Beyond balance of payments: The long road to non-oil export revival
More than before, Nigeria needs to reduce the strain on its balance of payment and improve on it by making inroads to developed markets and latching on various trade deals. While export of commodities is possible when domestic demand for such are satisfied and surpluses exist in commercial quantities, the nation, however, still relies on imports to feed itself. How ready is the nation for economic restructuring? FEMI ADEKOYA writes.
While heavy reliance on oil economy has subjected the country to difficulties in recent times, switching to the non-oil sector appears a viable alternative. Trends in the non-oil sector, however, show that despite various policies, strategies and reform programmes, contributions from this sector remain dismal and below potential.
Beyond meeting its balance of payment, industry stakeholders believe that operations in the non-oil sector need to be re-appraised for efficiency if government will get the best from the sector.With government seeking to improve its earnings from the non-oil sector, stakeholders in the sector have suggested enhanced capacity building for exporters and revival of commodity boards to address quality challenges limiting the growth of the sector.
Indeed, the challenges of Nigeria’s non-oil sector are traceable to declining commodities to export and loss of market share in the global market due to low competitiveness of the sector.Specifically, there has not been adequate investment in equipment, infrastructure, intellectual capital, human capital and consistent policy framework to spur interest in the sector, which will positively affect the cost of doing business. This has aided the neglect of production in the real sector of the economy, as manufacturers continue to explore importation option to access raw materials that could have been accessed locally.
From food to apparels and consumer goods, the nation spends a chunk of its foreign exchange on importing these items to sustain the economy, with few successes being recorded in local production due to operational challenges and inertia policies.Although developed markets offer an array of opportunities to Nigeria and other developing economies, very little has been achieved in terms of harnessing such privileges to increase foreign exchange earnings of the country.
For instance, under the revalidated African Growth and Opportunity Act (AGOA), for African countries by the United States, Nigeria is yet to take advantage of the scheme due to the quality of exports originating from the country, suspension of intervention programmes and infrastructural challenges.
Specifically, in 2014, nearly 15 years after the approval of AGOA, Nigeria’s exports to the U.S. under the policy totalled $2.6 million while the exports from South Africa exceeded $1.2 billion.According to data from the National Bureau of Statistics (NBS), in 2015, Nigeria recorded the lowest exports in three years. The value of export, according to the NBS, declined from N16.304 billion in 2014 to N9.729 billion in the fourth quarter of 2015, representing a decline of 40.3 per cent.
Data from Bloomberg showed that the non-oil sector dropped from 2.11 per cent in the fourth quarter of 2015, to -0.36 per cent in the first quarter of 2016.The Managing Director/Chief Executive Officer (CEO) of the Nigerian Export Promotion Council (NEPC), Segun Awolowo, recently stressed the need to scale up non-oil exports from Nigeria and the production capacity of Nigerians for the nation to be able to compete favourably in the global market and get out of the current economic doldrums.
Awolowo said that other nations, including the United States (U.S.), relied on non-oil exports to come out of recession, noting that the dwindling oil revenue could be used to drive the growth of non-oil export in the nation.The CEO said that non-oil export is the solution to the current economic crunch in the nation, adding that the nation’s oil revenue had dwindled from $70 billion to $40 billion between 2014 and 2015, making it a loss of $30 billion in 12 months.
He said that there were indications that the oil revenue would still deplete in 2016, adding that an annual import bill of $50 billion is what Nigeria has been relying on, even as it had incurred a loss of $30 billion within a period of 12 months on the same oil revenue.The new AGOA window, which may have re-opened vista for Nigeria and other countries in the region to grow their declining value of non-oil exports to the U.S. to over $8 billion within the next 10 years, under the extended trade deal, would see 38 African countries becoming eligible to export 7,000 product lines tariff and quota free to the U.S. market.
Under the programme’s extended regime, African countries would be engaged in the rules of origin to engender value-addition of raw materials as they could now include the cost of direct processing, as they share production from one country to another on their way to the U.S. market.Furthermore, African countries exporting to the U.S. can also use the programme across borders, thereby stimulating intra-African trade in regional markets, where value may be further added to export products.
Hitherto, processed cassava grains, popularly called “garri” is processed in Nigeria, but packaged in Ghana for acceptability. Under the new regime, exporters of such products can enjoy the cost of direct processing with the rules of origin.Similarly, the reviewed scheme equally renews focus on the ability of Africans to meet food safety standards in the U.S. and other industrial standards that have been identified for export products.
Specifically, sanitary and phytosanitary requirements for which many export goods originating from Nigeria have been rejected would be enforced and capacity of exporters built, to reduce the amount of rejection.Although the country still depends heavily on neighbouring countries for product-testing to get its commodities certifies for export market, the Standards Organisation of Nigeria (SON), is optimistic of improved action when its laboratories become operational.
President of Nigerian-American Chamber of Commerce (NACC), Chief Olabintan Famutimi, explained that the new board of the association will draw on the present tide of goodwill between the two nations to foster closer trade and investment relations among relevant stakeholders in both countries.He added that the goodwill will further provide improved access to opportunities for improved economic and social relations for America with Nigeria.
Famutimi said: “The extension of the AGOA which has proven a powerful tool for the promotion of export of goods from Africa into the USA should be Nigeria’s opportunity to take advantage of, given our enormous material and human resources. Unfortunately, we remain Africa’s least beneficiary of AGOA and the NACC has a key role to play in turning things around positively on AGOA.
“I will not only continue to push for the return of the AGOA desk in Nigeria to the NACC, but to ensure that our members and Nigerians generally take advantage of AGOA to promote their business”.Director-General of Nigerian Textile Manufacturers Association (NTMA), Hamma Kwajaffa, explained that non-oil export is not being encouraged as the influx of smuggled goods to major textile markets in Kantin Kwari in Kano, Balogun and Oshodi, Lagos, not only undermines the local textile industry, steal jobs, and deprive government of revenue, but serves as a drain on Nigeria’s foreign exchange reserves.
The NTMA noted that the prevailing unprecedented harsh environment has no doubt dealt a serious blow to the already fragile industry, adding that unless urgent steps are taken by the government to address key issues raised by the industry, the ray of hope that had arisen from the recent government initiatives may get extinguished.The NTMA urged government to address the huge backlog of unutilised EEG-NDDC (Negotiable duty credit certificates)- a sovereign instrument issued under the seal of the Federal government, adding that it had suggested the redemption of NDCC’s in lieu of Bank of Industry (BoI) loan instalment owed by the textile companies.
Speaking at a one-day workshop on the documentation and procedures of AGOA, NEPC’s South West Regional Coordinator, Babatunde Faleke, who decried the low patronage of the act said, Nigeria’s non-oil export potential has not been fully exploited.Faleke said: “I am surprised people don’t know about AGOA and its benefits. The beauty is easy to mainstream, AGOA gives duty-free, which is minimal for every non-oil exporters.
“We discovered that the main issue is documentation. At the Council, we do a lot of product development and packaging to make sure our non-oil exporters conform and produce in line with international best practice. We want to start doing well under AGOA.”
He noted that the Council has concluded plans to sign an agreement with American sea cargo, which would help non-oil exporters’ network with their counterparts and serve as an off taker of goods.In her remarks, Chief Executive Officer and Founder, Poise Capital Global, Comfort Sakoma, said Nigeria’s trading over the years has been oil and gas, it is imperative we focus on non-oil export. Nigeria as at now, has zero dollars in porous products like textile, foot wears, minerals and chemical related products with United States.
“The little issues with branding, packaging and process within organisations have a large impact on our capacity to function. For instance, Ethiopia has done great job organising their communities to rally against what their shrinks are. Ethiopia did $30 million on sales on footwears last year taking advantage of AGOA. The power of collaboration and strategic alliance,” she said.She reiterated that one of the primary issues aligned with exporters, is non-compliance to necessary documentation procedures.