such as supply and demand determine the exchange rate for the currency. It is anticipated that this action will boost economic growth and export competitiveness.
Engr. Olowokere was optimistic that the new fiscal policy with the floating Naira would provide renewed hope for the non-oil sector by making Nigerian exports more competitive in the global market.
It also enables the diversification of non-oil exports, particularly in the agricultural industry, which has immense growth potential.
“It’s going to really improve the non-oil exports. It will help the economy grow quickly, as it’s already beginning to do. It will make us a lot more competitive in the global markets. And this would be a win for the Nigerian economy, for individuals in Nigeria, and even foreigners looking to invest in Nigeria.”
However, Engr Olowookere acknowledged there is still much to do, but having a positive mindset would go a long way noting, “The leadership is not where it needs to be. The infrastructure is not enabling.
The people are not very supportive, and even the leadership has much to be desired. We all need to roll our sleeves. We all need to be positive. America took so many years to get to where it is today.
Japan rose from the ashes of the atomic bomb to become a very strong power today. We all need to work together. We must all do our respective tasks at individual levels or within our space of influence to make the necessary changes and find a way to influence the government”.
2. Infrastructure development:
Wilson Erumebor raised some critical concerns about the current state of Nigeria’s non-oil export sector. While the floating Naira presents economic opportunities, it is not without challenges. Wilson expressed caution and skepticism regarding successfully implementing the Naira floatation policy.
One of the critical challenges inhibiting the growth of Nigeria’s non-oil export sector is the inadequate infrastructure. Insufficient transportation networks, unreliable power supply, and inefficient port operations all contribute to high production costs and delayed shipments.
In addition, Mr Erumebor called for more proactive government policies and the availability of trade policy documents for public scrutiny. He added, “At what point do things have to get so bad for us to realize that non-oil exports are the way to go for Nigeria? There’s much work to do.
And I’m hopeful that maybe as a team, there could be some advocacy effort to advise the current government not to make the mistakes of the past, to ensure that they are very proactive and see the non-oil sector, and other non-oil industrial bases, as something that would lead Nigeria and address all of these foreign exchange problems”.
To tap into the vast potential of non-oil exports, the government must prioritize sustained investment and policy support for agriculture, manufacturing, and solid minerals. This will improve logistics and reduce the cost of doing business.
3. Fragmented agricultural value chain:
The agricultural sector holds great potential as a driver of non-oil exports in Nigeria, given the country’s fertile land and favourable climate. However, a fragmented value chain and limited processing capabilities hinder the sector’s growth. Engr Olowookere pointed out that agriculture which once was the backbone of Nigeria’s economy can be revitalized through the floating Naira.
The agri-sector possesses abundant potential with vast arable land, a skilled workforce, and potentially numerous agri-exports. By adopting the free-floating Naira, Nigeria can promote self-sufficiency and boost non-oil exports in agriculture. He further opined that by capturing the value chain and exporting value-added agricultural products, Nigeria could increase employment and generate more revenue.
To fully exploit this potential, Engr Olowookere suggested that the government’s efforts should focus on enhancing value addition, promoting agro-processing industries, and bridging the gap between farmers and exporters through improved market access.
4. Access to finance:
Access to finance is often cited as a major challenge for Nigerian entrepreneurs, particularly for those involved in the non-oil export sector. High-interest rates, limited collateral options, and cumbersome loan processes create significant barriers for small and medium-sized enterprises (SMEs).
Policymakers must promote innovative financing mechanisms, such as venture capital funds and targeted loan programs, to enable SMEs to invest and expand their export activities. Dr Akanji explained that although the floating currency has an advantage, it can help solve our balance of payment crisis; the impact of the heavy depreciation on our export is not happening because the cost of business, cost of production of a pound of cocoa, for example, is still too high due to lack of infrastructure and poor port services.
Dr Akanji suggested the importance of increasing foreign investors’ confidence in the Nigerian economy, whereby foreign direct investors know that they bring in their money and take it back whenever they want to. She said this brings more liquidity into the economy and provides more cash to the government to support, fund and support more ailing enterprises.
Citing his perspective, Olufemi Boyede said, “Depreciation of Naira is not enough: It is not enough to float the Naira. It’s not enough whether it is a managed currency floating or any other manner of floating. The foreign exchange rate of a country’s currency is determined by that country’s performance in the international market.
Olufemi also decried the poor practice of excessively repeated borrowings of the previous administrations, saying, “We cannot continue to allow CBN to go to what they call ‘Ways and Means.’ Honestly, I’m hearing that for the very first time in Nigeria. Nigeria introduced that vocabulary where CBN goes to borrow, and then we edit the constitutional framework to allow us to borrow more. Are we going to borrow for our fourth generation yet?”
5. Policy ambiguity and implementation:
While the Nigerian government has taken steps to promote non-oil exports, policy ambiguity and inconsistent implementation pose challenges for potential exporters. Taking his viewpoint further, Mr Erumebor said, “What is the next step? What’s the blueprint? What will the CBN do next?… there’s still that clarity that needs to be evident as far as foreign exchange reforms are concerned…how ready are our businesses to take advantage of the opportunities that a devalued or weakened exchange rate presents?”
Clear and transparent policies and effective implementation and regulatory frameworks are crucial to creating an enabling environment for non-oil exports. Engaging stakeholders and private sector representatives in policy discussions and decision-making is also essential. Olufemi Boyede agreed, saying, “There is a need to lead a policymaker forum where those shaping government policies can understand the perspective and needs of the private sector and industry.”
6. Market diversification:
To capitalize on the opportunities of non-oil exports, Nigeria needs to diversify its export markets. Nigeria’s non-oil exports are heavily concentrated in regional markets like ECOWAS countries. Exploring new markets in Europe, Asia, and the Americas will provide a broader customer base and help mitigate risks associated with overreliance on a single market.
However, Dr Akanji cautioned, “We have high liability dollarisation, financial fragility, and there is a negative effect on the balance sheets when liabilities are denominated in foreign currencies, while our asset is in the local currency. The high liability dollarisation has continued to create an external account imbalance that must be reviewed.
Otherwise, we will keep going round and round in a circle. While it is suitable to float the Naira, many other policy dimensions must be addressed to make it efficient and effective as a market instrument.
The high liability dollarisation has continued to create an external account imbalance that must be reviewed. Otherwise, we will keep going round and round in a circle. It is suitable to float the Naira, but many other policy dimensions must be addressed to make it efficient and effective.”
7. Quality and standards compliance:
Meeting international quality and standards requirements is crucial for successful participation in global markets. Nigerian exporters often face challenges in adhering to these standards, limiting their access to lucrative markets. Building capacity and providing support for quality control mechanisms, certifications, and compliance with international standards will boost the competitiveness of Nigerian non-oil exports.
Read also: How Nigeria can move from net food importer to exporter
Conclusion:
Nigeria’s non-oil export sector holds immense potential for sustainable economic growth and job creation. However, several challenges, including historical reliance on oil, infrastructure deficits, fragmented value chains, and limited access to finance, must be addressed to harness this potential fully.
With effective implementation of targeted policies, investment in infrastructure, collaborative efforts between the public and private sectors, and an inclusive approach to decision-making, Nigeria can overcome these challenges and create a thriving non-oil export landscape.
By diversifying its export markets and ensuring quality compliance, Nigeria can enhance its global competitiveness and contribute to long-term economic development.
At Talking Trade and Investment Global (TATRIG), we are excited to continue covering topics like Nigeria’s non-oil export landscape, challenges, and growth opportunities. Stay tuned to Talking Trade TATRIG for more in-depth discussions with industry experts and insightful global trade and investment analysis.
Dr. Taiwo is a part of the TATRIG Technical Team
