Non-oil exports can transform the structure of the Nigerian economy, support its diversification and help address its perennial forex challenges, writes Obinna Chima
Nigeria’s third quarter 2022 Gross Domestic Product (GDP) figures which showed that the non-oil sector dominated economic performance by contributing 94.34 per cent to the nation’s GDP, while the oil sector contributed 5.66 per cent in the preceding quarter is something to cheer about as it underscored the increasing importance of the non-oil sector.
The development showed that the federal government’s drive for economic diversification from the oil to the non-oil sectors, given the volatile nature of crude oil prices is yielding the desired results.
Nigeria’s oil sector, which is its major source of revenue has been faced with a myriad of challenges in recent times. Crude oil theft, which is its major challenge, had hindered oil production in some terminals and affected the Nigerian National Petroleum Company Limited’s (NNPCL) ability to remit forex to the federation account. To show how bad it was, official forex receipt from crude oil sales into the country’s external reserves had dried up steadily from above $3 billion monthly in 2014, to an absolute zero dollars presently. Nevertheless, the country’s daily oil production output has increased recently as Shell Petroleum Development Company Limited (SPDC) resumed crude oil exports at the Forcados Oil Terminal. Owing to this, there was renewed hope as the country’s oil production recently rose above the one million mark for the first time since July 2022, the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) had disclosed in its latest crude oil and condensate production data for October 2022.
In order to avoid such disruptions and diversify the economy by promoting activities in the non-oil sector, in 2020, the federal government rolled out a N50 billion Export Expansion Facility Programme (EEFP) under the N2.3 trillion National Economic Sustainability Plan. The programme was designed to increase Nigeria’s export capacity in the near term and export volumes in the medium term by supporting exporters, especially micro, small and medium entrepreneurs (MSMEs).
The EEFP targets 16 programmes in five areas, including capacity building, financing, market development, infrastructure, and institutional strengthening.
The Central Bank of Nigeria (CBN) has played a significant role in boosting financing options for non-oil export value chains through several ongoing initiatives. Its N500 billion Non-oil Export Stimulation Facility is designed to enhance access of exporters to concessionary finance and attract new investments in value-added non-oil exports production, while the N300 billion Real Sector Support Facility (Differentiated Cash Reserve Requirement Facility) seeks to increase the flow of credit to the real sector of the economy. The apex bank’s sector- and segment-specific programmes include Commercial Agricultural Credit Scheme (CACS), Creative Industry Financing Initiative (CIFI), CBN/BoI SME/Manufacturing Intervention Fund, and Micro Small and Medium Enterprises Development Fund (MSMEDF).
This year, the CBN launched its race to $200 billion in foreign exchange repatriation (RT200 FX) initiative to raise $200 billion in foreign exchange earnings from non-oil export over the next three to five years. The programme arises from the need to diversify Nigeria’s export earnings from oil while addressing declining foreign exchange earnings.
The initiative is anchored on five pillars, including a value-adding exports facility, a non-oil commodities expansion facility, a non-oil FX rebate scheme, a dedicated non-oil export terminal and a biannual non-oil export summit. This implies that the CBN will incentivise the private sector in the non-oil value chains using a range of tools available under the five pillars.
So far, the Central Bank of Nigeria’s (CBN) RT200 (Race to $200 billion forex inflows) has recorded $4.987 billion forex inflows this year.
CBN Governor, Mr. Godwin Emefiele, who disclosed the feat achieved by its RT200 initiative in Lagos, last week, at the second RT200 Bi-annual Non-oil Export Summit, with the theme: ‘RT200 Non-Oil Export Program: The Journey So Far,” noted that the amount recorded so far this year, was an increase from the $3.190 billion recorded in 2021.
According to Emefiele, a total of N81 billion has so far be given out as incentives to exporters of non-oil products under the programme this year.
He also said the CBN was working to improve forex supply for businesses in the country.
“In 2022, a total of $4.987 billion have been repatriated into the country by non-oil exporters, higher than $3.190 billion repatriated in 2021. Of this amount only $1.966 billion qualified for the rebate program, but only $1.559 billion was sold at the I & E window or for own use.
“The CBN has also paid out about N81 billion in rebate to hard-working Nigerian exporters. This is a testament to the resolve of the CBN to ensure quick acceleration of the export value chain in the country. I know that there have been calls to make all exporters eligible for the rebate, and not just limiting it to finished and semi-finished products.
“While we see some justification for this, one of the goals of the RT200 program is to help quicken the process of industrialisation and encourage exporters to earn more from their export business. Economists have well-documented positive relationship between export and industrialisation,” Emefiele said.
He further explained: “Export can transform the economic structure of countries, from simple, slow-growing, and low-value activities to more productive activities that enjoy greater margins driven by technology.
“We must help our exporters and our economy by adding value to what we produce and export. We are already getting feedback from banks on the interest by exporters to add value to the products they export in order to allow them to benefit from the program.
“We are happy that this is happening, and we encourage more exporters to find ways to add value to their export products so that they can benefit not only from the scheme but get better value for their exports.”
Emefiele pointed out that one of the goals of the RT200 program was to help quicken the process of industrialisation and encourage exporters to earn more from their export business.
He noted that economists have well documented a positive relationship between export and industrialisation, saying export could transform the economic structure of countries, from simple, slow-growing, and low-value activities to more productive activities that enjoy greater margins driven by technology.
He stressed the need for support to exporters and, “our economy by adding value to what we produce and export.”
Emefiele thank all the banks, the Nigeria Customs Services, the Nigeria Export Promotion Council, Nigerian Ports Authority and hardworking Nigeria exporters for flying the Nigerian flag everywhere and for making the program a success.
To the Minister of Trade and Investment, Niyi Adebayo, Nigeria needs to support non-oil exports to boost the economy in the light of present economic realities.
He, however, underscored the need for Nigeria to move beyond oil and export of raw commodities and build a vibrant manufacturing sector capable of exporting finished goods that could boost the nation’s foreign exchange earnings.
He said, “As a nation, this is the time to build a competitive manufacturing sector to see us through the next 50 years, especially in the light of the African Continental Free Trade Area – one of the most important and strategic international economic agreements ever enacted.”
For the Chief Executive Officer of Zenith Bank Plc, Mr. Ebenezer Onyeagwu, expanding the country’s non-oil export has remained a matter of strategic economic importance requiring continual intervention.
He pointed out that the impact of the pandemic on oil demand and, by extension, the price of crude oil in the international commodities market further exposed Nigeria’s over-dependency on crude oil earnings and its susceptibility to oil-related vagaries.
“The expectation is that export diversification programmes and initiatives will intensify as Nigeria continues to re-orient its export profile and boost foreign currency earnings. Reinvigorating the Nigerian economy calls for measures to reduce the country’s dependence on oil exports.
“It requires expanding the array of the country’s value-added products that are exported to foreign markets. When combined with the promise of the African Continental Free Trade Area (AfCFTA), more non-oil exports translate into enterprise and industry level competitiveness with positive implications for job creation and technological development while enabling the country to earn and save much-needed foreign currency,” Onyeagwu explained.
On his part, the Managing Director of the Nigerian Export-Import Bank (NEXIM), Abba Bello, stressed the need to pay greater attention to the non-oil sector.
According to him, non-oil exports have the potential to drive the needed inclusive growth, hence the need to double efforts to grow the boost activities in the areas.
Bello, however, noted that the Nigerian economy was well diversified. What remained undiversified, he argued, was the external sector. He regretted that the country’s foreign exchange earnings still revolved on crude, which posed a concentration risk.
“About 90 per cent of our foreign earnings still come from oil. Non-oil used to contribute about five per cent. But the recent emphasis on non-oil in recent years has helped to raise its contribution. But what we have is still very poor,” he regretted.
According to Bello, the non-oil export growth agenda is constrained by issues ranging from production, quality standards to packaging challenges. He said Nigeria was losing so much to poor packaging, which should improve if the country must earn more from non-oil exports.
Clearly, one of the factors that would guarantee Nigeria’s economic survival would be its ability to boost non-oil exports. The current forex challenges confronting the country is can actually be addressed by strengthening non-oil exports and that why the central bank’s RT200 initiative among other activities aimed at stimulating non-oil activities should be embraced and supported.
