Unilever named most successful brand among FT500

Non-oil exports critical in diversifying the economy

Over the years, Nigeria’s major revenue earning has been from crude oil. However, following global economic uncertainties and instability in crude oil prices in the international market, experts have tasked government to diversify the economy through non-oil exports, writes ALEXANDER CHIEJINA.

Over the years, crude oil has continued to remain the nation’s major revenue earnings, raking in billions of dollars annually. Due to the instability in crude oil prices in the international market and growing uncertainty as regards how long this monolithic product will remain the major revenue earner for government, the issue of diversifying the economy has continued to generate heated debates among Nigerians from all walks of life, including economic and financial experts.

Going down memory lane, Nigeria was a major exporter of coal and tin in the 1950s. Even up to the 1970s, the country was also a major exporter of agricultural products like palm oil and groundnut. Little wonder Nigerians believe that if the country had continued on its economic path before the oil boom, the race to win the future through innovation and a diversified economy would have been a lot easier.

From time to time, various policies have been reeled out by the Federal Government, which have had several impacts on the fortune of non-oil products and the sub-sector in terms of how they have fared at the international market and their productive process.

While government policies were aimed at encouraging diversification of the economy, none of the policies seem to have been as effective as the Export Expansion Grant scheme, which operates under the legal context provided under the Export (Incentives and Miscellaneous Provisions) Act 1986.

The EEG policy, which underwent a clinical reform in 2006, was streamlined to make it more effective by categorising export products according to their degree of value addition, process and reward companies which generated higher export growth and new investment in export capacity building.

Interestingly, export incentive claims were subjected to 100 percent pre-shipment inspection, factory inspection and audit of all transactions to ensure transparency and prevent abuse. As a result of the policy which encouraged value addition, exporting companies embarked on forward integration and made heavy investment in plant and machinery to add value to indigenous commodities.

While diversifying the nation’s revenue has been seen as a step in the right direction, economic experts have canvassed for growth of the non-oil sector with corresponding significant reforms of infrastructure and regulatory systems.

Giving an insight into the benefit of the non-oil sector on the economy, Gbadebo Odudaru, in his book, titled “Nigeria-U.S. Trade Relations in the Non-Oil Sector”, said the country had received respectable earnings from non-oil sector, a fact, made manifest in the rising Gross Domestic Product (GDP) growth.

“The growth was driven by major agriculture activities in the non-oil sector such as yam, Irish and sweet potatoes, groundnuts and maize, which was estimated at 9.47 percent.”

Echoing the sentiments of Odudaru, Eric Eboh, Executive Director, African Institute for Applied Economics (AIAE), pointed out that Nigeria needs to strengthen its non-oil export growth.

While noting that the economic and social damage resulting from the global financial crisis clearly influenced trade flows, reducing world-wide export growth by over two-thirds between 2007 and 2009, Eboh pointed out that the current economic circumstance, structural changes, and slackness in the growth of domestic market competitiveness, underpin the importance of fostering trade and export promotion.

According to Eboh “It is important if the nation is determined to make trade play a key role in taking advantage of the global economic slowdown and fostering growth. It is undeniable that its trade policy must focus on non-oil exports as the driver for attaining the national Vision 20:2020, and achieving its regional leadership position. Export trade affects every nation; it also threatens the very economic survival of those who cannot or will not face the challenge of embracing diversity.

“Nigeria has obviously utilised very little of its economic potential, especially in terms of relative access to skills, capital and technology, fertile land, mineral resources and favourable geographical location. The country now enjoys a growing confidence among both domestic and international investors, and attracting the attention of foreign investors, who at a time, seemed to have taken flight following the global financial crisis,” Eboh stated.

Lending his view, Olufemi Boyede, CEO, Koinonia Ventures Limited, Lagos pointed out that it is important for government to create conditions for competitiveness and dynamic comparative advantages by improving firm-specific factors and microeconomic conditions within the country in such a way that they stimulate exports.

“Active export promotion depends on availability, dissemination and access to information so that firms are motivated to get involved in exporting non-oil products. The country has spent too much time trying to up-turn the export Incentives schemes under the understanding that Nigerian exporters do not deserve any support from government as export is a lucrative business. We must move away from this self-delusion if we have any desire at all to start the journey to 20:2020,” Boyede stated.

According to industry experts, direct employment in the non-oil export companies is estimated at about 200,000 while indirect employment in the agriculture sector which gains from the market linkages provided by the exporting companies is estimated over ten million.

For Tolu Faseru, President, National Cashew Association of Nigeria, “A large cashew processing plant in Kwara State directly employs 1500 people, mostly rural women. The cashew kernels are processed and packed, direct for shipment to developed countries, such as United States of America and Europe.”

It will be recalled that the country banned the export of wet blue (leather in semi-finished stage) almost a decade ago which led to huge investment in tanneries to export finished leather and recently, articles of leather.

While efforts are required to promote and advertise the nation’s products and services in foreign markets, industry operators are of the view that this can be actualised through the use of targeted trade delegations and participation in fairs and exhibitions.

Government policies and incentives

 Dr. Olusegun Aganga, Minister of Trade and Investment

The Federal Government in its determination to drive growth in the non-oil sector enacted certain policy frameworks such as the Export Expansion Grant (EEG) scheme. The policy, which is a fiscal policy instrument, is implemented under the guidelines issued by the Federal Ministry of Finance and enforced by the Nigerian Export Promotion Council (NEPC).

However, the apex agency (NEPC) is responsible for the administration of the policy in conjunction with other key implementation agencies such as the Central Bank of Nigeria (CBN) and Nigeria Customs.

Lending his view, Chukwu Nwachukwu, National President, Nigerian Association of Small Scale Industrialists (NASSI) said the establishment of the EEG had helped in boosting the growth and development of the nation’s non-oil sector, adding that the private sector would work closely with the Ministry of Trade and Investment to make the implementation of the EEG Scheme fruitful.

Stakeholders in the sub sector believe that the export grant has assisted exporters to cushion the impact of infrastructural disadvantages faced by Nigerian exporters in order to make the nation’s exports competitive in the international market. The fund is only available to exporters who have repatriated in full the proceeds from their export transactions, which must be certified by the CBN as eligible.

Besides the EEG, the Export Adjustment Scheme (EAS), Export Processing Zone, the Nigeria Import Export Bank (NEXIM), among other instruments are in place to ensure a hitch-free export trade.

Considering what the EEG policy has brought to bear in the market diversification, Orji Ugorji, a renowned export expert in commodity exports pointed that persistent efforts of Nigerian exporting companies have led to the acceptance of their products in some of the highly quality conscious customers and markets.

“Nigerian exports seem to have achieved a breakthrough. Today, Nigerian products such as cocoa beans and butter, dried-split ginger, leather, woven sacks and technically specified rubber are being exported to the United States of America. Hibiscus flowers are also being exported to United States,” Ugorji said.

Meanwhile, the government embarked on awareness-raising and export training programmes to aid active and potential non-oil exporters understand foreign markets and enhance the export culture, which is generally not part of business daily life.

Though market access and access to export funding are critical, of more importance is the export-readiness of Nigerian firms which can only be achieved by introducing the right incentives. The introduction of the Presidential Export Awards at the maiden edition of the Nigerian non-oil export conference, exhibition and awards held in Abuja last year introduced a new sense of healthy competition among Nigerian exporters.

Based on recommendations aimed at moving the country’s non-oil sector to the next level, government was enjoined to decisively address the infrastructural deficiencies that challenged the nation’s growth, continually negotiate bilateral, regional and multilateral agreements in relation to the country’s export trade, intensify public/private sector partnership (PPP) to ensure the realization of national economic and industrial growth, explore more creative ways of attracting funding to the non-oil export sector, develop and implement a new Nigerian Non-oil Export Development Strategy to ensure consistency, etc.

While export incentives is believed to play a critical role as a trade policy instrument and as basis for export promotion schemes that include accessible and affordable export credit, functional export processing zones, and other schemes involving non-collection of government revenues that would otherwise be due, such as special deductions is derived from export activities.

Earnings from non-oil exports

David Adulugba, Executive Director/Chief Executive Officer, NEPC 

The Nigerian Export Promotion Council (NEPC) revealed that the country exported 1.186 million metric tonnes of non-oil products valued at $2.765billion (N428.57billion) in 2011. The non-oil export figure, David Adulugba, Executive Director/Chief Executive Officer, NEPC, disclosed represents an increase of 19.15 percent over the $2.32billion (N359.6billion) recorded in 2010, and 61.97 percent over that of 2009.

Adulugba, who gave the statistics recently pointed out that the 2011 figure was a far cry from the expected revenue due to the high incidence of unrecorded exports. The executive director noted that high incidence of unrecorded exports had been a major challenge to accurate reporting of the performance of the non-oil sector in the country.

To address the challenge, Adulugba revealed that the Federal Ministry of Trade and Investment is making moves to establish border markets at some strategic locations. The NEPC boss expressed optimism that with an average annual growth of 20 percent in the last five years, non-oil export would hit $3billion (N465billion) by the end of 2012 and well over $4billion (N620billion) by 2015.

He said, “A handful of challenges inhibiting optimal performance of the sector include inadequate funding, 

restricted access to credit facilities, infrastructural deficiency, weak logistics to support supply chain, dominance of primary commodities and low productive capacity.

“Notwithstanding the challenges, Nigeria’s export is not only growing, the markets and products are diversifying. Two years ago, the country exported 90 different products to 103 countries. As at now, over 117 products are being exported to different countries. Going forward, the council will enhance the development of new products and markets, while sustaining the existing ones through various programmes and projects.”

Adulugba however lamented that the country’s non-oil exports were still being dominated by raw commodities and a few products with value addition.

“There is the need to step up the value chain, diversify from commodities and empower the Small and Medium Scale Enterprises through entrepreneurship development as they constitute the bulk of the actors in the non-oil sector,” he added.

The NEPC boss maintained that the Federal Government’s objective of boosting non-oil exports would enable the council focus more on agro-allied industries as well as improve the packaging and labelling standards of made-in Nigeria products.

Meanwhile, at the ministerial briefing to mark this year’s democracy day, Olusegun Aganga, Minister of Trade and Investment, disclosed that the nation exports about 117 non-oil products to 103 countries annually.

The Minister of Trade and Investment stated that Nigeria had 5,300 products but exports only 117 as there was need for diversification.

“This means we have to diversify by moving to value added products, we have the market and raw materials. It is time to become an industrialised nation by focusing on the area where we have comparative and competitive advantage,” Aganga stated.

Challenges

Despite the lofty achievements achieved from non-oil exports, stakeholders are yet to achieve total succour in the area of sub-sectoral competitiveness and dominance. It is still generally believed that the biggest impediment to achieving growth of investment in the export capacity building remains key issues of policy somersault and lack of compliance with due process by the government agencies.

Besides the positive features of the EEG scheme, some encumbrances, including fiat decisions to suspend EEG by some administrations, engendered the tendency on the part of exporters to neglect official modes.

At a recent forum in Lagos, the Manufacturers Association of Nigeria lamented the failure of implementing agencies to accept the Negotiable Duty Credit Certificates issued by the Federal Ministry of Finance.

Speaking to newsmen recently, Kola Jamodu, President of MAN, listed several factors deemed to be affecting the performance of the real sector to include non-acceptance of the NDCC export certificates was key, among others. The MAN boss raised an alarm that unless policy constraints were addressed, unemployment problem among Nigerian youths might worsen.

It is believed that to face the challenges of the global village, entrepreneurs not only need to adopt a global vision of business development and get ready to target export markets, they also need to be aware of the importance of innovating and promoting quality.

Lessons from Asia, UAE

Other countries of the world provide important lessons on how the non-oil exports and export promotion policies have led to economic success and have relevant lessons for Nigeria. South East Asian (South Korea, Taiwan and Malaysia), Vietnam and Mauritius are three examples of how spending funds to alter productive conditions can create a dynamic comparative advantage in sectors where a nation never had such an advantage.

According to Olufemi Boyede, CEO, Koinonia Ventures Limited, South Korea, Taiwan, Malaysia, Vietnam and Mauritius have all created their competitive advantage in manufactured goods.

Boyede pointed out that these countries did this through an outward-oriented strategy that places primordial emphasis on their country’s key capabilities, by promoting performance-based private-sector development and by disseminating and facilitating access to market information.

“The story of the three South East Asian countries stands out most from other developing economies because of the fact that they deliberately created dynamic comparative advantage in sectors where they never had comparative advantage in steel, shipbuilding, electrical machinery, telecommunications and office automation equipment.

“This points to the fact that trade requires different approaches to export growth. What the South East Asian experience underlines is that as long as a country is able to spend funds on altering productive conditions, it will end up with the desired economic structure.

Their success was based on outward-oriented strategies closely related to an institutional setting that placed primordial focus on education and infrastructure. The differentiating success factor in the South East Asian cases is that policies for the economy, industry and education assisted the e growth of the export sector.

Interestingly, according to latest report released from Statistics Centre, Abu Dbabi, Abu Dhabi’s non-oil exports rose 22.1 per cent to reach Dh11.6 billion 2012, up from Dh9.5 billion in 2009. While most goods came from the United States, Germany, Saudi Arabia and Japan, machinery and transport equipment accounted for 52.3 percent of the total imports with the main supplier been the United States.

Commenting on this development, Marwan Shurrab, Vice-President and chief trader at Gulfmena investments told Gulf News that over the past two years, Abu Dhabi’s economy has demonstrated considerable resilience and stability in the face of the global economic downturn, leaving it well placed for continued growth.

Lending his view, Mohidin Bin Hendi, president, Hendi Group, pointed out that several factors have contributed to the growth of the non-oil sector during the last few years. Bin Hendi dded that what has boosted the exports of United Arab Emirates, UAE, commodities to other countries is power, which is based on cheap energy such as gas.

“These include the wise directives of the country’s leadership, the country’s stability, security and the unparalleled infrastructure which encourages investments as well as commercial and industrial activities.

 “Since the country enjoys an open economy, free movement of capital and financial stability, this positively improved the country’s economy. The UAE has a developed and modern infrastructure which is the foundation for any economy. Meanwhile, the government of Abu Dhabi had eased legislation for investments in the free trade zones and Khalifa Industrial Zone Abu Dhabi (Kizad),” Bin Hendi concluded.