Emerging Issues Disrupting Nigeria’s Non-Oil Export and Innovative Solutions

Introduction

Export trade is generally considered as a veritable instrument for sustainable economic growth. It normally facilitates improved foreign exchange earnings, strengthens the balance of payments, encourages the development of export-oriented industries in the manufacturing sector, increases the profitability of firms, creates jobs and increases government revenue through taxes, levies, and tariffs. All of which will cumulatively accelerate economic growth.

Historically, the economy of Nigeria was buoyant during the pre- and post-independence years because of huge earnings from non-oil export like cocoa, cotton, groundnut, palm oil etc. The economy was so strong that it financed an appreciable number of capital projects without borrowing and the export market of the country was reasonably developed.

However, the discovery of crude oil brought a shift that made the country to majorly depend on the Oil sector to the neglect of other sectors. 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

1.0 Introduction

The oil sector has become the most important in Nigeria. It is the major export of Nigeria and accounts for about 90 percent of the foreign exchange earnings of the country (AFDB Socio-economic Database, 2019).

Successive Government have made differing efforts at diversifying the revenue sources of the economy. This is because, diversification will translate to the development of other sectors, secure the economy from the impact of exhaustion of Oil, protect the economy from the backlashes of the usually volatile international oil market and guarantee steady Government revenue. 

The Current Issues Affecting Global Export Trade

Covid 19 Pademic

The Covid-19 pandemic has greatly affected the dynamics of world trade.

However, it was only the countries that were prepared that took advantage of the export business opportunities presented by the same pandemic.

Only those that had the capacity to produce vaccines, face mask and other drugs required in the treatment of the disease were able to reap the opportunities .

This chart shows the all-time low price of oil in the middle of the pandemic

This was due to supply being more than demand since the world was on lockdown

By the way, this is a also a foretaste of what may become of oil.

It is therefore a wake-up call to the need to take non-oil export more seriously.

Russian–Ukraine War

The war has also had great impact on world trade, yet it created another opportunity to fill the supply gap of different commodities in the world.

The lack of preparedness of some countries made it very difficult to be among the countries that are filling the gaps created.

The Performance of Nigerian Export

The highest export volume done by Nigerian businesses in recent times was $62.5 billion and that was just before Covid-19.

This declined principally due to the Covid-19 pandemic in the year 2020. There was a slight improvement post-Covid in 2021

In any case this volume low compared to what the country is capable of doing. South Africa is doing over $90billion.

From this NBS data, apart from aluminum alloy, urea and re-exports oil and gas, majority of Nigerian export in 2021 remained raw unprocessed products like crude oil, cocoa, and sesame seeds

According to the NBS, the top export of Nigeria in 2019 in the Agric sector was unprocessed raw commodities.

Total non-oil export of Nigeria in 2019 (the highest in recent times) is just about $9.13 billion

Nigeria has not done well in global export trade as it ranked 52nd among nations.

The country has also not done well domestically in terms of the share of non-oil and manufactured exports to total exports.

Non-Oil Export Challenges

Way Forward for Improved Non-oil Export 

The Problem Compounded

The fact that Nigeria is only able to take up less than 1% of the global market share of most products it exports is a sign that all is not well

Apart from the perennial macro-economic, infrastructure and policy environment challenges, there are emerging challenges that have compounded the situation and led to declining volume of the meagre exports from the country

Emerging Issues Disrupting Non-oil Exports

Repatriation sales price

One of the major emerging challenges of the export business sector is the control of the sales prices of repatriated export proceeds by the CBN. This has been a source of discouragement to exporters who sell their export proceeds at the controlled price on the Importer & Exporter FX Window

Readiness to Export

More than 1,000 businesses register with NEPC to export every year

But less than 800 are able to export each year

Also, most businesses are only able to export once or twice

This speaks to high level of dropout from export business.

This is mainly due to their lack of readiness for the export business. 

Risks on payment methods

There are now incidences of fake letters of credit being received via SWIFT by Nigerian banks and their export customers

There are also incidences of fake documentary collection transactions being received by Nigerian exporters and their banks

Relationship management

The fact that Nigerian exporters do not have presence abroad to manage relationships with their buyers is making them to lose business opportunities to their counterparts in Asia and other parts of the world

CBN rebate

The CBN RT200 FX programme is a good initiative designed to stimulate the growth of non-oil export in Nigeria

The programme has a pillar for the non-oil export Fx rebate scheme

However, the N65 to $1 offered by CBN is not covering the FX rate gap between the official and parallel market 

Replacement of Collateral

The emphasis on collateral by banks is a major hinderance to granting credit facilities to export business

Replacement of collateral is becoming highly imperative if the country is going to grow its export volume

Regulation in Export Market

Rejection of Nigerian products by market that buys the same products when it is shipped through other countries

This is because the regulators in those markets have an understanding on those products with regulators in the exporting countries

Proposed Solutions 

REPATRIATION SALES PRICE

The CBN needs to allow the forces of demand and supply to determine the FX prices on the I & E window. This will encourage more repatriation leading to improved supply in the FX market and consequently causing a decline in the FX prices in the I & E window

READINESS TO EXPORT

Intending and existing exporters need to do export readiness assessment test in order to know the area of readiness gap that they need to cover

This assessment is available FREE of charge via www.bit.ly/exportreadiness

RISKS ON PAYMENT METHODS

It has now become imperative for exporters to ask their banks to confirm SWIFT MT700 messages sent to them via SWIFT in letter of credit transactions before dispatching the shipping documents to banks abroad

Also the exporters need to talk to their banks to confirm the address of the importer’s bank in documentary collection transactions before dispatching the shipping documents to banks abroad

RELATIONSHIP MANAGEMENT

The NEPC needs to engage and put on retainer ship marketing consultants at destination were Nigerian exports are mostly sold.

These marketing consultants should be saddled with the responsibility of getting new buyers, managing existing buyers and giving timely feedback to exporters on the situation in the export market

REBATE OF CBN

Rather than giving money out to those that repatriate funds on the export of value-added non-oil export, CBN should use its good offices to support the current Export Expansion Grant (EEG).

If the CBN wants to retain the rebate, then it should consider increasing it to at least N100-N120. This is because the current gap in the FX rate is at least N150

REPLACEMENT OF COLLATERAL

The banks should embrace the use of trade finance instruments like guarantee instead of tangible collateral to secure export financing.

The NEXIM Bank should also speed up the implementation of export credit insurance for commercial risks

The NEPC should spare head the advocacy for NEXIM Bank & CBN to de-risk export financing just the way NIRSAL is doing in the Agricultural sector.

REGULATION IN EXPORT MARKET

The Nigerian regulatory agencies, particularly NAFDAC and SON, need to venture beyond local regulations

There is need for them to have a firm handshake and harmonize regulatory requirements with counterparts abroad

This is to enable them accept our goods based on NAFDAC and SON certification.

CONCLUSION

It is imperative for Nigeria to address the perennial challenges confronting businesses in Nigeria. The manufacturing sector is particularly hit and deliberate action must be urgently taken to boost its competitiveness.

There is the need to review and re-energize the vision of NEPC (Export For Survival) & CBN (RT200 FX Programme) in the light of the forgoing presentation.

If the way forward and proposed solutions offered above are favourably considered, it will:

Encourage the exporter

Empower the exporter

Expand their market

Enhance the inflow of non-oil export proceeds into the country.

Ameliorate the disruption of Nigerian non-oil export potentials.