The Federal Government was buoyed by the latest trade figures that showed improved earnings of N577.6bn from non-oil exports in the first quarter of this year. Although the administration sees in this modest rise a sign of things to come in its touted diversification drive, this figure, representing a mere 12.3 per cent of total export earnings of N4.69tn for the quarter, is underwhelming. President Muhammadu Buhari and his team need to work harder and much more speedily to reduce the country’s dependence on oil and gas revenues.
When, after three years of assuming office, steps taken to diversify the economy and export base are this low, the reality of failure to deliver is palpable. Though the National Bureau of Statistics reported the Q1 performance as an improvement over the last few quarters, it cited the decline in the non-oil export sector and in manufacturing’s contribution. The total non-oil export value in 2017 was only N714bn or $2.34bn, according to the Central Bank of Nigeria. Non-oil exports that fetched $830m (N253bn) in the first quarter of that year declined to $350m (N106.7bn) in Q2 of the same year but rose to $515.9m in Q3 and $614.5m in Q4.
Decline in the fortunes of this sector reflected the shrinking of the economy after the crash in oil prices that started in the second half of 2014 began to bite particularly hard in 2015. The CBN reported a drop in non-oil export earnings from $1.19bn in the third quarter of 2015 to $730m in Q4 of that year.
There are obvious takeaways from our situation. One is that Nigeria’s recent exit from recession is still very precarious. The economy was tipped into contraction by a collapse in oil prices; it could just as easily relapse into another recession by a sudden fall in global oil prices.
Two; our non-oil exports are themselves dominated by agricultural commodities, with a modest resurgence in minerals. The manufacturing sector is weak and particularly vulnerable to exchange rate fluctuations. NBS figures for Q1 2018, for instance, revealed earnings of N26.65bn from sesame seeds, N6.03bn from cocoa beans, N23.93bn from fermented cocoa beans, N5.03bn from cashew nuts and N3.45bn from soya beans. Fish, prawns and shrimps also fetched modest sums, as did plants, flower buds and cotton, among others. This trend has been prevalent in previous years with agriculture dominating non-oil exports.
Solid mineral exports have also been rising. The National Extractive Industries Transparency Initiative reported earnings of N69.2bn in 2015, a 24 per cent increase over the N55.8bn earned in 2014.
What emerges is the need to forge synergies between the agricultural sector and manufacturing, and between mining and industry. The manufacturing sector contribution to Gross Domestic Product suffered a decline of N80bn in 2016, said the NBS, that put manufacturing’s nominal contribution to GDP at 8.55 per cent in 2017.
Nigeria should no longer be relying on commodity sales revenue. Diversification should translate to a shift to manufacturing, harnessing agricultural production and mining to build a domestic industrial base.
The golden key is policy: Nigeria should adopt policies to liberalise the operating environment for industrial take-off and an export-led economy. The BRICS countries and the Asian Tigers we aim to match have signposted the way: Brazil shifted from exports of raw commodities like cocoa and coffee beans to processing and heavy industries and is today a major exporter of aircraft, refined petroleum, cars and semi-finished iron. India’s top exports include machinery, pharmaceuticals, vehicles and electrical equipment.
While in powering back to meaningful growth, low hanging fruits like farm produce and minerals can be life savers, the government has other aces it refuses to use. One is privatisation: an honest, targeted asset sale will revive the Ajaokuta Steel Complex. The refineries and other downstream assets of the NNPC should be sold to capable foreign operators. Privatisation and liberalisation will open the door to the much-needed foreign direct investment without which the economy will continue to limp.
Repealing the Railway Act of 1955 has been deliberately delayed by the National Assembly and a disinterested Executive that unwisely continues to drain scarce resources to invest in obsolete equipment. Opening up the rail sector has tantalising potential to attract FDI, create jobs and boost real sector activity.
Like the Asian Dragons and Tigers, Nigeria should pursue and sustain policies to promote high job-creating sectors and sub-sectors like mining, textiles, steel, pharmaceuticals and food processing while harnessing the full potential of its agricultural and hydrocarbon and gas reserves. India, Indonesia and Bangladesh pursued policies that have today made them top textiles producers after China.
Start-ups and small and medium scale enterprises are the tonics for job creation and exports. Existing policies have not delivered and therefore need to be reviewed.
One major drawback to Nigeria’s economy is the near complete lethargy of the 36 states. Developing the productive sectors and exports has been left almost entirely to an overwhelmed and inefficient centre. In other federations, states, regions or provinces are autonomous economic units competing for FDI, export and internal market share and job creation. The states should operate like autonomous productive centres henceforth, promoting private sector-led economies leveraging their competitive advantages and targeting job creation and exports.
The major task however rests on Buhari. With less than a year to fresh elections, he must ramp up practical policies to diversify exports and shield Nigeria from effects of another oil price shock.