‘To grow Nigeria’s non-oil export, policy makers must walk the talk’
Ade Adefeko is the Chairman, Agricultural Trade Group of the Nigerian Association Of Chamber Of Commerce Industry Mines And Agriculture (NACCIMA). In this interview with DANIEL ANAZIA, he looks at the impact of the COVID-19 on the Nigeria’s economy, while highlighting the impact of policies on the non-oil export sector, and drums up support for value addition to agro-allied products with a call for policy makers to act.
How would you assess the impact of COVID-19 on the Nigeria’s economy?
The COVID-19 pandemic is having a devastating effect on global economy and Nigeria is not exempted. The economy is just emerging from the impact of three months of total inactivity. With the situation, the International Monetary Fund (IMF) has projected that Nigeria’s economy, which had barely recovered from a slowdown since 2016, would contract by 3.4 per cent in 2020. To the skeptics, this may even be an optimistic prediction in view of the prevailing global crisis.
According to Nigerian Bureau of Statistics (NBS), Nigeria’s Gross Domestic Product (GDP) in the first quarter of the year (Q1 2020) sank by -14.27 percent against 5.59 per cent growth in the fourth quarter (Q4) of 2019. Although the pandemic had caused a global economic lockdown, the situation in Nigeria seems to be peculiar due to over-dependence on crude oil exports. The devastating effect of COVID-19 on the economies of India, Nigeria’s number one buyer of crude oil by far, the European Union (EU) and North America, will have a lasting impact on the country’s export earnings in 2020.
Since oil is no longer having a good market value, what in your opinion are the avenues for diversification of the country’s economy?
Although the current administration has stepped up diversification of the country’s economy, it needs to be emphasised that it is the only way out. Agriculture and manufacturing sectors are the two pillars of non-oil economy, both contributing about 22 per cent and 13 per cent to Gross Domestic Product (GDP). The constraints facing these two sectors need to be removed to unlock their potentials.
In particular, non-oil exports accounted for only about six per cent of exports in 2018. We need to exploit the potential of non-oil exports consisting of mainly semi-processed and processed agro-allied products. In recent years, Nigeria had started exporting to many non-traditional markets such as Vietnam, Brazil, China, India and Japan. Sesame has been a success story where Nigeria recorded spectacular growth. Alas, Nigeria non-oil exporters face a lot of constraints.
What are the major constraints facing the non-oil export sector?
The challenges facing the non-oil exporters can be categorised into general and specific. The former consists of infrastructural constraints and high cost of doing business, which affect all sectors in Nigeria and are well known. Ultimately, these translate into high cost of production and make our products uncompetitive. I wish to, however, dwell on four specific bottlenecks facing the non-oil sector.
First, Logistics: The World Bank Doing Business Survey 2020 placed Nigeria at 131 among 190 countries, with a score of 56.9 with Kenya having marched ahead to 56th place with a score of 73.2. A particular disadvantage faced by Nigeria is the high cost of trading across borders – a parameter on which Nigeria was ranked 182 among 190 countries. The cost of import of a container at Nigerian ports was estimated at US$ 1640, whereas for exports it was estimated at US$ 645. The comparative costs at Ghanaian ports were 60 per cent and 40 per cent lower, and the turn round time at their ports faster.
Incentives: Most developing countries support their export-oriented industries with fiscal and other incentives. China, which is the world’s largest exporter with merchandise exports in 2018 at US$ 2.5 trillion gives an export tax rebate of up to 17 per cent to neutralise the incidence of indirect taxes and levies on its exports. India, likewise, with merchandise exports of US$ 326 billion offers a package of incentives, especially to its labour intensive industries such as textiles and garments as well as leather and footwear.
In Nigeria, incentives are needed to cushion the effect of infrastructural and other cost-disadvantages. The challenge we are facing currently in the non-oil exports sector is the non-implementation of the laid down policies by government agencies. Let’s assess the Export Expansion Grant (EEG) policy that was introduced as an Act in 1986 and for which revised policy guidelines were issued in 2017.
Promissory Notes: The present administration expressed commitment to honour the debts owed to various sectors and announced the Promissory Notes programme to redeem the backlog of EEG claims for the period 2016-17. The Presidential Initiative on Continuous Audit (PICA) under the aegis of the Federal Ministry of Finance, verified outstanding claims amounting to about N350 billion and factory visits were made in May 2018. Of this claims, the National Assembly ratified N195 billion. As per procedure, the ratified claims were subjected to another audit by KPMG and a partial amount was disbursed through a ‘reverse auction’ system executed by the Debt Management Office (DMO) in 2019. However, the remaining promissory notes are still awaiting disbursement 18 months after NASS approval and a lengthy due process. Justice delayed is justice denied, goes the old saying. In China, it takes one week to redeem the exporters’ export tax rebate.
EEG Budget: The new policy calls for an allocation to be made each year in the Appropriation Bill to provide for EEG. This has not been implemented effectively. First, the amount budgeted is grossly inadequate to cover total exports, and secondly, whatever was budgeted was never disbursed. In fact, the meagre budget of N200 million for 2020 came as a rude shock and makes a complete mockery of the policy. The table below illustrates the problem the exporters face.
Market Access: Nigerian exporters face a tariff disadvantage up to 10 per cent in the EU market, as most favored nation (MFN) duties are applied, whereas our competitors such as Ghana, Cote d’Ivoire and Kenya enjoy duty free access as they have signed an Economic Partnership Agreement (EPA) with the EU. This makes our products such as cocoa, leather and textile fibers and yam uncompetitive.
Sectoral Impact: My biggest concern is that our policy makers do not appreciate the economic impact of the non-oil export sector. I am sure, if the impact on millions of rural livelihoods, value addition, forex earnings and diversification is well understood, the sector will get the deserved attention.
What are the impacts of incentives on non-oil exports?
Well, this is important to understand. I wish to dwell on three big impact areas: Growth of exports: The EEG scheme, which NACCIMA is a key stakeholder under the EEG Inter-ministerial committee, was introduced in 1986. However, its real impact was felt only in the last decade when, as per CBN records, non-oil exports amounted to 3.1 billion USD in 2011. In the following years, the decline started due to erratic policy implementation. However, since the announcement of new policy guidelines by Nigerian Export Promotion Council (NEPC) in 2017, exports picked up again. According to CBN data, non-oil exports doubled from N675 million in 2016 to N1.367billion in 2018.
Employment generation and boost to rural income: The non-oil export value chains in Nigeria employ over 10 million people, most of them in rural areas. The sector also fosters gender equality as a lot of women are employed in the harvesting and processing of exportable agricultural produce. Sesame is a shining example. Thanks to the EEG policy, the output quadrupled from 137,000 MT to 399,000 MT between 2007-18 according to CBN data, as 22 per cent of our GDP comes from agriculture, putting more money in the hands of farmers creates a trickle-down effect.
Transparency: The current government must be commended for its commitment to due process and transparency in policy. The EEG scheme has helped to formalize the export channels as goods undergo pre-shipment inspection by agencies appointed by the government. Moreover, the forex proceeds are repatriated through banks and verified by CBN. Everything is documented and even the names of Top 100 exporters are published in the CBN’s annual report. This is a case study for industry best practices.
What kind of stimulus would spur the Nigerian economy, particularly the non-oil sector?
It is imperative for the government to intervene and save the economy from a total collapse caused by this pandemic. Governments all over the world have come up with relief packages to balance the lives and livelihoods. However, it does not have to be grandiose plans; simple, practical things can help. Look at China’s example, their Trade Ministry reduced the processing time of export tax rebate from 10 days to one week to ease the working capital funding. No wonder China is the No.1 exporter in the world.
Let me reiterate, the non-oil sector has been adversely affected by the prevailing situation, however, we are not pleading for any handouts. We only request for sincere implementation of existing support measures and payment of our long outstanding dues and we can respond by increasing non-oil exports to 10 per cent of Nigeria’s total exports in the next three years.
Can you list key recommendations where you want the policy makers’ intervention?
Indeed, let me clarify that we are not asking for anything new or unreasonable. In fact, our wish list is straightforward. Our plea to the government via the Trade and Finance ministries is to sincerely implement extant policies and make good their commitments. This means issuance of the outstanding promissory notes, disbursement of export credit certificates for approved budget till 2020 and, provision of adequate budget and finally, half-yearly meetings of the inter-ministerial committee on EEG to assess impact. In one word, we are only asking our policy makers to walk the talk and be accountable.
What does AfCFTA mean for Nigeria?
I believe in liberalisation but also in compliance with rules. African Continental Free Trade Area (AfCFTA) can be a great opportunity for Nigeria to access the regional and continental market of 1.2 billion people. But this will be a function of our competitiveness. Therefore, opportunity and risk are two sides of the same coin.