If Nigeria is to successfully navigate its current economic crisis and stem the tide of naira’s depreciation, it must as a matter of urgency, grow its non-oil export to earn much needed foreign exchange and improve its balance of trade. This was the verdict of stakeholders who gathered on Saturday in Lagos on the occasion of the 2022 annual conference of the Finance Correspondents Association of Nigeria (FICAN).
The conference, themed, ‘Boosting Domestic Capacity for Sustainable Export Earnings,’ witnessed presentations by the keynote speaker, Mrs. Nneka Onyeali-Ikpe, Managing director of Fidelity Bank Plc; Lamido Yuguda, director general of Security and Exchange Commission; Olukayode Pitan, managing director of Bank of Industry (BOI); Mr. Muyiwa Akinyemi, deputy group managing director, United Bank for Africa (UBA) and Mr. Chima Nwokoji, FICAN national chairman, among others.
In her keynote address, Mrs. Onyeali-Ikpe, represented by Mr. Isaiah Ndukwe, divisional head, agric and export Fidelity Bank, noted that the country no longer has the luxury of not paying attention to its non-oil export, as according to her the inability of the country to grow its export now presents existential threat to the economy.
According to Onyeali-Ikpe, the current market headwinds, clean energy rhetoric out of the West and the emergence of electric vehicle is brewing a perfect storm for Nigeria.
“Externalities like the African Continental Free Trade Area (AFCFTA) which means freer movement of capital, talent and enterprise compounds the problem. It is swim or sink!,” she said.
“We either sell to other countries or get buried by an avalanche of imported goods whilst bleeding jobs and associated tax revenues. It is a geo-economics game, once you cede ground, it’s tough to get it back.
“Never has the need for expansion of Nigeria’s non-oil exports been more critical given current economic situations. These headwinds has again reinforced the need for local businesses to diversify their markets to hedge against consequent shifts in macro-economic indices including but not limited to inflationary and exchange rate movements.”
Speaking further, she said, “For businesses with foreign exchange exposures, availability and accessibility of foreign exchange present an existential threat to the enterprise so ability to pivot the business to exports to create an alternative source of foreign exchange supply will re-shape going concern and market leadership positions moving forward.
“Asides the foreign exchange play, another key upside to an export-orientated business is that it makes the enterprise very competitive over time especially in key performance metrics like process improvement, product design, packaging and quality.
“These were some of the opportunities that we saw years ago when we steered the focus of our banking business to exports as a strategic business. And even back then, we realized that while it was important to expand the non-oil exports space, it was even more critical to add value to what we export.”
Onyeali-Ikpe noted that for Nigeria to meaningfully grow its export base, value addition is imperative.
According to her, “We currently earn less than 30 cents on final value-added consumption dollar on our raw or primary commodity exports. Beyond the foreign exchange revenue losses and balance of trade impacts, this also translates to loss of job creation and tax earning opportunities for the country.
“Correcting these imbalances will require significant scaling of our value-added export footprints. Transitioning to value-added exports will provide immediate revenue uplift even without expansion of the primary commodity supply side.
“Using Cocoa and Cashew as examples, a step forward in the value chain e.g. (a) moving from cocoa beans to cocoa butter or powder and (b) moving from raw cashew nuts to kernels, moves foreign exchange revenues by at least 3x.
“At 3x increase in revenue, Nigeria can move cocoa exports to US$3 Billion per annum (currently about $1 Billion) and cashew to US$600 Million (currently about US$200 Million) in the short term to medium term.
“If we then doubled the capacity of our plantations as well as processing capacity, we can exponentially move the numbers.”
On how to improve the country’s non-oil export, Onyeali-Ikpe proffered a number of solutions.
She said that in the short term, the country should focus priority sectors such as Cocoa, Sesame, Cashew, Tannery, Rice and Oil Palm.
“The levers to scale capacities in these spaces are (1) increased value addition and (2) supply side expansions e.g. Re-generation of Aging Plantations & Addition of New or Greenfield Plantations to the National Supply Grid,” she said.
In his presentation, Yuguda, SEC DG, reiterated the commission’s commitment to developing the commodities ecosystem in Nigeria to boost its non-oil sector.
Yuguda who was represented by the Director, Lagos Zonal Office of the Commission, Hafsat Rufia, noted that development of the commodities ecosystem would help the country achieve its quest for sustainable foreign exchange earnings and economic development.
The Commission’s boss said, “We believe that implementation of the roadmap for a vibrant commodities trading ecosystem in Nigeria by the Commission will support development of the agricultural sector and diversification of the Nigerian economy and, ultimately, advance the country towards attaining sustainable foreign exchange earnings.”
Yuguda, however, regretted that in recent years, Nigeria has experienced a significant decline in foreign exchange earnings as well as revenues accruable to the federation due mainly to volatility in international crude oil prices and oil theft.
He noted that the recent developments have again brought to the fore the important issue of sustainable foreign exchange earnings.
According to him, the Federal Government of Nigeria is intensifying efforts towards diversifying the economy and reducing overdependence on crude oil.
“Numerous programmes such as the CBN Anchor Borrowers Programme as well as the NEXIM Bank Export Stimulation Fund constitute some of the few deliberate efforts of Government to ensure not only food stability and sufficiency in the country, but also sustainable foreign exchange stability in the country.
“The Nigerian capital market has a significant role to play in contributing to sustainable foreign exchange earnings. It can attract more foreign portfolio and direct investments which will help stabilize the value of the naira.
“To do this, the market must be more competitive, as other markets also seek the same foreign capital inflows. The 10-year Nigerian Capital Market Master Plan (2015-2025) is built around four strategic themes one of which is competitiveness.
“It seeks to promote competitiveness by establishing practices to improve transparency, efficiency and liquidity and to attract sustainable interest in the capital market from domestic, as well as foreign investors and participants.
Quoting data from the National Bureau of Statistics, the SEC boss noted that the total value of capital importation into Nigeria in the second quarter of 2022 stood at US$1,535.35 million.
Of this, he said, the largest amount was received through Portfolio Investments, which accounted for 49.33% (US$757.32 million), while foreign Direct Investments (FDI) accounted for 9.58% (US$147.16 million) while Other Investments stood at 41.09% (US$630.87 million).
He further noted that the largest amount of portfolio investment went to money market instruments – 55.8% (US$422.56 million), while bonds followed with 42.5% (US$322.04 million) and Equities accounted for 1.68% (US$12.72 million) of Portfolio investment in Q2 2022.
Yuguda who advocated for unified exchange rate, called for strategic initiatives to develop the capital market as a robust and sustainable source of foreign exchange for the country.
According to him, “SEC has introduced new market-deepening initiatives and is implementing policies targeted at attracting foreign investments. One such initiative is the comprehensive review of rules on Collective Investment Schemes (CIS) leading to reduction of transaction and operational costs, better classification of funds for clarity, improved risk management measures, and several others.
“The Securities and Exchange Commission continues to advocate for a unified foreign exchange rate in order to attract more Foreign Portfolio Investments into the country. We appreciate the efforts of the Central Bank of Nigeria in exchange rate management and will support in whatever way we can to enable achievement of the objective of exchange rate stability.”
Also speaking, Mr. Pitan, managing director of Bank of Industry, represented by Ominiabohs Uyoyou Jermila, Project Officer, noted that to increase non-oil exports, revenue value addition is critical.
This, he said, requires increased manufacturing activities – a shift from the exportation of raw materials to semi-finished and finished goods with more value.
“Finished leather, for instance, was one of the non-oil export products that generated the most revenue in 2020,” he said.
“In a study carried out by the Nigerian Economic Summit Group in 2021, it was estimated that the Nigerian leather industry has the potential to increase its earnings by 70 % and generate over US$1 billion by 2025.
“However challenges with standardisation and quality continue to affect the performance of Nigerian manufacturing on the international market.
“With the implementation of the African Continental Free Trade Area (AfCFTA), non-oil exports from Nigeria will improve with access to a bigger market within Africa. This may not be possible if the country does not improve its export of manufactured goods.
“While some Nigerian products appear to have made a breakthrough in exports to regional and global markets, much more can be done to ensure product quality, positioning them to take advantage of opportunities presented by AfCFTA.”
The BOI boss noted that though Nigeria is the 50the largest export economy in the world, its trade profile is imbalanced and in deficit as the value of imports grows more than exports.”
He noted that, nonetheless, the non-oil sector contribution to GDP has been significant, pointing out that during the 2008 global financial crisis the non-oil sector helped to absorb extra natural shocks caused by the declining oil revenue.
He explained that sectors such as telecommunications, ICT, trade, industry and agriculture were critical to the economic recovery from the 2008 financial crisis and have remained so following the twin economic recession in 2016 and 2020.
Pitan said this has highlighted the need for economic diversification, which has become a significant point in national and policy-making imperatives, though with varying degrees of success.
He added that boosting exports earnings has become more important given the naira devaluation and shrinking foreign exchange reserves.
As a result of this, he said, the government has made more concerted efforts to focus on the non-oil sector for the increase and efficient collection of customs duties and other taxes.
Pitan noted that while there have been a lot of government policies and initiatives to encourage non-oil exports, especially among small and medium scale industries, the performance of the sector is still likely to be below par due.
He attributed this to the challenges of low inputs, dependencies on primary inputs and entrepreneurial nature of basic industry, policy inconsistencies, insufficient skilled manpower, high lending rates, among others.
He added that BoI has provided financial assistance for the establishment of large, medium and small projects, as well as expansion, diversification and modernisation of existing enterprises.
The Deputy Managing Director, United Bank for Africa, Muyiwa Akinyemi, in the same vein, noted that the discovery of crude oil brought a shift that has made the country to majorly depend on the oil sector to the neglect of other sectors.
According to him, this made the economy susceptible to fluctuations in revenue, occasioned by the usual instability associated with the prices of crude oil in the international market.
“Successive governments have made differing efforts at diversifying the revenue sources of the economy by promoting non-oil export trade which cumulatively impacts on overall economic growth”, Akinyemi said.
On some of UBA’s key interventions to facilitate export, he mentioned that the bank had developed a $200 million non-oil export trade financing programme to bridge working capital requirements of SMEs/commercial exporters at concessionary interest rate and favourable collateral structure and provided project and structured trade financing to enhancing export capacities of manufacturing.