- 1 -Olam Impact of incentives on Nigeria’s agribiz
Non-oil export business in NigeriaImpact of Incentives on Agribiz
Presented by
Creating Value is our business
Olam Nigeria Ltd.
November 2012
- 2 -Olam Impact of incentives on Nigeria’s agribiz
Contents
1 Introduction
2 Prospects
3Impact of EEG
4 Need for incentives
5 Challenges faced by Nigerian exporters
6 Way forward
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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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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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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%
Source :Cobalt/NEPC shipment statistics
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 20110
0.5
1
1.5
2
2.5
3
0.2 0.2 0.2
0.80.7
0.80.7
1
1.3
1.81.9
2.3
2.8
Nigeria's Non-oil Exports(US$ billion)
Exports($ mn)Exports ($ Bn)
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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 (%)
Source: Cobalt/NEPC
Cocoa; Series1; 832; 30%
Cotton; Series1; 71; 3%
Cashew; Series1; 100; 4%
Rubber; Series1; 285; 10%Leather; Series1; 500; 18%
Shrimps; Series1; 54; 2%
Sesame seed; Series1; 200; 7%
Tobacco; Series1; 76; 3%
Aluminium; Series1; 76; 3%
Plastic footwear; Series1; 55; 2%
Others; Series1; 516; 19%
CocoaCottonCashewRubberLeatherShrimpsSesame seedTobaccoAluminiumPlastic footwearOthers
Cocoa
Leather
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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 USD/MT 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 non-signing of EPA by Nigeria
180
(A) Total disadvantage 780
(B) EEG Benefit at full rate 900
(C) Net benefit to exporter (A-B) 120
Subsidy available in Ivory Coast 188
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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/MT (US$) Ivory Coast Tanzania Nigeria
FOB charges 21 17 30
Fuel & Energy 3 3 10
Wages 205 190 370
Cost disadvantage faced by Nigerian cashew processors
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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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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)
Constraints faced by Nigerian exporters
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ConclusionsNon-oil export promotion by way of incentives (EEG) should be sustained
Realization of government’s Transformation Agenda depends on diversification of the economy
Non-oil exports have increased by 300% during 2005-11 investments, job creation – growth much higher than Nig GDP growth rate
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 of policies by relevant agencies
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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