Against the backdrop of the need for more foreign currency inflow to moderate pressures on exchange rate, rising cost of goods and services as well as high interest rates have combined to dampen the productive capacity of exporters resulting in weak growth of non-oil exports, NOEs.
Financial Vanguard investigation revealed that the factors militating against exporters include: the high cost of goods and services have increased the working capital of exporters by over 350 per cent in the past year; high-interest rate charges by banks, mostly above 30 per cent, which made it difficult for exporters to raise the funds to sustain or increase production.
Other factors include restrictions on how exporters can repatriate foreign exchange earnings; non-payment of outstanding export grants from 2021 to 2024, flooding, and port congestion.
Exporters who spoke to Financial Vanguard said that these factors are behind the weak growth recorded in the first half of the year, H1’24, as well as the inability to return to pre-pandemic level in growth in Non-Oil Exports
NOEs performance breakdown
Data from the Quarterly Statistical Bulletin of the Central Bank of Nigeria, CBN, indicates that Nigeria’s NOEs while showing mixed performances in the first half, H1’24, have not recovered to pre-Covid levels.
Though the data shows that NOEs reversed the decline recorded in the first half of 2023, H1’23, growth in H1’24, was weak at 3.1 per cent, Year-on-Year, YoY. Also, NOEs recorded a Quarter-On-Quarter, QoQ, decline of 0.6 per cent in Q2’24.
The weak growth recorded in NOEs in H1’24 was occasioned by 39 per cent and 4.3 per cent, YoY declines recorded in Re-Exports and Electricity exports in H1’24, which subdued the impact of the 6.1 per cent and 8.6 per cent YoY increases in Other Non-Oil Exports and Informal Trade.
Other Non-Oil Exports rose to $3.16 billion in H1’24 from $2.98 billion in H1’23 while Informal Trade rose to $134.99 million from $114.2 million in H1’23.
But the value of Re-Exports dropped to $143.47 million in H1’24 from $232.96 million in H1’23, thus maintaining the downward trend recorded in H1’23 when it declined by 22 per cent YoY.
Similarly, Electricity exports fell to $90.03 million in H1’24 from $93.72 million in H1’23. This reversed the 16 per cent YoY increase recorded in H1’23.
Also constraining the growth of NOEs in H1’24 is the overall 0.6 per cent QoQ decline to $1.76 billion in Q2’24 from $1.77 billion in Q1’24.
The trend shows that the country is still struggling to grow NOEs, which is critical to boosting dollar inflows and stabilising the Naira exchange rate.
Financial Vanguard findings in a five-year trend showed that NOEs are still below the pre-pandemic level of $4.4 billion recorded in H1’24.
Furthermore, the country recorded a YoY decline in three out of the five half-year periods.
According to the CBN, NOEs declined YoY by 27 per cent, 28 per cent, and 12 per cent in H1’20, H1’21 and H1’23 respectively.
The most significant growth was recorded in H1’22 when NOEs rose by 69 per cent YoY to $3.91 billion from $2.31 billion in H1’21.
Exporters give more insight
Giving insight into the challenges, the Chairman, Cocoa Processors Association of Nigeria (COPAN), Otunba Felix Oladunjoye, said the dismal performance of NOEs is due to negative impacts of the fiscal and monetary policies on exporters, citing Naira depreciation, rising inflation rate and high interest rates charged by banks.
He stated: “The current foreign exchange policy that gave room for floating/ depreciation of the Naira is directly causing high inflation on all transactions locally. For example, the average local price of a ton of Cocoa beans in Nigeria in 2023 was around N3.2 million compared to the average price of over N15 million in 2024 season. What it means is you need five times your working capital to maintain your export trade transactions with the current average cost of borrowing at about 35%.
This has technically cut off a lot of small and medium players in the market.
“It is only a few companies with foreign support that are operating in the market now and the impact is what we are seeing in the CBN data.
“Naira depreciation will not have any tangible impact on export growth due to huge working capital requirements and unbearable cost of fund that will impact on operating margin. The profit margin is already eroded.
“Low capacity utilization is resulting from huge working capital requirements to operate at break even margin.”
Oladunjoye also cited the challenge of outstanding unpaid export grants from 2021 to 2024 which he said the government is not even ready to pay.
“This would have augmented the working capital shortfall to process export transactions. A lot of exporters are battling with huge debts and unable to refinance their operations due to high interest rate. Nobody can do export business successfully with current cost of borrowing in Nigeria”, he added.
Speaking in the same vein, The Chairman of the Board of Trustees, BoT, Federation of Agricultural Commodities Association of Nigeria, FACAN, Dr Victor Iyama, said: “The local price in cocoa is higher than the international price and people are losing money and people are careful and they are deep in informal exports.
“The volatility of the exchange rate is not favourable to the cocoa exporters because they have lost money.
“This is a big problem, and it makes the exporters not being able to plan. We are not dictating the price of cocoa because we are not consuming it.”
Climate change, export proceeds restrictions
Giving further insight into the challenges, the President, National Cashew Association of Nigeria, NCAN, Dr Ojo Joseph Ajanaku, highlighted factors constraining cashew production and exports.
He said: “There are so many things leading to the sharp drop of non-oil exports. First, the climate change affected my own commodity, which is cashew. The production of cashew dropped as a result of climate change.
“Outside that we had problems with the production in the country. The research on cashew is very poor. The cashews that grow in Nigeria are majorly old trees, we don’t have the new varieties because there is no kind of incentive or encouragement to boost production in Nigeria”.
Citing restrictions on export proceeds repatriation as another factor constraining NOEs, Ajanaku said, “Another thing mitigating the non-oil export is based on the kind of export system we have where we don’t have unfettered access to our proceeds.
“The government is telling us that if you bring in your foreign exchange it must be converted with the official market exchange rate. But we are competing with foreigners who are bringing in their money and getting it in another way, and the CBN said they can change it in the parallel market because it is called proceed money but we that export and bring back our own foreign exchange cannot change it in the parallel market and we are going to the same field to buy the same commodity. So instead of bringing back the forex to Nigeria, they use it to import something else.”
Seasonal changes, flooding
Reacting to the development, Mr. Austin Umunnakwe, a member of the Lilypond Exporters Group, said the decline in NOEs is real and it was due to the seasonal nature of many agricultural products and impact of flooding.
“The floods have severely affected the planting and harvesting cycles in many parts of the North, and this has had a ripple effect on the overall volume of exports.
“Yes, there has been a noticeable drop, and this can be directly linked to the seasonality of many agricultural products. Many crops, particularly those harvested in the dry season, such as cocoa, cashew nuts, herbaceous flowers, sesame seeds, and dry ginger, have seen decreased output.”
He explained that while the rainy season has delayed harvesting and export, the situation should improve in the coming months.
“Once the rains subside and dry season farming resumes, we expect the cultivation of these products to pick up,” he added.
Reviving NOEs
According to Dr Victor Iyama of FACAN, the government must allow exporters to have access to their export proceeds.
“If the government gives unfettered access, it will stabilize non-oil exports. A lot of exports go through land borders and most of them are not documented, this needs to be looked into,” he said.
It’s about competitiveness in price, quality – Muda Yusuf
While noting other challenges constraining growth of NOEs in the country, including insecurity, port congestion and high cost of doing business, the Director-General, Center for Promotion of Private Enterprise, CPPE, Muda Yusuf, highlighted measures needed to enhance the performance of the sector.
He said: “The reality is that export is about international competitiveness, so you must perform well in the export environment. We are talking about Non-Oil Export, you have to be competitive both in price and in quality. That for me I think is a very fundamental factor in determining whether we have made any significant impact in the Non-Oil sector space.
“The exporters are struggling with the issue of cost of production, cost of logistics and all of that. That is affecting the price of their products and that in a way is also affecting competitiveness.
“Then, of course, there are also issues around quality, quality again is related. There is a relationship between quality and price. Even though our exporters can produce what is of quality, the environment is so challenging that producing quality products has become very costly particularly when we are looking at value-added exports.
“So, generally, we need to create the environment to ensure that our production processes encourage competitiveness because export is a global business and to survive in the market, you have to be competitive both in price and in quality.
“Then of course, many of our export products are also primary products, many are agricultural products like cocoa, sesame seeds, cashew nuts and others. Most production and productivity in that sector has also suffered setbacks as a result of the problem of insecurity particularly in the middle belt and some Northern parts of the country. So that has also contributed to the challenges of non-Oil exports.
“Then of course, we need to make a transition because those countries that are making an impact in the Non-Oil exports have been able to successfully transition from the export of primary products to the export of value-added products. We have not been able to do that.
“Close to 90 per cent of our Non-Oil exports are still primary products. Cashew nuts, sesame seeds, cocoa beans, hides skin leather and so on, are still primary products, very little value added or processed goods or manufactured exports exit in our export basket.
“So again, this is about creating the competitiveness to make our manufactured products competitive because if you look at the cost of production in Nigeria and compared to the cost of production elsewhere, we hardly can compete and that is affecting the export of manufactured goods.
“So the dominance of primary products is also a setback because you do not get the right kind of value, you do not get the right kind of income or earnings from the export of primary products. That is also an issue.
“Then the problem of the port which is also related to the problem of logistics. That is also a very big issue because I believe we need to create what we can regard as a fast-track process for export products at the ports.
“Exports are not things you delay especially when you are talking about products that are perishable because most of our Non-Oil exports are perishable items.
“So it is important that we create a fast-track channel for exports so that they do not suffer too many delays because right now, it could take two or three weeks for products to be on the vessel for export. This can be very frustrating for exporters and most of these vessels already have their timelines, so they do not wait for anybody.
“Creating a faster passage for Non-Oil exports is extremely important, particularly in the export processes and we also need to reduce the documentation. There are too many documentations and too many documentations are also associated with bureaucratic bottlenecks.”