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Trading in Africa: How Nigerian exports can win

When Ngozi Okonjo-Iweala, director-general of the World Trade Organisation (WTO) visited Nigeria recently, she emphasised in many of her meetings, including with President Muhammadu Buhari, that if Nigeria is to fully take advantage of the opportunities inherent in the African Continental Free Trade Area (AfCFTA), Nigerian exports must become value-added.

Her message echoes observations over decades that, Nigeria’s exports are largely in raw form; from crude oil to agricultural goods and others. They are exported raw, earning a tiny fraction of their potentials if they were processed before being sold. Unless more processing, even if semi-value-addition is adopted, other countries will beat Nigeria in trade on the basis of value proposition and monetary value equally derived.

“WTO will do more to help Nigeria, but we need to add value to our products in order to trade more. We should exploit all the opportunities in front of us, including the AfCFTA,” Okonjo-Iweala told Buhari.

Until this is achieved, Nigeria may not be able to effectively tap into the benefits of AfCFTA. More so, many other countries who are participants of the trade agreement have similar products to trade just as Nigeria and many go further to add value to their products. This effectively gives an advantage in terms of value proposition.

If Nigeria makes an effort to drive value addition, not only will it be able to export more valuable products, the monetary returns will also be many times more, well justifying efforts and investments. It will also help lessen the country’s trade deficit, which was recorded for the first time in four years at the end of 2020.

Furthermore, pursuing a goal of value addition will invariably lead to job creation, as new industries spring up to perform the value addition tasks.

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Olusegun Osidipe, director, economics and statistics, Manufacturers Association of Nigeria (MAN) told BusinessDay that African countries trade similar goods, therefore, it is necessary for Nigerian participants to actively engage in research and development activities that will inspire innovation for improved products and provide a greater competitive advantage.

“Member companies must fully deploy the tenets of Competitive Advantage Strategy to upscale, own their value chain, improve capabilities and reduce production cost to accelerate export diversification,” he said.

In 2020, Nigeria’s total trade earnings were N32.42 trillion, with N19.89 trillion worth of imports. Exports stood at N12.52 trillion, earning N9.44 trillion from crude oil, N3.08 trillion from non-crude oil, and N1.43 trillion from over 20 non-oil commodities exported raw including agricultural commodities, urea, etc.

With Nigeria’s exports dominated by raw products over the years, it has resulted in poor export receipts. The country’s inability to add value to its export items makes it scratch the surface of export gains.

Between 2010 and 2019, manufacturing value addition activities in Nigeria averaged 38.98 percent according to the Global Economy, which provides business and economic data. This is below the average mark of 50 percent signifying that more efforts need to be made in growing the value addition culture.

Ebenezer Onyeagwu, group managing director and chief executive officer, Zenith Bank, said at a trade forum held recently, that it is necessary for manufacturers and farmers to incorporate value addition into their export processes in order to fully utilize and enjoy the substantial benefits.

“We need to improve our primary production so we can increase and expand the value chain. We are not generating enough income from exports, and we need to explore research and incorporate value addition in our export in order to effectively utilize it,” Onyeagwu said.

For example, Nigeria produces between 6-7 percent of cocoa in Africa and exports to USA, Spain, Netherlands, among others. These countries refine cocoa into confectionery, food and beverages, cosmetics, and pharmaceutical products, which Nigeria spends heavily to import.

From the finished goods imported, Nigeria loses foreign exchange, jobs and supplementary industries, and additional income that should have developed from such value chains.

According to the International Institute for Sustainable Development (IISD), cocoa beans market was valued at $8.6 billion as of 2017, and is expected to reach $16.32 billion by 2025.

Furthermore, the chocolate industry which consumes 43 percent of cocoa beans had a retail market value of $106.19 billion in 2017 and is expected to grow to $189.89 billion by 2026. This shows that the chocolate market is 12 times more profitable than the cocoa beans market.

In 2019, Nigeria exported $394 million worth of cocoa, according to the Nigerian Export Promotion Council (NEPC), however, it could have made $4.72 trillion from the sale of chocolate alone (394 multiply by 12).

Similarly, Nigeria exported $62.5 million worth of leather in 2019 according to the NEPC annual report to various destinations including Spain. However, LeatherMag International revealed that Nigeria imports around $500 million worth of leather products every year, including 80 million pairs of shoes.

Abiodun Olorundero, operations manager, Aquashoots, told BusinessDay in a telephone conversation that the poor value addition practice is caused by conditions beyond local producers, stating that it is expensive and requires a lot of resources.

Olorundero also noted that local producers of non-oil items like agricultural commodities prefer to sell raw materials rather than incur debts, as these products are perishable.

“For the export partners, it is cheaper for them to import these items from Nigeria and refine it because they have the necessary infrastructure to carry out the processing activities,” he said.

Concerns have also been raised regarding the sustainability of non-oil products as they revolve mainly around agricultural commodities, which are seasonal, also, mineral products, raw materials, among others that are not necessarily in infinite supply.

While the extractions last, adding value before they are sold will in the long run, provide more value to businesses, create jobs, and strengthen the Nigerian economy.

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