By Chinwendu Obienyi
The pursuit of economic growth has always been at the front burner of economic policy of most developing countries.
However, this pursuit is often hindered by the non-availability of resources that would drive the process of achieving the required economic growth.
For a developing country like Nigeria, the state of infrastructure especially in the agricultural sector has been mediocre and with the rising population, there are concerns about the country’s ability to meet food security needs, boost exports and FX inflows despite food inflation moderating by 134 basis points (bps) to 39.53% in July from 40.87% recorded in June.
This is coming after the Central Bank of Nigeria (CBN) had last week reported that remittance inflows through its official window hit a historic high of $553 million in July. Based on the assessment of the CBN data, the inflow is the highest inflow in the official channel in 11 months and represents a 130% year-on-year (y/y) surge over the corresponding period in 2023.
Given historical antecedent which shows that remittances is the second highest source of FX inflows into Nigeria, this growth in remittance if sustained, could bolster FX availability and by extension ease the lingering FX volatility.
According a report by Afrinvest Research, the total direct inflows in the first five months grossed $841.4 million and sustained improvements have been recorded since the apex bank intensified its reforms beginning from March.
The surge in remittances is a promising sign, indicating that the measures being taken by the CBN is rubbing off positively on inflows through official channels. If the trend continue, exchange rate could stabilize and business conditions could improve in the not-too distant future.
Beyond improvement in the remittance inflows, there is also need for the government to improve the export potential of non-oil sectors through supportive fiscal and monetary policies to enhance FX liquidity.
For instance, Nigeria remains heavily reliant on crude oil, which accounts for about 85-90% of total export revenues. Despite efforts to diversify, oil continues to be the backbone of the economy, making the country vulnerable to global oil price fluctuations.
The government is actively promoting non-oil sectors like agriculture and solid minerals, but these industries face structural challenges leading to many financial experts stating that diversification of Nigeria’s exports remains a long-term goal, with the potential to be realized through continued investment in infrastructure, policy reforms, and regional trade integration like AfCFTA.
In fact, during the last Monetary Policy Committee (MPC), the Governor, CBN, Olayemi Cardoso, stated that the lack of diversification, excess liquidity and global headwinds, contributed significantly to the current economic difficulties.
He explained that the Nigerian economy has long been dependent on a single source of revenue, primarily oil, making it vulnerable to external shocks.
“Over a period of time, we have had an economy and have failed to be diversified. We would argue that the Nigerian economy has basically been a monolithic one, in which we have more or less depended on one source of revenue. A monolithic economy has its own risks and part of those risks is that if anything happens to your dependency, then the whole system is shaken.
Let us not also forget that there are global headwinds as well. Furthermore, the present condition was largely as a result of a tremendous amount of liquidity which came into the system in a short space of time. When you print money on “ways and means”, it has its consequences and we are paying for the consequences right now unfortunately”, Cardoso explained.
The hard truth is diversification does not occur in a vacuum and a mono economy needs to give way to the productive development of various sectors of the economy.
Hence, the question is how can the government strengthen its export base to boost and improve its inflows?
Experts react
The Chief Executive Officer, Cowry Asset Management Ltd, Johnson Chukwu, pointed out that the government needs to find ways to boost the capacity of local manufacturing to export finished goods rather than raw materials (e.g., textiles, footwear, plastics) as this would help diversify Nigeria’s export base.
Chukwu also explained that the government should leverage regional and international trade agreements such as the African Continental Free Trade Area (AfCFTA) to access larger markets.
He said, “Negotiating better terms for Nigerian products in global markets will help facilitate increased exports. Providing incentives like tax rebates and subsidies to export-oriented industries can encourage production for international markets. Export credit facilities and insurance can also mitigate risks for businesses looking to export.
Also, improving the efficiency of ports, road, and rail infrastructure is crucial for reducing the cost and time of exporting goods. Better logistics will make Nigerian exports more competitive in the global market.
The government needs to prioritize reforms and investments in the power sector to support manufacturing and processing industries that contribute to exports”.
The Managing Director, Decof Investments Ltd, Moses Igbrude, said, streamlining export procedures, reducing bureaucratic red tape, and enhancing transparency in government agencies involved in exports will improve the business climate for exporters.
“A multi-faceted approach to strengthening Nigeria’s export base can significantly increase foreign exchange inflows. This involves diversifying the economy beyond oil, improving infrastructure, fostering entrepreneurship, enhancing trade agreements, and creating an enabling environment for businesses to thrive. By focusing on value addition, technology, and strategic investments, Nigeria can build a more robust and resilient export-driven economy”, Igbrude said.
For their part, analysts at Afrinvest Research said, “Whilst the agric sector accounts for 21.1% share of domestic GDP (Q1 2024), its contribution to export earnings remains at a meagre 2.4% as compared to 11.9% share of exports for South Africa.
This underscores the fact that the potential of this large sector remains under-utilised. If efforts are geared towards improving exports in the agric sector, proceeds from it could help support FX inflow”.