Funding Non-oil Export for Economic Growth
As the economy bounces away from the precipice, the federal government must now redouble efforts to boost non-oil exports, which remain critical to achieving macroeconomic stability, writes James Emejo
The country’s low export capacity has been identified as one of the major problems bedeviling the Nigerian economy in recent times. This argument finds expression in the fact that domestic output had been low over the years while the country doesn’t even produce enough to export. Often times, the agricultural commodities, which are eventually exported overseas, got rejected for failing quality standards. And importantly too, the inability to add value to agricultural produce had further hampered export prospects.
The COVID-19 pandemic, which ravaged world economies had further dampened the country’s export prospects in recent times as well as posed new challenges particularly to small-scale businesses in the sector.
As the government pursues its economic diversification agenda, and as the future of the oil economy looked bleak, stakeholders have over time, appealed to the government to refocus attention to the non-oil export sector which holds enormous potentials to boost the economy in terms of foreign exchange generation and job creation – some of the key challenges facing the present government.
Analysts believed that the weak value of the Naira against the US dollar and other major currencies could only be addressed if the Nigerian non-oil export sector is strengthened and supported.
Also, amidst the challenges posed by the pandemic, stakeholders had called on the country major non-oil export finance agency – the Nigerian Export-Import Bank (NEXIM) to float a special fund to boost the sector.
According to the Foreign Trade in Goods Statistics (Q3 2021) which was published by the National Bureau of Statistics (NBS), Nigeria’s total external merchandise trade recorded a N3.02 trillion deficit in the third quarter of the year (Q3 2021) as imports significantly outweighed exports, leading to unfavourable trade balance.
Total foreign trade stood at N13.28 trillion, indicating an increase of 10.43 per cent compared to N12.03 trillion in Q2 as imports value stood at N8. 15 trillion in Q3, an increase of 17.32 per cent compared to N6.95 trillion in the preceding quarter. On the other hand, total exports stood at N5.13 trillion in Q3, representing an increase of about 1 per cent compared to N5.08 trillion in Q2.
However, the top five traded export products during the review period included petroleum oil and oils obtained from bituminious minerals and crude all valued at N4.02 trillion or 78.48 per cent of total export.
Others are natural and liquefied gas which accounted for N487.49 billion or 9.50 per cent of export; floating or submersible drilling or production platforms valued at N163.70 billion or 23.19 per cent of export; urea, whether or not in aqueous solution valued at N107.17 billion or 2.09 per cent and other petroleum gases etc in gaseous state valued at N40.47 billion or 0.79 per cent of total export.
Similarly, the country’s top traded import products included motor spirit ordinary which gulped N1.05 trillion or 12.91 per cent of imports; durum wheat (not in seeds) N315.17 billion or 3.87 per cent; gas oil N225.63 billion or 2.77 per cent; used vehicles, with diesel or semi-diesel engine of cylinder capacity less than 2500cc, N185.41 billion or 2.27 per cent and cane sugar meant for sugar refinery valued at N135.37 billion or 1.66 per cent of imports.
According to the breakdown of export trade, crude oil accounted for N4.02 trillion while the non-crude oil was N1.10 trillion out of which non-oil exports component was just about N546.27 billion.
The total value of trade in agricultural goods in Q3 stood at N868.5 billion, the export component amounting to N79.4 billion and agricultural goods imports gulped N789.1 billion. Agricultural goods exports value was 5.9 per cent lower than Q2 but 31 per cent higher than Q3 2020, the NBS added.
On the other hand, the value of imported agricultural goods was 21.01 per cent higher than the value recorded in Q2 and 56.74 per cent higher than Q3 2020.
Notably, agricultural goods exports were driven by good fermented Nigerian cocoa beans worth N27.2 billion, of which N9.7 billion, N6.18 billion and N5.7 billion were exported to Indonesia, Malaysia, and the Netherlands respectively. The total value of trade in manufactured goods stood at N5.19 trillion in Q3 with the export component valued at N295.03billion while the import component valued at N4.90 trillion. The solid minerals trade accounted for N72.4 billion, the export component valued at N18.3 billion and import at N54.1 billion.
The marked improvement in the country’s non-oil exports could however, be attributed largely to the federal government’s intense drive through the NEXIM Bank in recent times to stimulate the sector and boost economic growth through its several initiatives targeting agriculture and solid minerals and other priority sectors with employment generating potentials.
This is evidenced by the 5.44 per cent real terms growth of the non-oil sector GDP in third quarter of 2021, higher than the previous quarters.
Federal government’s intervention
Non-oil export finance took a new dimension when upon assumption of office of the current Executive Management of NEXIM Bank led by the Managing Director/Chief Executive, Mr. Abba Bello in 2017, when he developed a new Strategic Plan (2018 – 2022) to enhance its operational performance, achieving the bank’s mandate and contribute towards meeting the objectives of the federal government under the Economic Recovery and Growth Plan (ERGP).
Now in its over four-year implementation, the plan has no doubt contributed to the significant turnaround of the operational performance of the bank as well as enhanced the sector.
The declining trend in operational performance of the bank has since been reversed, with improvement in key financial indices including growth of its balance sheet from N67.73 billion in April 2017 to N158.84 billion as at January 31, 2021.
With continued positive performance, increased strategic partnerships for lines of credit and the push for recapitalization of the bank, the target is to achieve a balance sheet size of at least N1.2 trillion in 2022.
Managing Intervention Fund
Following effective stakeholder engagements and the high level of confidence in the current management, the Central Bank of Nigeria (CBN) had released N50 billion to NEXIM in February 2018 to implement the Export Development Programme to further strengthen the sector to contribute to government’s economic diversification drive. The fund was further increased to N100 billion in December 2020 following effective utilisation. The development finance institution is also collaborating with the apex bank to manage the N500 billion -Non-Oil Export Stimulation Facility, which had been introduced to provide long term funds to export oriented projects towards increasing value added exports.
The bank’s activities of the under the Export Development Fund (EDF) has led to processing of 227 applications worth N159.27 billion and US$37.67 million, out of which N98.87 billion has been approved.
Also, the sum of N68.01 billion has been disbursed to 68 beneficiaries, while approvals totaling N30.86 billion are currently in the process of meeting pre-disbursement conditions.
Bello said so far, $182.31million and €203,018.42, translating into N70.40billion, had been received as export proceeds from projects that have repatriated their income, while others are yet to complete the transaction circle.
According to him, many of the institutions supported through the intervention now feature on the list of top 100 exporters published annually by the CBN.
The bank has also sustained efforts to clean up the balance sheet and ensure improvement in risk management practices with new loans granted from 2018 performing 100 per cent, which is a major departure from the huge non-performing loans in the past.
In furtherance of the federal government’s objectives of creating jobs, reducing unemployment and promoting financial inclusion, the bank had launched special intervention programmes and enhanced its operating structure to among other things establish the Women and Youth Export Development Facility to provide credit assistance to industries dominated by women/youth or women owned businesses towards achieving the objectives of sustainable development goals.
It also launched the Anchor Export Programme designed to provide market access to small players and increase intervention in all aspects of the export value chain as well as the SME Desk/ Small & Medium Enterprises Export Facility (SMEEF), created to support SME exporters under more favorable terms and conditions.
Intra-Africa Trade Initiatives
Determined to boost its trade facilitation role and enhancing country’s readiness under the African Continental Free Trade Agreement (AfCFTA), the NEXIM Bank is currently spearheading the Sealink Project which is aimed at fostering regional trade connectivity and facilitating inland waterways operations to support hinterland trade and bulk commodities exports, especially of solid minerals. Efforts are also being intensified with NIWA, Nigerian Navy and other private sector partners to ensure commencement of operations within Q1, 2022.
It further launched the Inter-State Road Transit Scheme, which was designed to facilitate the transportation of goods by road across Customs territories free of duties, taxes, and restrictions while in transit in line with ECOWAS protocol. NEXIM is the National Guarantor under the scheme whose role is to issue insurance bond to mitigate the risk of diversion. Additionally, factoring services are being promoted to engender financial inclusion and provide alternative trade financing support for MSMEs.
Impact of interventions
As Nigeria’s Export Development Bank, NEXIM serves to develop key exportable commodities, unlock opportunities and derisk key non-oil export sector to facilitate investments and increase the flow of credits, towards achieving the diversification objectives of the federal government. Over the last four years, the bank has operated under the philosophy of Produce, Add Value and Export (PAVE) to change the current narrative of the dominance of primary products in our export basket. Hence, in addition to supporting start up projects, a lot of emphasis was also placed on providing working capital to resuscitate many industrial projects, which have hitherto become moribund or operated below capacity towards boosting our value-added exports and enhancing jobs creations.
The Projects cuts across the key sectors of manufacturing, agriculture, solid minerals and services.
Its intervention in the Hides and Skin industry is notable as the bank seeks to harness opportunities in the global leather industry and is working with the leather cluster in Kano, having funded about three companies and assisted them to acquire new machines and retool their operations towards becoming major players in the global value chain.
The Shea Industry has also received due attention whereby the bank is currently supporting various projects in Lagos, Ogun & Niger States. NEXIM’s intervention and support for the acquisition of Shea Processing Plants led to the first major export of Shea butter from Nigeria in March, 2018. Prior to NEXIM’s intervention, Nigeria had no significant footprint in the export of shea products due to low processing capacity and high incidents of smuggling/informal trade. This is in spite of Nigeria’s ranking as the world’s largest producer of shea, with annual production of 364,000 metric tons, accounting for 45 per cent of global output.
Bello also said that NEXIM’s intervention is also targeted at revitalizing existing processing plans towards increased value addition and ensuing that Nigeria benefits from global Cocoa Value Chain estimated at about $130 billion .
In solid minerals, he pointed out that the country has over 34 solid minerals in commercial quantities, which were largely unexploited adding that the bank’s intervention is in the area of providing machinery/equipment and working capital to support mining and processing of solid minerals for export. He added that the bank has provided funding support to enhance the operations of logistics companies towards boosting regional trade, particularly within the context of the African Continental Free Trade Agreement.
In the pharmaceutical industry, the bank, against the background of the COVID-19 pandemic and the opportunities in the regional market, is supporting major pharmaceutical companies with Equipment and Working Capital Finance towards retooling and upgrading their operations to WHO standard towards the production and export of pharmaceutical products
To mitigate the adverse impact the pandemic on the export sector and position Nigerian exporters to increasingly benefit from the opportunities provided by AfCFTA, as well as the increasing focus of Russia and EU on Africa, the MD said the bank will in the next two years will continue to implement its key intervention programmes in export market diversification programme, value-added agricultural exports support, services export promotion / funding support and mining sector funding intervention among others.