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Breaking News Nigeria, Latest Nigerian News > Uncategorized > Crude Oil or Nothing: The sad tale of Nigeria’s non-oil sector
Uncategorized

Crude Oil or Nothing: The sad tale of Nigeria’s non-oil sector

zaboris
zaboris October 6, 2019
Updated 2021/02/24 at 8:37 PM
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Nigeria’s non-oil sector abandoned for petrodollars

At independence in 1960, Nigeria’s non-oil exports, which were mainly agricultural commodities and solid minerals, made up 97% of Nigeria’s exports, according to reports from Nigeria Export-Import Bank, NEXIM.

Contents
Nigeria’s non-oil sector abandoned for petrodollars Why Nigeria isn’t benefiting from non-oil export

Crops like cocoa, cotton, palm oil, palm kernel, groundnut and rubber were major export commodities. 

This trend would see a major dramatic shift between 1970 and 1974 when the international oil price increased from $1.27 to $11. This period saw Nigeria’s non-oil export drop from 43 per cent to an abysmal 7 per cent.

“The ensuing Dutch Disease led to movement of resources out of the non-oil sector, contributing to its neglect and lack of investments in the erstwhile export sectors, particularly value-added export,” said Ibrahim Bello, Managing Director of NEXIM at a recent event by Finance Correspondents Association of Nigeria, discussing the non-oil sector, in Lagos.

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It is estimated that Nigeria has lost about $10 billion, about N3.6 trillion, in export opportunities in crops like Cocoa, Oil Palm, Cotton and Groundnut over the past five decades.

Palm oil used to be one of Nigeria’s FX earnings

Although the government had tried to correct this imbalance over the past 20 years by investing in agriculture, the exigencies of maintaining a humongous federal government has made it impossible.

As at 2018, Nigeria’s non-oil sector only accounts for just about 5 to 7 per cent of exports by value.

Although, export values of other agricultural sub-sectors like shea, ginger, cassava, yam, sweet potato, cowpeas and pineapple continue to rise, Nigeria has been unable to benefit despite being one of the highest producers of those commodities in the world.

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Why Nigeria isn’t benefiting from non-oil export

Many reasons account for why Nigeria has harnessed the enormous potential it has with the non-oil sector. But the Managing Director of Heritage Bank, Ifie Sekibo, located it squarely on lack of quality education by the citizenry.

“If you are going to earn well from non-oil sector, you need to educate your people,” Sekibo told the conference of finance writers.

According to Sekibo who was represented by Segun Akanji, who is the bank’s Divisional Head, Strategy and Business Solutions; without education, it is impossible for the people to harness Nigeria’s non-oil sector opportunities through profitable value additions.

Also, read This small Aba start-up is taking on Nigeria’s adulterated palm oil cabal

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“The essence of education is this. If I take cocoa from a farm in Nigeria, how much is one pod? But if you pass through duty-free, whether in Dubai or Heathrow airport, you buy one small chocolate for £5 and just imagine how many chocolates that can be produced from that one cocoa pod.

“By the time you add the same grammage, the guy that processed it get to earn more than the farmer that produced it. There is nothing too difficult in being able to add the amount of revenue that comes to this guy that added value to cocoa,” he said.

Groundnut pyramid used to be the pride of Northern Nigeria

When the Nigerian government talks about Nigeria’s non-oil sector, the obvious direction is always agriculture. But many argue that, in 2019, the obvious direction must not be agriculture, but a wide array of options including financial derivatives, taxation and technology.

One of those who make this argument is Oginni Odiri, who is the Managing Director of Asset Management at United Capital, one of Nigeria’s top investment banks.

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According to Oginni, Nigerian investors’ aversion to risk and the government’s inability to efficiently manage abundant resources have contributed to the undoing in Nigeria’s non-oil sector.

“The truth is, once you are comfortable, you cannot take risks. You cannot think differently. We are moving from oil to where? What the government is pushing is agriculture, and that agriculture is the new oil. But then, is agriculture really the new oil? If Nigeria wants to diversify its economy, must it be through agriculture?” she posited.

She added: “Nigeria has enormous potential, but once you have lots of resources, it is always difficult to manage what you have and get the best. The developed economies we have today, they don’t have as much as we have and that is why they are able to manage what they have.”

It is difficult to talk about non-oil revenue without talking about taxes. Nigeria, according to reports, has one of the lowest taxes to GDP ratio in the world. The government has been pushing to reverse this. The most recent attempt is the proposed increase of value added tax to 7.5 per cent from 5 per cent.

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But experts believe, the government is going about it the wrong way. With multiplicity of taxes and millions outside of tax net, they argue, not much can change with such measures.

“We pay Company Income Tax, CIT 30%, education tax, 2%, whatever is left, we pay withholding tax of 10%. If you add it together, it is more that 40% already. If you now make a mistake of having a group and you say it’s a holding company, another 30%. Who does that?” said Taiwo Oyedele, who is a Tax Leader at professional services firm, PwC Nigeria.

According to him, “the reason Nigeria cannot make money from tax, is that it continues to beat up the people at the bottom of the ladder”.

He argued that since the people “cannot give you what they don’t have” the government ends up with nothing in the form of tax.

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He recommends that the government takes the approach of other societies “where they think things logically, by focusing on the top 1%”.

TAGGED: Fidelity Bank, Ibrahim Bello, NEXIM, non-oil export, Segun Akanji
zaboris October 6, 2019
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