Rising prices for goods and services, coupled with high interest rates, have dampened exporters’ productive capacity, resulting in sluggish growth of non-oil exports, or NOEs, against the backdrop of the need for increased foreign currency inflow to calm exchange rate pressures.

According to an investigation by Financial Vanguard, the following factors are working against exporters: high prices for goods and services have caused exporters’ working capital to rise by more than 350 percent in the last year; high bank interest rates, typically above 30 percent, have made it difficult for exporters to raise the money they need to maintain or expand production.

Additional problems include floods, port congestion, non-payment of unpaid export assistance from 2021 to 2024, and limitations on exporters’ ability to repatriate foreign exchange gains.

According to exporters who talked with Financial Vanguard, these issues are the cause of the non-oil export growth’s failure to recover to pre-pandemic levels and the lacklustre growth seen in the first half of the year, H1’24.

Performance breakdown of NOEs
Despite exhibiting erratic performance in the first half of H1’24, Nigeria’s NOEs have not returned to their pre-Covid levels, according to data from the Central Bank of Nigeria’s Quarterly Statistical Bulletin, or CBN.

Even while the data indicates that NOEs reversed the loss that was observed in the first half of 2023, H1’23, growth in H1’24 was just 3.1% YoY. Additionally, in Q2’24, NOEs had a Quarter-On-Quarter, or QoQ, fall of 0.6%.

The sluggish rise in NOEs in H1’24 was caused by YoY decreases in Re-Exports and Electricity exports of 39% and 4.3%, respectively, which mitigated the impact of YoY gains in Other Non-Oil Exports and Informal Trade of 6.1% and 8.6%, respectively.

Informal trade increased from $114.2 million in H1’23 to $134.99 million in H1’24, while other non-oil exports increased from $2.98 billion in H1’23 to $3.16 billion in H1’24.

However, the value of re-exports fell from $232.96 million in H1’23 to $143.47 million in H1’24, continuing the downward trend that saw it fall by 22% YoY in H1’23.
In the same way, electricity exports decreased from $93.72 million in H1’23 to $90.03 million in H1’24. The 16 percent YoY rise seen in H1’23 was reversed by this.

The overall 0.6% QoQ drop to $1.76 billion in Q2’24 from $1.77 billion in Q1’24 is another factor limiting the rise of NOEs in H1’24.

The pattern indicates that the nation is still having difficulty expanding NOEs, which is essential for increasing dollar inflows and keeping the value of the Naira stable.

According to a five-year trend by Financial Vanguard, NOEs are still below the $4.4 billion pre-pandemic level that was achieved in H1’24.

Additionally, in three of the five half-year periods, the nation saw a YoY fall.
For H1’20, H1’21, and H1’23, NOEs fell YoY by 27%, 28%, and 12%, respectively, according to the CBN.

In H1’22, NOEs increased by 69% YoY to $3.91 billion from $2.31 billion in H1’21—the largest gain to date.

Exporters provide further information.
Otunba Felix Oladunjoye, Chairman of the Cocoa Processors Association of Nigeria (COPAN), provided insight into the difficulties, stating that the poor performance of NOEs is caused by the adverse effects of monetary and fiscal policies on exporters, mentioning the depreciation of the Naira, the rate of inflation, and the high interest rates that banks charge.

“The current foreign exchange policy, which allowed the Naira to depreciate and fluctuate, is directly causing high inflation on all transactions locally,” he said. For instance, in Nigeria, a tonne of cocoa beans cost around N3.2 million on average in 2023, but in 2024, the average price was over N15 million. This indicates that with the current average cost of borrowing of about 35%, you will need five times your working capital to sustain your export trade activities.

In a technical sense, this has excluded many small and medium-sized market participants.

Only a small number of businesses with foreign backing are now active in the market, and the effect is seen in the CBN information

Because of the enormous working capital requirements and exorbitant cost of funds that would affect operational margin, naira devaluation will not have any noticeable effect on export growth. Already, the profit margin is being reduced.

Large working capital requirements to operate at break-even margin are the cause of low capacity utilisation.

Oladunjoye added that the government is not even prepared to pay the pending unpaid export grants from 2021 to 2024.

In order to conduct export transactions, this would have increased the working capital deficiency. Due to excessive interest rates, many exporters are struggling with massive debt and are unable to refinance their operations. With Nigeria’s present financing costs, no one can effectively do export business,” he continued.

In a similar spirit, Dr. Victor Iyama, the Chairman of the Board of Trustees, BoT, Federation of Agricultural Commodities Association of Nigeria, or FACAN, stated: “People are losing money because the local price of cocoa is higher than the international price, and they are cautious and involved in informal exports.”

“Cocoa exporters have suffered financial losses as a result of the exchange rate’s fluctuation.

This is a significant issue that prevents exporters from making plans. Since we do not consume chocolate, we are not setting the price.

Climate change and constraints on export earnings
Dr. Ojo Joseph Ajanaku, President of the National Cashew Association of Nigeria, or NCAN, provided further information on the difficulties by highlighting the issues limiting cashew exports and production.

There are several factors contributing to the precipitous decline in non-oil exports, he stated. First, my own commodity, cashew, was impacted by climate change. Climate change caused a decline in cashew output.

Aside from that, the nation’s output was problematic. Very little study has been done on cashews. Since there is no incentive or motivation to increase output in Nigeria, the majority of the cashew trees that grow there are old trees; we do not have any new types.

“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,” Ajanaku stated, citing limitations on the repatriation of export proceeds as another factor limiting NOEs.

According to the government, foreign currency brought into the country must be exchanged using the official market exchange rate. However, the CBN stated that since it is called Proceed Money, foreigners who are bringing in their money and getting it in another way can exchange it in the parallel market, but we who export and bring back our own foreign exchange cannot do so, and we are going to the same field to purchase the same commodity. Therefore, they use the foreign exchange to import something else rather than returning it to Nigeria.

Flooding and seasonal variations
Mr. Austin Umunnakwe, a member of the Lilypond Exporters Group, responded to the news by stating that the seasonality of many agricultural goods and the effects of flooding were to blame for the actual drop in NOEs.

In several regions of the North, the planting and harvesting cycles have been negatively impacted by the floods, which has had a knock-on effect on the total amount of exports.

Indeed, there has been a discernible decline, and the seasonality of many agricultural goods is directly responsible for this. The production of many crops has declined, especially those that are gathered during the dry season, such cashew nuts, cacao, herbaceous flowers, sesame seeds, and dried ginger.

Although harvesting and exporting have been delayed by the wet season, he clarified that things should get better in the upcoming months.

We anticipate that the production of these goods will increase after the rains stop and dry season farming starts up again,” he continued.

Reviving NOEs
FACAN’s Dr. Victor Iyama asserts that the government must let exporters to access their export earnings.

“The government will stabilise non-oil exports if it grants unrestricted access.” Many exports cross land borders, and the majority of them are unrecorded; this has to be investigated,” he stated.

Price and quality competition are key, says Muda Yusuf.

While acknowledging other obstacles impeding the expansion of NOEs in the nation, such as port congestion, instability, and the high cost of doing business, Muda Yusuf, the Director-General of the Centre for Promotion of Private Enterprise, CPPE, emphasised the need for actions to improve the sector’s performance.

“The truth is that exporting is about being globally competitive, so you have to do well in the export environment,” he stated. Since we’re discussing non-oil exports, you must provide competitive pricing and quality. That, in my opinion, is a crucial component in figuring out whether or not we have had a major influence on the non-oil industry.

The cost of production, logistics, and other issues are causing problems for the exporters. This has an impact on the cost of their goods and, in a sense, on their ability to compete.

Naturally, there are also problems with quality, as quality is connected once more. There is a connection between cost and quality. Even if our exporters are capable of manufacturing high-quality goods, the environment is so difficult to work in that it has become highly expensive to create high-quality goods, especially when considering value-added exports.

Therefore, in general, we must provide the conditions necessary to guarantee that our manufacturing procedures promote competitiveness because exporting is a worldwide enterprise and you must be competitive in both pricing and reliability.

Naturally, a large number of our exports are also primary goods; they include cashew nuts, cocoa, sesame seeds, and other agricultural items. The issue of insecurity has also caused setbacks in that sector’s output and productivity, especially in the central belt and certain northern regions of the nation. Thus, that has also added to the difficulties facing exports that aren’t oil.

Since those nations that are having an influence on non-oil exports have been successful in shifting from exporting primary goods to exporting value-added goods, it follows that a transition is necessary. That hasn’t been possible for us.

Nearly 90% of our exports that aren’t oil are still primary goods. Few value-added, processed, or manufactured commodities leave our export basket; cashew nuts, sesame seeds, cocoa beans, hideskin leather, and so forth remain our mainstays.

Once more, the goal is to make our manufactured goods competitive since, when you compare the cost of manufacturing in Nigeria to the cost of production abroad, we can scarcely compete, which has an impact on the export of manufactured goods.

Therefore, the dominance of primary products is also a disadvantage as exporting primary items does not yield the proper value, money, or earnings. That is a problem as well.

Next is the port issue, which is connected to the logistical issue. That is also a major problem because, in my opinion, we must establish what is essentially a fast-track procedure for export goods at the ports.

Since the majority of our non-oil exports are perishable goods, exports are something you should not put off, especially when discussing perishable goods.

Since it now takes two or three weeks for items to reach the vessel for export, it is crucial that we establish a fast-track channel for exports to avoid excessive delays. Exporters may find this extremely annoying, and because the majority of these vessels already have deadlines, they don’t wait for anybody.

Faster clearance for non-oil exports is crucial, especially for export procedures, and we also need to cut down on paperwork. The amount of documentation is excessive, and it is also linked to bureaucratic bottlenecks.