ECONOMY - 21 MAR 2018

After Oil comes?

After Oil comes?
Above - Inauguration of Olam farm in Kaduna. Nigeria has focused on agriculture as the next frontier beyond oil, yet challenges persist in execution.

What Nigerian products or services can you confidently recommend over any foreign alternative?

Until this becomes an easy exercise, a hyper-focus on reducing imports is a distraction from the need to do more to create competitive export and domestic industries.

Nigeria’s economy is diversified. By this, I mean oil only contributes c.8% of GDP; however, at 81% the same cannot be said for its export contribution. Oil's ability to sink our currency and drive Nigeria into recession raises dependency alarm bells, however, by focusing on eradicating Imports, is today's administration addressing this well-known threat?

 

War on Rice

Protectionism is a range of trade policies that artificially tries to level the playing field between domestic products and competing imports. Here, imports are seen as the primary barrier to local industries developing. The anti-import narrative has always been popular in Nigeria dating as far back as the first National development plan through an import-substitution strategy. Fifty-odd years later, and the anti-imports tale is still alive with today's fight transpiring against agricultural imports. 

Government's dislike for imports is not limited to the development of domestic industries; it also plays a significant impact on monetary policy. The more we import, the more reserves the CBN must spend to maintain the price of the naira, and when oil, our primary source of foreign revenue, declines, the apex bank is at risk of not being able to stabilise the currency. This requirement of reducing the import bill to save reserves is what inspired #BuyNaijaGrowTheNaira.

However, these reasons for fighting imports miss the fact that a better strategy of developing our non-oil exports improves our dependency issues without making Nigerians pay for it. 

Take a look at rice, import enemy number one. Although progress in the FX market has led to the relaxation of the rice import restrictions, the government is still determined to stop its importation by the end of the year. However, banning rice does not automatically improve our ability to produce it. Until we address structural factors such as high interest rates and the price of diesel, which drive up the price on domestic rice, the average Nigerian will pay more. In fact, forcing Nigerian’s to consume more expensive home-grown rice only makes the business of rice smuggling more lucrative, adding to the N1.12bn of taxpayers money already spent on “anti-rice smuggling vehicles”. 

You can begin to see how banning imports places a financial burden on Nigeria and at the same time reduces our choice of products. All this without tackling the factors that prevent us from producing cheaper rice. 

Although it is slowly becoming standard practice to narrow Nigeria's trade to a few crops, there is more to it.  

 

Trade Balance

Oil and gas drove Nigeria's exports above imports last year, and at the same time agriculture exports grew by 181% against a 35% increase in imports. The government saw this as a good opportunity to highlight that food imports were heading down. While this might look like a success, consider that 2017’s agriculture imports were still higher than 2014 figures, and we are also exporting less - there's a flaw in comparing anything to a recession year. Yes, exports as a whole are on the right path to surpass pre-oil crisis levels, but so far this recovery has only been in crude, which increased from 73% of our exports to 81% since the crash.  

The truth is we can fight imports and force Nigerians to pay more for food, but we cannot force the rest of the world to buy our exports and do the same. The story of our yam exports being rejected is proof that the world is not willing to import substandard goods from us. If we are going to ban imports to produce and export ourselves, it has to be competitive and of good quality. We export oil because we are relatively more competitive than other non-oil exporting countries.

 

After Oil comes? 

So after oil what is our next big exporting industry? The initial answer appearing from the Zero Oil plan is agriculture. But, it won't be easy on a global scale considering the billions of dollars the US and EU subsidise their farmers with. Perhaps exporting to Africa with help from the proposed free trade agreement might work out.

But what about other Nigerian industries which also have greater value adding ability, such as Entertainment and Media, Retail, ICT, and Financial services, which are all tipped to exhibit massive growth in the next few years? Why are they not getting as much attention? 

Whichever industry comes after oil there needs to be a high level of collective steering before we can ever convince others, including ourselves to #BuyNaija. Regardless of the industry, the focus should be on improving the industry first not banning its import competitors. Let's not forget when Nigeria's biggest tomato paste factory was left idle because local production couldn't provide the quantity or quality required. A reminder that local production and exports need imports to function.  

Follow this writer on Twitter @keleennaO. Subscribe to read more articles here.

Keleenna Onyeaka

Keleenna Onyeaka

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