Non-oil export business in Nigeria Impact of Incentives on Agribiz Presented by

1. Non-oil export business in Nigeria Impact of Incentives on Agribiz Presented by Creating Value is our business Olam Nigeria Ltd. November 2012

2. Contents 1 Introduction 2 Prospects 3 Impact of EEG 4 Need for incentives 5 Challenges faced by Nigerian exporters 6 Way forward

3. 1 Introduction

4. 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

5. 2 Prospects

6. 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 • Agriculture • Manufacturing • 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

7. 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

8. Nigeria‘s long-term economic potentialThere 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.

9. 3 Impact of EEG

10. 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,)

11. 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

12. 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% Exports ($ Bn) Source :Cobalt/NEPC shipment statistics

13. 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 (%) Leather Cocoa Source: Cobalt/NEPC

14. 4 Need for incentives

15. 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)

16. Incentives are needed to offset competitive cost disadvantages faced by Nigerian exporters • Nigerian cocoa and cashew exporters face a distinct cost disadvantage Cost disadvantage faced by Nigerian cashew processors

17. 5 Challenges faced by Nigerian exporters

18. 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)

19. Policy instability and discontinuity have weakened the non-oil export sector and is affecting Nigeria’s image as a reliable international trading partner Constraints faced by Nigerian exporters „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,policyslippages and volatility of commodity prices.“ CBN Annual Report 2010 (P 146)

20. 6 Wayforward

21. Conclusions Non-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 1 2 3 4 5

22. Thank You