•Pressure mounts on forex revenue, exchange rate
•Cocoa, cashew exporters may lose $200m
By Babajide Komolafe
The headwinds facing Nigeria’s economy has forced the value of Naira to decline 31 percent in seven months ended July 2020. But the pressure on the external sector seems headed for further deterioration as the nation faces rising risk of recording the first Year-on-Year, YoY, decline in non-oil exports earnings in four years, since 2017.
The external sector which comprises the oil and non-oil exports as well as the associated revenue, determines the nation’s external reserves and exchange rate.
The initial pressure that forced the decline in the value of Naira was caused by a decline in oil exports earnings during the year following the outbreak of Coronavirus (COVID-19) pandemic. The country had hoped that non-oil export could be ramped up for a rescue.
But Financial Vanguard findings is showing a 95 percent YoY decline in the growth of non-oil export earnings in the 12 months ending March 31st 2020, which indicates that the various efforts to boost non-oil revenue in recent times are either losing steam or are not making the desired impact.
Further indications that the situation may have worsened came with the export stakeholders including the Nigeria Export Promotion Council (NEPC), call for urgent actions to address the poor state of the nation’s infrastructure and the inefficient port system, which, according to them, have undermined the competitiveness of the Nigeria’s non-oil exports as well as the impact of the various efforts to boost non-oil export revenue.
Data from the Central Bank of Nigeria (CBN) showed that non-oil exports earnings through banks rose by a paltry three percent, YoY, to $5.37 billion in the 12 months ending March 31st 2020, from $5.22 billion in the 12 months ending March 31st 2019.
The record declines
The three percent growth, however, represents 95 percent decline when compared with the 62 percent growth recorded in the 12 months ending March 31st 2019 against the 12 months ending March 31st 2018.
The CBN data also showed a 4.7 percent, YoY, decline in non-oil revenue to $2.12 billion in the first quarter of 2020 (Q1’2020) from $2.27 billion in the corresponding period of 2019 (Q1’2019).
The decline was triggered by a sharp fall in earnings from solid minerals and manufactured goods export, which wiped off the huge gains in earnings from agricultural products and industrial goods export.
According to the apex bank, earnings from export of solid minerals fell by 90 percent, YoY, to $7.12 million in Q1’2020 from $750 million in Q1’2019. Similarly earnings from export of manufactured goods fell by 31 percent, YoY, to $130.6 million in Q1’2020 from $190 million in Q1’2019.
These huge declines undermined the 78 percent and 449 percent growth in earnings from agricultural products and industrial goods export which rose respectively to $284.2 million and $769 million in Q1’2020 from $160 million and $140 million in Q1’2019.
Indication that this declining trend may persist and worsen, however, emerged from the NEPC which warned that the country might lose up to $190 million in export earnings from Cocoa and Cashew due to the impact of the COVID-19 pandemic.
The Council gave this warning in a document made available to Financial Vanguard, titled “Impact Assessment and Policy Responses to the Coronavirus Pandemic on Agricultural Exports”.
According to the Council, “The COVID-19 pandemic is likely to cause significant hardship to, not only the oil sector, but also the non-oil export sector. Agricultural exports, especially Cocoa, are predicted to suffer. A fall in exports of over $100 million in the cocoa sector in Nigeria is predicted as a result of declining prices due to falling demand in Europe.
“Cashew exports are at risk owing to the Vietnam Cashew Association’s guidance to enterprises within the country to carefully consider before importing raw cashew. A fall in exports of close to $90 million for Nigerian cashew exporters is likely.”
The above development, according to analysts, among other things, threatens the country’s hope of increased non-oil dollar revenue which is critical to forestalling further devaluation of the Naira in view of weak dollar earnings from oil exports.
External sector shocks
The COVID-19 pandemic triggered a sharp decline in the price of crude oil which accounts for 90 percent of the nation’s export earnings. This had led to a sharp decline in oil revenue, and the nation’s external reserves prompting acute dollar scarcity which had triggered the devaluation of the Naira.
The Naira suffered a 31 percent depreciation parallel market as the exchange rate rose to N474 per dollar as at last week from N360.5 per dollar at the close of 2019.
This came on the heels of the CBN’s 24 percent devaluation of the Naira in the official market to N381 per dollar from N307 per dollar at the close of 2019.
According to Wale Olusi, Head of Research, United Capital Plc, a member of the United Bank for Africa (UBA) group, “The implication of slowing non-oil export growth is that the Nigerian economy will remain overly reliant on the oil sector for export earnings. Thus, the country’s external position, foreign exchange earnings as well as government finances will remain exposed to the vagaries of the crude oil market.
“Also, the poor showing of the Nigerian non-oil export is a close reflection of the sector, locally. Accordingly, if the government does not take a serious as well as conscious action in changing the narrative in that sector, tax revenue will remain low as companies continue to struggle to thrive”.
Analysts’, industry leaders’ views
Besides the threat posed by the impact of the COVID-19 pandemic, stakeholders cited persistent structural challenges including poor infrastructure and inefficient port systems, as factors militating against efforts to increase non-oil export earnings.
Speaking in this regard, Chinwe Egwim, Senior Economists and Macroeconomic analysts at FBNQuest Merchant Bank Limited, a member of First Bank Group, stated: “Non-oil exports continue to struggle primarily due to structural challenges. There is also the issue of standardization around non-oil export products from Nigeria. One cannot ignore the underperformance of the country’s manufacturing sector. An industrial take-off is required to stimulate non-oil export activity. Of course, the on-going pandemic will adversely affect exports.
‘‘The African Continental Free Trade Area (AfCFTA) agreement is expected to promote regional integration and boost diversification. For Nigeria to produce profitable standard products that can compete in markets across Africa, structural challenges (especially power shortages) need to be addressed.’’
Highlighting the impact of these structural challenges on the competitiveness of the nation’s non-oil exports, Muda Yusuf, Director General, Lagos Chamber of Commerce (LCCI), stated: “Export business is an international business. And the prospect of any global business is driven by the competitiveness of the business. This is the main thing that would make the difference in our non-oil export endeavors.
‘‘It is not just about throwing funds at the sector. It is about how competitive our export products are.
‘‘The key issues therefore are variables driving competitiveness of our non-oil export. These include cost of production, operating costs, regulatory compliance costs, trade facilitation challenges, especially at the ports, productivity in the non-oil sector, domestic logistics challenges, foreign exchange policy ease of access to export proceeds at market rates, etc.
‘‘To boost non-oil performance, these challenges need to be fixed.”
Also highlighting factors undermining efforts to grow the non-oil export earnings, Ayo Akinwunmi, Senior Relationship Manager, Corporate Banking, FSDH Merchant Bank, said: “The CBN has put in place a lot of measures to stimulate the non-oil foreign exchange earnings in Nigeria in the last few years to boost non-oil exports, reduce the dominance of the oil sector in the foreign exchange generation, and to reduce high marginal prosperity for imported goods and services. While the policies are well intentioned and have achieved some positive results, there are a number of measures militating against the achievements of the objectives.
“Some of the factors are: Insecurity problem in the country, poor infrastructure, particularly transport network, lack of access to modern production factor and inadequate long-term trade and fiscal strategies to attract or retain investments in the non-oil sectors to drive exports.
”Government needs to address these issues in order to attract foreign investors who can invest in the non-oil sector of the economy.”
On measures needed to reverse the declining trend in non-oil earnings, and possibly achieve double digit growth, Olusi said the federal government needs to get serious about revamping infrastructures and the doing business in Nigeria.
“Although, the current administration is making some progress in this regard, we would need to double our efforts to make doing business in Nigeria easy, beyond mere sound bites to spur non-oil export”, he said.
On her part, Egwim drew attention to sensitization of Nigerians on the country’s export potentials and the need to encourage state governments to focus on development of non-oil products in which they have competitive advantage.
“The FGN should consider more well-targeted financial interventions for non-oil exporters. Addressing structural issues, especially power shortages will boost non-oil export activities in the medium-term”, she said.
She also emphasized the need to address the inefficiency in the nation’s ports. “There is no way we can discuss non-oil exports without mentioning the underperformance of Nigerian ports. Laudable steps to revamp the country’s ports situation have been made. ‘‘However, there is still vast room for improvement. Industry bodies have called for development of the eastern ports to ease the pressure on Apapa and Tin Can Island, which account for close to 80 percent of total import traffic. Tariff incentives may be required so that the eastern ports can achieve economies of scale”, Egwim said.
The NEPC also stressed the need to address the logistics bottlenecks caused by inefficiencies in the nation’s ports.
The Council stated: “In Nigeria today, all terminals in Lagos are between 90 – 95% full with uncleared cargo. Most of the cargo is non-essential. If nothing is done to address this issue, there will be no space in the terminals to discharge other important imports and exports.
“The Nigeria Governors’ Forum in their letter to the Presidential Task Force on Covid-19 dated 30 March, 2020, recommended several measures to provide special clearance for producers, suppliers and distributors of essential goods and services from the ports to all parts of Nigeria. This measure should equally be extended to exporters of goods who had secured orders before the pandemic and are making all efforts to fulfil contractual obligations to their customers.
“In addition, there is need in this period, to allow full movement of cargo across the country to ensure their operations are not hampered. The Seaport Terminal Operators Association of Nigeria (STOAN) have made some allegations on the number of government agencies at the nation’s ports. The Association has identified that even after cargo is release in the terminals, government agencies, including customs, conduct another round of checks. STOAN have made an appeal to the Comptroller General of Customs to ensure that custom officials and everyone involved in the cargo release process and the logistics chain, sacrifice any personal interests at this time.
“NEPC supports these moves and asks that they be applied to exports as well. All logistical challenges that have the tendency of slowing down exports have to be tackled quickly.”