Nigeria needs diversification now, more than ever - Verdict

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Thursday, December 18, 2014 1;35 PM / FBN Capital Research

 

The price of UK Brent crude oil has now halved since June, and exposed Nigeria’s Achilles heel.

 

We have noted the many negative consequences such as the pressure on the naira exchange rate, public finances and the official reserves yet should also acknowledge the opportunities that have risen.

 

Two such are the opening to remove fuel subsidies (after the elections in February) and the gains in competitiveness for some non-oil exports.

 

The Q3 2014 Foreign Trade Report, released by the National Bureau of Statistics on Monday, shows that non-oil exports accounted for 3.1% of total export earnings, with leather, cocoa beans and sesame seeds the top three products.

                                                                 

Cobalt International Services, an inspection agency appointed by the FGN, disclosed in its latest report that cocoa, skins and sesame seeds accounted for 26%, 19% and 12% of total non-oil exports respectively in 2013. This is also in line with the export products of the top three non-oil exporters listed in the CBN’s latest quarterly report.

 

The devaluation of the currency and its continuing weakness on the interbank fx market should support export diversification in cases where inputs are substantially local currency costs (such as labour) and where the exchange rates of competitor exporters have held up better than the naira. If we take the example of cocoa beans, this should favour Nigerian exporters vis-à-vis their Ivorian, if not their Ghanaian, counterparts.

 

The FGN’s transformation agenda is pushing the development of agro-processing with some success, in rice, sugar and oil palm. This creates jobs and fx savings, and deepens the manufacturing sector.

 

The export expansion grant (EEG) has its critics but its suspension probably  constrained the growth of the export sector, particularly in the agro-processing segment as the scheme was set up to encourage exporters of raw materials to transition into local processors. However, the Nigerian Export Promotion Council (NEPC) has said that the grant will be restored in January 2015.

 

The Nigerian Export Import Bank (NEXIM) has announced a N300bn (US$1.7bn) fund to support non-oil exporters.

 

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