On Nigeria’s one-dimensional economy, by Ibrahim T. Tumsah
Radical Thought
Nigeria’s over-reliance on oil exports as its major source of revenue is a worrying trend that cripples its trade potential. Looking at the trade data over the past year shows that Nigeria still hasn’t learnt its lesson about being a one-dimensional economy. According to the Nairametrics data for exports in Q3; even though Nigeria is running a trade surplus; meaning its earning more from exports than it is spending on imports. Nigeria is still largely reliant on the oil and gas sector, which makes up about 82% of its total export earnings.
A further investigation into the export data shows that 97% of Nigeria’s exports are still in their raw form. This is a missed opportunity because there are more gains in foreign exchange to be made from value addition into these raw materials being exported. Commodities such as agricultural grains like soy beans, sesame seeds, cocoa beans and other products including crude oil could be processed further to get better prices in the international trade market. Nigeria’s manufacturing industries are practically non-existent and to give perspective to this, imported products ranging from used vehicles, jet fuels, petrol, medications and transformers and a myriad of other products could be produced locally since most of the raw materials required to make them can be found in Nigeria.
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Agricultural commodities exports have been on the rise recently, especially gaining some prominence with the previous Central Bank regime. In the 9 months between January and September of 2023, the total value of agricultural exports stands at N798.50 billion. Cocoa beans ranked first on the list raking in N157.77 billion, Sesame seeds came second with a total of N129.20 billion and Cashew nuts in shell rounds out the top 3 with N100.75 billion in total trade for the first three quarters of 2023.
Why is this important? because it shows that Nigeria’s exports have still not evolved beyond the basic stage on the international market. All of these agricultural exports are still in their raw forms. No value addition or major processing has been involved before exporting these commodities. Sesame seeds for example has a long history in Nigeria and Nigeria is among the leading producers of sesame seeds in the world. Along with that, as of 2022 Nigeria is the third largest exporter of sesame seeds after Sudan and India. Nigeria produces almost over 580,000 tonnes of sesame seeds every year. Depending on the exchange rate that is a whopping figure in terms of trade inflow.
However, Nigeria’s main problem isn’t the production or harvesting of grains, it is the fact that sesame seeds can be processed further and are essential for the production of oil, and the paste is used for tahineh and in other food formulations such as sweets. Same could be said for other grains like cocoa beans, soy beans and cashew nuts. There is a huge potential missed when these grains are not processed further to get more value in the international market and this speaks in the larger volumes for other sectors in the economy. Nigeria’s policy makers need to support local processing and manufacturing plants to gain valuable foreign exchange and add value to raw materials found on Nigerian soil to boost the economy going forward.
This processing need not involve heavy machinery to compete with key international companies. Nigeria’s manufacturers or value addition chains only need to process these grains or products beyond just the first step in the processing. Soya beans value addition for example requires that the beans be cleaned and bagged after the seeds have been harvested. This is just the rudimentary stage Nigerian exporters finds themselves sitting at before they export the grain. Another step in the value addition stage for exporters could be for the beans to be crushed into powder form or the oil extracted and then exported in that form. This is to say that Nigerian would-be-producers could take gradual steps to achieve this value addition for exports while gaining higher profits in the market.
The economy not only gains foreign exchange when there is local manufacturing and value addition processing, it also creates skilled jobs in the market which further boosts the income levels in the economy. This creates a virtuous cycle which leads to foreign direct investments coming in from other countries into Nigeria which then lessens the pressure on the already weak Naira.
Additionally, the discrepancies in the exchange rate market between the official Central Bank (CBN) and Bank rates and the black market rates causes a lot of confusion and discourages larger volumes for export driven business activities. These differences in exchange rates makes exporting commodities harder for smaller traders because they lose the value of what they sourced in the local markets when they try to exchange the dollars they earned at international market. This makes their margins smaller and the business prospects worse off. There needs to be a real unified exchange rate for exporters to flourish. Without that exporters will be discouraged and unable to grow. The exchange rate pricing market can be compared to communist Russia or China in the 1920’s onwards when the differences in the official and black market prices for goods caused corruption or rather even encouraged it.
Lastly, there is a strong correlation between industrialization and a strong democratic economy. The most important part of the causality is from the economic structure which is a major orientation towards significant industrial activities. With no exception such industrial activities have not been created in any country without a conscious effort of targeting, nurturing and protecting these industrial activities by the government. Creating and protecting these industries is then needed to nurture and improve the economy, boost growth and increase the country’s income.
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