Why Nigeria needs a new non-oil export strategy

The non-oil sector reflects the health of the country’s manufacturing sector. Primary products continue to feature prominently in Nigeria’s non-oil export chart, providing raw material for factories in Europe, America and Asia.

Nigeria does not export much, and the federal government still does little to improve non-oil exports, despite promises to restore the country’s status as an exporting country and a currency crisis that continues to limit the country’s economic growth.

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

Petroleum and minerals continue to feature prominently on Nigeria’s export chart. In the first quarter of 2024, crude oil and minerals accounted for 90.72% of total exports during the period, while non-oil exports accounted for 9.28% of total export earnings during the period.

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

Brazil, a country whose population is just nine million larger than Nigeria and has similar agricultural potential, earned $6.3 billion in October from just three commodities – sugar, soybeans and corn – according to the Observatory of Economic Complexity (OEC).

The South American country’s monthly exports of three commodities alone are twice as much as Nigeria’s earnings from total non-oil exports for nine months. Brazil earns so much from just three commodities, which is partly due to value addition.

Low-value addition to Nigerian agriculture has resulted in the sector operating well below its potential, with products sold being priced lower than what would have been obtained if some processing had been carried out.

Also read: Nigeria’s non-oil exports will fall to $4.5 billion in 2023, says NEPC

This situation not only made the value of agriculture lower than could be imagined, but also contributed to high post-harvest losses and low export earnings.

Experts say the country needs to develop a new strategy to promote exports of manufactured goods to increase non-oil export revenues and generate much-needed foreign exchange for the economy.

Nigeria is among the top producers of agricultural commodities such as cashews, cocoa, sesame, sorghum and ginger, among others.

However, Nigeria’s inability to process a large percentage of these agricultural commodities before exporting is responsible for the loss of billions of dollars the country could have earned had they been processed.

Muda Yusuf, director general of the Center for the Promotion of Private Enterprise, said Nigerian manufacturers are more inward-looking and dependent on domestic markets than international markets due to ever-increasing production costs and declining competitiveness.

“The currency trend is raising producers’ production costs due to their dependence on imported raw materials, and exports rely on competitiveness. If you are not competitive, you cannot make progress in exports,” he added.

“Furthermore, our production costs are too high for us to influence finished goods exports, which has resulted in primary product exports dominating,” Yusuf said.

He added that few exports of manufactured goods take place on the African continent, especially in the West African region, noting that most trade data do not take into account most of the informal trade that also takes place in the region.

Energy is a key element of the production process. Nigeria’s inability to supply and distribute enough electricity has left businesses at the mercy of diesel-powered generators, the price of which has soared in recent months.

The price of diesel – the lifeblood of an industry dependent on heavy equipment – ​​has increased by 380 percent, from an average of N312 in January 2022 to an average of N1,500 at the time of writing.

This significantly increases producers’ production costs and eliminates their chances of competing with international competitors.

Local products are often more expensive than imported products because production costs in the country are much higher than in most countries in the world, especially when key issues such as taxes and regulations are taken into account.

Sola Obadimu, CEO of the Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), has said rising energy costs, exchange rate volatility, accelerating inflation and growing insecurity are harming manufacturers in the country and hampering their development.

Obadimu noted that if no action was taken to address issues limiting production in the country, the sector’s export contribution would continue to decline, noting that the challenges had forced some multinationals to exit the market.

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

According to experts, this is because it is cheaper to produce products in South Africa than in Nigeria.

“In recent years, the Nigerian economy has faced a series of challenges such as currency instability, rising energy prices and food insecurity, which have increased inflationary pressures and grossly reduced consumer purchasing power,” Segun Ajayi-Kadir, Director General of the Manufacturers Association of Nigeria.

Industry experts also stressed that certain challenges need to be addressed to boost the country’s exports so that they can contribute to structural change and help promote sector growth, which is essential to sustain economic growth and development.

They stated that the key to achieving export competitiveness will be good market penetration and ensuring standards by exporters, as well as appropriate financing, among others. from banks and the government.