Nigeria’s Naira Devaluation Fails to Boost Non-Oil Exports, Highlighting Structural Challenges
Despite the significant devaluation of the Nigerian naira since June, the country’s non-oil exports remain stagnant, revealing structural challenges that impede the benefits of a weaker currency. The naira has depreciated by over 40%, but the share of non-oil exports in total export proceeds is only 6.5%, the lowest since Q2 2019. Experts cite issues such as poor infrastructure, lack of competitiveness, and a dearth of value addition in the agricultural sector as hindrances to Nigeria’s export growth.
Key Points:
- Naira Devaluation Impact: The Nigerian naira has lost over 40% of its value against the dollar since June, making it the most significant depreciation among currencies tracked by Bloomberg. Traditionally, a weaker currency is expected to boost exports by making them more competitive on the global market.
- Non-Oil Exports Stagnant: Despite the naira devaluation, the share of non-oil exports in Nigeria’s total exports is only 6.5% in the third quarter of this year, the lowest since Q2 2019. This indicates that the expected increase in exports post-devaluation has not materialized.
- Lack of Competitiveness: Nigeria’s non-oil exports face challenges in terms of competitiveness. Obiora Madu, CEO of Multimix Group, notes that the lack of competitiveness is preventing the country from reaping the benefits of the recent naira devaluation. Nigerian commodities are comparatively expensive in the international market due to poor infrastructure and high production costs.
- Infrastructure Bottlenecks: Poor infrastructure, especially in transport systems like roads and rails connected to seaports, contributes to higher production costs in Nigeria. The lack of adequate infrastructure makes locally manufactured goods less competitive globally.
- Low Value Addition: The low value addition in the Nigerian agriculture sector hampers its potential. The country exports raw commodities without significant processing, leading to lower export proceeds and high post-harvest losses.
- Comparisons with Brazil: Brazil, with a population just nine million larger than Nigeria, earns significantly more from its non-oil exports, particularly in commodities like sugar, soybeans, and maize. The value addition in Brazil’s exports contrasts with Nigeria’s reliance on raw commodity exports.
- Value Chain Opportunities: Economists emphasize the need for Nigeria to move beyond exporting raw commodities and focus on value addition in the agricultural sector. The higher the value chain closer to consumers, the greater the potential earnings for investors.
Conclusion: Nigeria’s struggle to boost non-oil exports post-naira devaluation highlights underlying structural challenges. The lack of competitiveness, poor infrastructure, and low value addition in the agricultural sector hinder the country’s ability to benefit fully from a weaker currency. Addressing these issues is crucial for Nigeria to unlock the true potential of its non-oil export sector and achieve sustainable economic growth.
