ThinkBusiness Today - May 9th

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Two related upcoming events dominated news in the last 24 hours – both trying to solve old problems. This morning, the Central Bank of Nigeria will continue its push towards expanding non- oil exports – the third edition of RT200 Non-Oil Export Summit 2023, focusing on gains made and how to unlock further opportunities, and the implications of infrastructure deficits on Nigeria’s ability to increase non – oil exports.

It was also announced in the last 24 hours that President Muhammadu Buhari will commission the world’s largest single train refinery in Lagos State on the 22^nd of May. The Dangote Refinery is seen as the answer to Nigeria’s lingering fuel scarcity and foreign currency’s hemorrhage.

Following these announcements, I thought to share some key understanding of non-oil exports in Nigeria – See News analysis below.

Markets

• The benchmark NGX All-Share Index (ASI) inched up 114.21 (0.22%) points to close at 52,579.52, representing a 1-week gain of 0.34%, a 4-week loss of 2.96%, but an overall year-to-date gain of 2.59%. Banking Index increased by 0.62%, while consumer good index improved by 0.56%.

• Oil rose almost 4% on Monday as U.S. recession fears eased, with the expectation that trading this week will end three straight weekly declines for the first time since November. Brent crude was up 3.86%, at $76.68 a barrel. Oil's rebound follows energy stocks' comeback on Wall Street last Friday after the U.S. reported strong job data, easing concerns about an imminent economic recession.

• The Naira depreciated marginally by 0.02% at the I & E window as the rate closed N462.78/$ and at the parallel market closed at N742/$, indicating at 1.37% depreciation

• U.S. natural gas futures gained about 3% to a one-week high on Monday on small declines in daily output despite forecasts for milder weather and less demand over the next two weeks than previously expected.

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National Headlines

• The Federal Government has said it has successfully evacuated all Nigerians fleeing the civil war in Sudan but got stranded at the Egyptian border. A total of 834 Nigerian evacuees from Egypt and Port Sudan arrived at the Nnamdi Azikiwe Airport, Abuja on Sunday, bringing to 1,471 the number of Nigerians so far evacuated and brought back to Nigeria from Egypt and Port Sudan in five days. Meanwhile, Sudan’s envoys begin talks in Saudi Arabia amidst pressure to end conflict.

• Security has been beefed up at the Court of Appeal in the Federal Capital Territory as the Presidential Election Petitions Tribunal commences the pre-hearing of the petitions challenging the outcome of the February 25 presidential election. The People’s Democratic Party (PDP) and the Labour Party petitions will be heard Tuesday (t0day) and Wednesday (tomorrow), respectively.

Global Headlines

• The central parity rate of the Chinese currency Renminbi, or the yuan, weakened 44 pips to 6.9158 against the dollar on Monday, according to the China Foreign Exchange Trade System. Meanwhile, China’s reserves rose to US $3.2 trillion to reach 14 months high in April, while raising official gold reserves for the sixth consecutive month to reach 66.76 million ounces, also in April.

• President Joe Biden and top Republicans and Democrats from Congress are set to meet over the $31.4 trillion U.S. debt ceiling and avoid a crippling default before the end of May. The Democratic president is calling on lawmakers to raise the federal government's self-imposed borrowing limit without conditions. Republican House of Representatives Speaker Kevin McCarthy has said his chamber will not approve any deal that does not cut spending to address a growing budget deficit. Janet Yellen, the US treasury secretary has warned of unprecedented and serious economic distortions if the US should default.

• Sterling hit an over-one-year high against the dollar on Monday as the greenback began the week under pressure, reflecting the continued fall of the dollar index – the US dollar’s value relative to a basket of currencies, which fell 0.91% in April. The pound poked its head as high as $1.2668, its highest since April 2022, and was last trading a touch below that, up 0.26% on the day.

• German industrial production fell more than expected in March, partly due to a weak performance by the automotive sector, spurring again recession fears in Europe's largest economy. Production decreased by 3.4% on the previous month following a slightly revised increase of 2.1% in February, the federal statistical office said on Monday. In a Reuters poll, analysts had pointed to a 1.3% fall. After a buoyant performance by industrial production at the beginning of the year, there was an unexpectedly sharp decline in March 2023.

• The Russia / Ukraine war escalated this week as Russia launched a wave of new strikes on Ukrainian cities, including Kyiv, the capital.

News Analysis

Today, the Central Bank of Nigeria hosts a Non-oil Export summit with a view of looking at the Export trend, opportunities and challenges.

Putting some things in perspectives about the non-oil export in Nigeria, the Figure below shows the summary of the dynamics of exports since independence in 1960, and what needs to change. It shows two major distinct trajectories. The first is that the period since independence until the oil price spike of 1972 was dominated by agriculture exports. The second is the post-oil price spike period, where crude oil export has continued to dominate the nation’s export numbers, consistently accounting for over 80% of export receipts. 50% of government revenues, but less than 10% of Nigeria’s Gross Domestic Product (GDP).

Structure of Nigeria’s Exports in %s 1960 - 2020

The third, following from the first two features, is that Nigeria’s exports have been dominated by primary goods exports (crude oil + agriculture) since independence. It thus means that Nigeria has not ‘graduated’ into the industrial phase. Therefore, meaningful structural transformation has yet to take place. Fourth, it also shows that Nigeria’s exports are non-reflective of the structure of production (GDP) in the economy. While the oil and gas and agriculture combined account for about 34% of GDP between 2015 and 2020, they account for about 90% of exports. This sometime means that much of the gains of Nigeria’s export are outside the shores of the land, especially with crude being refined outside the country.

This is where non-oil exports come in. There are two major and distinct categories of non–oil exports from Nigeria – agriculture exports, and industrial exports. According to the 2020 data, the data on non-oil exports shows some surprising elements. Nigeria’s non-oil exports include Agriculture 23%; Raw material goods 8%; Solid minerals 1%; Energy goods 1%; Industrial goods account for the balance of 67%. What this shows is that the nature of non-oil exports is far from hitherto conceptualized and very dynamic, within and across sectors. For instance, the major agriculture exports at independence were cocoa, groundnuts, palm kernel etc., but now the major agriculture exports are sesame seeds, cashew, cocoa beans etc.

Successive governments have not done enough about non – oil exports. Just last week, I commented that since 2018 that the US banned the importation of dried fish form Nigeria, the Nigerian government has not been able to resolve the gaps that led to the ban. Successful exporting nations have focused on granular, detailed, and intensive collaboration between the public and private sectors to expand exports.

That is not happening here in Nigeria.

To expand non – oil exports, work is required in the understanding and working together of Special Economic Zones (SEZs), the infrastructure required, the knowledge of markets, knowledge of standards, simplifying the export process at the ports, the importation of inputs, exchange rate stability etc.

There is serious work here, and the weakness we see it’s because the serious work has not been done.

The Week Ahead

• The Central Bank Nigeria (CBN) will issue a total of N143.98billion treasury bills on Thursday 11^th May 2023 as the same amount will be maturing the same day. The Bank disclosed this on Nigeria's treasury bills programme released on its website on Wednesday. The bills are divided into 91-days, 182-days, and 364-days raising N4.5 billion, N5.4 billion and N134 billion respectively. The bills are also a roll-over of maturing bills for the corresponding period.

• UK Q1’23 GDP growth is expected to be released on Wednesday 12^th May 2023. US April’s inflation report is due tomorrow, followed producer price data on Thursday. These key data releases will provide the underlying conditions of the US economy and its direction.

• The group of seven finance ministers – France, Germany, Italy, Japan, US, UK, and Canada – will meet this week (May 11 – 13), ahead of the 49^th G7 summit, to be held May 19 – 21 in Hiroshima, also in Japan.