The reality that Nigeria as a nation is known to have huge export and investment potential leaves the government seeking inter-country partnerships towards boosting foreign direct investment (FDI) and foreign exchange, as well as creating new trade routes across borders. Ruth Tene Natsa and Favour Okpale write on the trajectory of growth and the export boost to the Nigerian economy.
BACKGROUND:
According to the Nigeria Bureau of Statistics (NBS), in the fourth quarter of 2022, Nigeria’s total trade stood at N11,722.44 billion, of which total exports stood at N6,359.61 billion and total imports amounted to N5,362.83 billion. On an annual basis, total trade was N52,387.30 billion, total imports amounted to N25,590.55 billion, and total exports were recorded at N26,796.75 billion.
The Bureau noted that total exports increased in the fourth quarter by 7.17 percent and 10.28 percent when compared to the amount recorded in the third quarter of 2022 (N5,934.15 billion) and the corresponding quarter in 2021 (N5,766.62 billion), respectively. Conversely, total imports declined by 15.46 percent in the fourth quarter of 2022 compared to the value recorded in the third quarter of 2022 (N6,343.53 billion) and fell by 9.73 percent when compared to the value recorded in the corresponding quarter of 2021 (N5,940.58 billion).++ The Re-export value in the quarter under review stood at N199.59 billion, representing 3.14 percent of total exports.
However, in 2023, Nigeria witnessed a sharp decline in foreign investment inflows, dropping by 26.7 percent to $3.9 billion from $5.3 billion in 2022. This decline, as reported by the National Bureau of Statistics (NBS) and analysed by Nigerian Economic Summit Group (NESG) Research, was predominantly driven by heightened political risks and rising production costs that dampened investor confidence throughout the first three quarters of the year.
“The scheme focuses on three critical investment areas, which include manufacturing at 45 percent, services at 30 percent, and oil and gas at 11 percent.”
The top five export destinations were Namibia and Equatorial Guinea, Cameroun, Ghana, and Togo, while the most re-exported commodity was ‘Floating or submersible drilling or production platforms with N142.02 billion, this was followed by ‘Cruise ships and similar vessels for the transport of persons or goods <=500 tonnes’ valued at N14.78 billion and ‘Refrigerated vessels, other than those of subheading 8901.20, of a capacity > 500 tonnes’ amounting to N13.16 billion.
Meanwhile, data obtained from the Nigeria Export Processing Zones Authority (NEPZA) has revealed that it has contributed a total sum of N11.1 billion into the federation account between 2020 and 2023.
NEPZA is considered the major driver of the government’s initiative to diversify the Nigerian economy, with attractive investment packages and a focus on economy-driven sectors. NEPZA provides investment opportunities in different sectors across the country.
The scheme focuses on three critical investment areas, which include manufacturing at 45 percent, services at 30 percent, and oil and gas at 11 percent. It has 56 free trade zones harbouring 580 enterprises with a cumulative value of USD 30 billion.
The data available to BusinessDay revealed that the authority collects over 20 types of revenues, ranging from 500,000 USD in declaration fees, 60,000 USD annually as an operation licence (OPL), and 3000 USD to 500 USD in registration fees, in line with existing regulations on IGR remittances to the Federation Account.
“There are also the 100 USD to 300 USD examination and documentation fees per transaction, which occur daily, as well as other periodic revenues derived from vehicle registration and visas, among others. The operations within the free trade zones are not free in the context of the word.”
It also states that the authority’s first and second quarters of the 2023 Key Performance Indicator (KPI) showed that a combined total of 21.3 million USD was generated as foreign direct investment, while N9.8 billion was accrued as local direct investment. Conversely, a total of 28.9 million USD was generated as international exports and N250.5 billion was accrued to the government as domestic exports, while 338.9 million USD and N36.3 billion were generated as international imports and domestic imports, respectively.
Furthermore, the figure that accrued to the government as customs duty stood at N20 billion, while that of payroll amounted to N346.8 million, and a total of 3,776 jobs were generated within the two quarters reviewed.
In total, the Authority’s 40 percent contribution to the consolidated revenue in naira as of November 2023 stood at N1, 800,809,1773.38, with a similar 40 percent margin of transfer to the account in dollars amounting to USD 1, 167,122.86.
The total of the figures generated in 2023, which included figures from Tender Fee, Withholding Tax (WHT), Value-Added Tax (VAT), Stamp Duty, PAYEE, and Customs Duty, stood at N38, 879, 485, 774, 568.90.
The data further revealed that the scheme is also fulfilling its mission of generating employment for citizens.
The direct employment generated by the zones currently stands at 38,429 jobs, with an additional 172,930 indirect jobs created at the end of 2023. Furthermore, the scheme has fostered skill development, with many semi-trained artisans gaining the expertise to start their ventures.
Foreign direct investment (FDI) and local direct investment (LDI) from 2019 to 2023 have reached $491.8 million and $1.15 trillion, respectively. It adds that the Free Trade Zones have also contributed to import substitution, with over ₦1.62 trillion worth of cargo imported from these zones between 2019 and 2023, saving scarce foreign exchange.
Nigeria no doubt remains an investment destination with its rich record of untapped mineral resources and abundant agricultural repository, at a time when global businesses are seeking new investment destinations.
Speaking with BusinessDay, Ayo Sotinrin, an ardent environmentalist, finance expert, and the MD/CEO of SAO Agro, is optimistic that President Bola Ahmed Tinubu’s administration is strengthening agricultural produce safety as well as animal and plant health capacity for the country to regain its top continental status in exports.
Sotinrin, however, believes that to achieve the export vision of the administration, there is an urgent need to further improve the development of infrastructure.
In his words, “the Tinubu administration needs to further improve infrastructural capacity, such as power and transport, and reduce the negative impact of the gridlock at the ports on the shelf-life of agricultural produce.
Meanwhile, Ibrahim Usman, the president and CEO of the Nigerian-Saudi Chamber of Commerce, Industry, Mines, and Agriculture, has said that Nigeria has huge arable land that can be used for agriculture, adding that it also has several valuable mineral resources that could be exploited.
He says, “We can develop our agriculture in such a manner that we could be exporting to Saudi Arabia, which imports all its food. Similarly, Nigeria needs a lot of funding, technical support, skills, and equipment to be able to develop our economic sectors.”
“For instance, Saudi Arabia has been trying to compete with the US, China, and Europe in terms of energy storage, which cannot be done without batteries, and batteries cannot be made without lithium, a strategic mineral that Nigeria has in abundance.”
He adds that “for sustained growth and improved investor confidence, the Nigerian government must address these challenges and create a more favourable business environment. This includes resolving persistent issues in the oil sector, improving the regulatory landscape, and providing necessary support to the industrial sector.”
The persistently unfavourable investment climate has significantly impacted several foreign-owned subsidiaries, as major companies like Nestle, Guinness, Airtel Africa, MTN Nigeria, and most recently, Multichoice, the owners of DSTV, have collectively lost over N100 billion due to currency devaluation as well as the high economic cost, affecting demand and supply.
This downturn underscores the broader economic challenges Nigeria faces, despite attempts at policy reforms aimed at stabilising the market.
Some of these challenges range from insecurity, EU/US rejection of Nigeria’s agricultural products, forex decline, and various government policies that affect businesses locally.
However, in the fourth quarter of 2023, Nigeria implemented crucial pro-market reforms, including the removal of fuel subsidies and the harmonisation of the exchange rate. These measures sparked a positive shift, with capital importation rising to $1.1 billion in Q4 2023. The Central Bank’s efforts to clear foreign exchange backlogs also contributed to this uptick, bolstering investor confidence.
Foreign Direct Investment (FDI) in Q4 2023 surged to $184 million, a significant rise from $84.2 million in Q4 2022. Consequently, FDI’s share of total investment inflows jumped to 16.9 percent from 7.9 percent year-on-year. Similarly, foreign portfolio investment (FPI) increased by 8.6 percent to $309.8 million in the same period. However, other investments, mainly foreign loans, declined to $594.8 million from $691.2 million.
Despite the fourth-quarter recovery, the overall FDI for 2023 fell by 19.4 percent to $377.4 million from $468.1 million in 2022. Major multinational companies, including Shell, GlaxoSmithKline Consumer Nigeria, and Procter & Gamble, divested from Nigeria, citing an unfavourable business environment. Shell, for instance, sold its onshore oil fields for $2.4 billion.
Sectoral impact and economic performance
The divestments have notably affected Nigeria’s manufacturing sector, which expanded by a modest 0.5 percent in the first three quarters of 2023 compared to a 1.9 percent contraction in the same period of 2022. These weak capital inflows have led to a shortage of foreign exchange, further depreciating the naira.
In the first quarter of 2024, Nigeria’s economy grew by 2.98 percent, a decline from the 3.46 percent growth recorded in Q4 2023 but an improvement from the 2.31% growth in Q1 2023. The non-oil sector, accounting for 94 percent of real GDP, remained the primary driver of economic activity. The oil and gas sector grew for the second consecutive quarter, achieving a 5.7 percent growth rate in Q1 2024, driven by increased domestic crude oil production.
However, the industrial sector experienced mixed performances. While manufacturing and water supply sectors expanded, electricity supply, non-oil mining, and construction sectors contracted. The Dangote Refinery’s commencement in Q1 2024 did not prevent a sharp 33.4 percent contraction in the oil refining sub-sector, highlighting the need for expedited actions to revive local refineries.
Challenges and future outlook
Despite some positive developments, Nigeria continues to grapple with significant economic challenges. Inflation remains a major concern, with the annual average rate rising to 24.7 percent in 2023 and monthly inflation hitting a 27-year high of 33.7 percent in April 2024. The food inflation component surpassed 40.5 percent, and core inflation reached 26.2 percent.
The Central Bank of Nigeria (CBN), through its international payment data, reported that Nigeria recorded $282.61 million in total foreign exchange (FX) remittances in the first quarter (Q1) of 2024.
Representing a decrease of $18.96 million, or 6.28 percent, compared to the $301.57 million diaspora remittances in Q1 2023.
Efforts to diversify Nigeria’s economy away from oil by bolstering the manufacturing sector are ongoing. The Federal Ministry of Industry, Trade, and Investment has announced investment commitments totaling $30 billion over the next five to eight years. However, issues such as corruption, political instability, and inadequate infrastructure continue to hinder foreign direct investment.
Similarly, the mining and solid minerals sectors have declared efforts to revive the Ajaokuta Steel Company Limited (ASCL) and the National Iron Ore Mining Company (NIOMCO) by engaging the consortium led by the original developers of Ajaokuta Steel Company Limited (ASCL), Tyamzhpromexport (TPE), to revive the steel plant.