Transcript Coteminas

Non-oil export business in Nigeria
Impact of Incentives on Agribiz
Presented by
Creating Value is our business
Olam Nigeria Ltd.
November 2012
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Contents
1
Introduction
2
Prospects
3
Impact of EEG
4
Need for incentives
5
Challenges faced by Nigerian exporters
6
Way forward
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1
Introduction
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Introduction

This presentation highlights the potential of developing the non-oil export sector in
Nigeria and challenges faced by the non-oil sector
 The focus areas of this presentation are:
 Review of recent surveys by international development agencies
 Need for diversification of the economy
 Significance of the agro-allied sector
 Growth of non-oil exports in last 10 years
 Policy somersaults faced by the private sector
 Realisation of the Transformation Agenda hinges on economic diversification
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Prospects
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Nigeria‘s long-term economic potential
Agribusiness has tremendous growth potential given right policy framework
 According to a widely read study by Mckinsey,only 1/3rd of Africa’s arable land is
cultivated. Africa needs to create jobs at a faster pace to absorb its growing labour force
 The same study identifies 3 key sectors with highest employment potential
a) Agriculture
b) Manufacturing
c) Retail & hospitality
 Agriculture accounts for 40 % of Nigeria’s GDP and 2/3rd of employment
 Existing low agri productivity provides huge headroom to grow
 Federal government Agriculture Transformation Agenda provides an impetus to
realization of Nigerian growth potential in food and cash crops
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Nigeria‘s long-term economic potential
Agribusiness has tremendous growth potential given right policy framework
 Nigeria – richly endowed with fertile land
 Long history of cash crops cultivation – cocoa, cotton, cashew
 Agricultural production more difficult to migrate than manufacturing
 Agricultural products – demand is relatively stable and resilient even in recessions and
financial crisis
 Supply chain and infrastructure deficiency – can be mitigated with policy intervention
 Huge job/livelihood creation and wealth creation potential
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Nigeria‘s long-term economic potential
There are several transformation opportunities in agric sector
 Oil-Palm – large domestic market, good soil and climate  challenge of security, long
gestation
 Cotton : provide jute bags to farmers  better quality and higher farm realisations
 Bio-fuel: Potential to replace imports and be an export base. Policy framework
required
 Rice : import substitution as well export into regional ECOWAS markets over the long
term  clearly articulated long term policy on tariff and investment incentives
 Sugar: development of industrial scale sugarcane farming to address local
consumption  Sugar masterplan – a way forward !
 Farm Yield and Quality: Nigeria lags behind other West African countries. WA
countries lag behind Asian/Latin American region. Bridging this gap can create
transformational growth in the sector.
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Impact of EEG
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EEG Impact - Agric sector
 Growth in crop size( 10%- 25% per year) – Sesame, Cocoa , Cashew
 Growth in Farmer Incomes- across almost all products
 Farm-gate prices as % age of FOB values are highest in West Africa for
agricultural-crops like cocoa, sesame, cashew etc.
 Multiplier Effect of 2.36 as per USDA on agricultural exports –> 70% of
non-oil exports is agric high knock-on +ve impact in GDP and
employment
 Farming is turning from subsistence to commercial in export led sectors
(cocoa/cashew/sesame etc,)
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EEG Impact – Case Study - Sesame
 Crop volumes have grown almost 3 times in 5 years
 65000 MT (2005-06 ) to 180,000 MT (2011-12)
 Farmer incomes have trebled
 Average Naira 50000 / MT (2005) to 165000 / MT (2010)
 Farmer realization ~ 85% of CNF price( higher than Ethiopia and Sudan etc)
 Export profile shifting from natural seeds to de-hulled sesame seeds – greater
export revenue, greater local value addition, more investments, more local jobs,
 Diversifying markets – Far East , Middle East, Europe & USA
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Nigeria‘s non-oil export growth
Nigeria’s non-oil exports have grown 300% in the last 6 years(2005-11)
growing at a CAGR of 25%
Nigeria's Non-oil Exports(US$ billion)
3
2.8
2.5
2.3
2
1.8
1.5
1.9
Exports ($ mn)
Bn)
Exports($
1.3
1
1
0.8
0.7
0.8
0.7
0.5
0.2
0.2
0.2
1999
2000
2001
0
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Source :Cobalt/NEPC shipment statistics
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Nigeria‘s non-oil export growth
Agro-allied products drive Nigeria’s non-oil exports with Cocoa and leather
contributing about 50% of total exports
Product wise market share of non-oil exports: 2011 (%)
Leather
Cocoa
Cocoa
Cotton
Series1, Plastic footwear,
55, 2%
Series1, Aluminium, 76, 3%
Series1, Others, 516,
19%
Cashew
Rubber
Series1, Cocoa, 832,
30%
Series1, Tobacco, 76, 3%
Leather
Shrimps
Sesame seed
Tobacco
Series1, Sesame seed,
200, 7%
Series1, Cotton, 71, 2% Aluminium
Plastic footwear
Series1, Shrimps, 54, 2%
Series1, Leather, 500,
18%
Series1,
Rubber,
285, 10%
Series1, Cashew, 100, 4%
Others
Source: Cobalt/NEPC
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4
Need for incentives
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Incentives are needed to offset competitive cost disadvantages
faced by Nigerian exporters
 Nigerian cocoa exporters face a disadvantage even after taking EEG
into account(1/2)
Factors
USD/MT
Power cost disadvantage in processing
30
Additional port charges
10
Additional freight charges
10
Additional finance cost @ 8% p.a.
200
Disadvantage on account of low
productivity(yield/ha)
350
Import duty imposed in EU due to nonsigning of EPA by Nigeria
180
(A) Total disadvantage
(B)
EEG Benefit at full rate
(C)
Net benefit to exporter (A-B)
USD/MT
780
900
120
Subsidy available in Ivory Coast
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USD/MT
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Incentives are needed to offset competitive cost disadvantages
faced by Nigerian exporters
 Nigerian cocoa and cashew exporters face a distinct cost disadvantage
Cost disadvantage faced by Nigerian cashew processors
Cost/MT (US$)
Ivory Coast
Tanzania
Nigeria
FOB charges
21
17
30
Fuel & Energy
3
3
10
205
190
370
Wages
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5
Challenges faced by
Nigerian exporters
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Constraints faced by Nigerian exporters
• The government policy encourages diversification of the economy by boosting
non-oil exports. Incentives in the form of export grant are given to cushion the
impact of infrastructural disadvantages and high cost of doing business in Nigeria
• However, there is a need to improve the implementation of the policy to realize the
full potential of the non-oil sector
• Major challenges facing the non-oil export sector are
• Inconsistency in implementation of export incentive policy – frequent interruptions
• restrictions by customs to accept NDCCs
• Lack of appreciation of the contribution of the non-oil export sector to the economy
• Loss of preferential market access to EU due to non-signing of EPA
• Present system only allows payment after 1 year of export – causes delays
• Erosion of the benefit due to climbing discounts of NDCCs
• Nigeria was ranked 127 among 142 countries in terms of competitiveness (2012)
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Constraints faced by Nigerian exporters
Policy instability and discontinuity have weakened the non-oil export sector and
is affecting Nigeria’s image as a reliable international trading partner
The value of non-oil exports increased by 37.1% attributed to
„
improvement in production,processing and packaging of Nigeria‘s
products...........
Despite this development the non-oil export subsector performed
dismally accounting for only 3.6% of the total exports due to poor
Infrastructure,policy slippages and volatility of commodity prices.“
CBN Annual Report 2010 (P 146)
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6
Way forward
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Conclusions
Non-oil export promotion by way of incentives (EEG) should be sustained
1 Realization of government’s Transformation Agenda depends on

diversification of the economy
2 Non-oil exports have increased by 300% during 2005-11  investments, job

creation – growth much higher than Nig GDP growth rate
3 EEG is required to cushion the effect of infrastructural and other
disadvantages faced by Nigerian exporters
Need to have more effective inter-ministerial coordination on implementation
4
of policies by relevant agencies
5
Affirm clear and strong commitment to the incentive policy(no policy can be
perfect) for 5-7 years and review every 5 years to refine/improve – to attract
long term and big ticket investments
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Thank You
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