• Friday, July 19, 2024
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Why Nigeria needs new strategy for non-oil exports

Why Nigeria needs new strategy for non-oil exports

The non-oil sector is a reflection of the state of the country’s manufacturing sector. Primary products have continued to occupy a prominent place in Nigeria’s non-oil export chart that serve as inputs for European, American and Asian factories.

Nigeria is not exporting much and the federal government is still doing little to improve non-oil exports despite its promises to restore the country to an exporting nation and the foreign exchange crisis that has continued to plunge the country’s economic growth.

The country has the potential to become a top exporter of finished products, but it must diversify its economy away from oil and earn the much-needed foreign exchange. This would require paying more attention to agro-processing.

Crude oil and minerals have continued to occupy a prominent place in Nigeria’s export chart. In the first quarter of 2024, crude oil and minerals accounted for 90.72 percent of total exports for the period, while non-oil exports accounted for 9.28 percent of total export proceeds for the period.

The total amount of money received by Nigeria from both exports of crude oil and non-oil exports was N19.17 trillion in the first quarter of 2024. Non-oil exports earned N1.8 trillion out of the total $19.17 trillion for the period.

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 (OEC) 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 export for nine months. Brazil earns so much from just three commodities, and this is partly owing to value addition.

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

Read also: Nigeria’s non-oil exports drops to $4.5bn in 2023, says NEPC

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.

Experts say that the country must develop a new strategy to promote the export of processed commodities to boost non-oil export proceeds and generate much-needed foreign exchange for the economy.

Nigeria is among the top growers of agro commodities such as cashew, cocoa, sesame, sorghum, and ginger among others.

However, the inability of Nigeria to process a large percentage of these agro commodities before exporting is responsible for the loss of billions of dollars that the country could have earned if they were processed.

Muda Yusuf, chief executive officer for the Centre for the Promotion of Private Enterprise, said that Nigerian manufacturers are more inward-looking and dependent on domestic markets than the international markets owing to the constant surging production costs and declining competitiveness.

“The foreign exchange trend has been raising production costs for manufacturers because of their dependence on imported raw materials and export is about competitiveness. If you are not competitive, there is no way you can make progress in terms of export,”

“Also, our cost of production is too high for us to make an impact as far as manufactured exports are concerned and this has made primary product exports dominate,” Yusuf said.

He added that the few manufacturing exports are within the African continent, particularly the West African region, noting that most trade data do not capture most of the informal trade that also takes place within the region.

Energy is a key element of the production process. Nigeria’s inability to supply and distribute sufficient electricity has left businesses at the mercy of generators powered by diesel, whose prices have surged in recent months.

The price of diesel – the lifeblood of industries reliant on heavy machinery has surged by 380 percent from an average of N312 in January 2022 to an average of N1,500 as of the time of writing.

This raises the production costs for manufacturers significantly and forecloses their chances of competing with international peers.

Local products are often more expensive than imported products because production costs in the country are significantly higher than in most countries globally, especially when key issues such as taxes and regulations are factored in.

Sola Obadimu, director general of the Nigerian Association of Chambers of Commerce, Industry, Mines, and Agriculture (NACCIMA) said that the rising energy costs, FX volatility, accelerating inflation and worsening insecurity are hurting manufacturers in the country and hampering their growth.

Obadimu noted that if nothing is done to address the issues limiting manufacturing in the country, the sector’s contribution to exports will continue to decline, noting that the challenges have forced the exits of some multinationals.

Data from the World Trade Organisation shows that South African manufacturing export value was $46 billion in 2022, while that of Nigeria was $3 billion in the same period – over 15 times greater than Nigeria’s manufacturing export value in 2022.

This is because it is cheaper to manufacture products in South Africa than in Nigeria, according to experts.

“The Nigerian economy has encountered a range of challenges in recent years, such as foreign exchange instability, escalated energy prices and food insecurity that have heightened the inflationary pressures and grossly eroded the consumers’ purchasing power,” Segun Ajayi-Kadir, director general of the Manufacturers Association of Nigeria.

Also, experts in the sector stressed that some challenges needed to be addressed to expand the country’s exports for it to contribute to structural change and help promote the sector’s growth, which is vital for sustaining economic growth and development.

They stated that good market penetration and ensuring standards on the part of the exporters, as well as adequate financing from banks and the government, among others, would be key to achieving export competitiveness.