Tuesday, September 26, 2017

Export As A Foreign Exchange Earner: Prospects And Challenges

Exportation is a major foreign exchange earner for any economy in the world, but it has to involve multiple products for it to be sustainable. In Nigeria for example, the major foreign exchange earner is the exportation of crude oil and gas with both constituting more than 90% of the exportation from Nigeria. Despite the huge prospect that the exportation of other products (like Agricultural products and Solid minerals) presents, the challenges in the export business has prevented the country from realising the export potentials in these other sectors.

According to the world top export, the total export volume from Nigeria in 2016 was $34.9B and the top ten items exported from Nigeria in the same period include Crude Oil - $31.9B, Cocoa -$899.1M, Wood -$279.4M, Oil seeds -$279.2M, Hides and Skin -$216.7M, Raw Minerals -$169M, Aluminium -$134.9M, Copper $109.8M, Fish -$102.7, Fruits & Nuts -$65.6M. Apart from Crude Oil on this list, six of the items exported are Agricultural products, while the remaining three are solid minerals. The fact that this volume of exportation of Agricultural products was done despite the shortcomings (huge post-harvest loss, over 70% being peasant farmers and less than 50% of the arable land are under cultivated) in this sector, is a pointer to the fact that we can do a lot more exportation from this sector.

The world export data showed that there is a huge potential for increase of the Nigerian market share. This can be seen in the very wide gap between the volume of the top items of export from Nigeria and the world export volume of the same products. For example, in 2015, Nigeria exported Cocoa products worth $504M while the volume of Cocoa traded globally was about $9.5 in 2015. For Oil seeds like Sesame seeds, Nigeria exported $290M worth of this commodity in 2015 while the world traded volume in the same year was about $2.91B. Another potential foreign exchange earner that is not on this list is Cashew nut. In 2015, Nigeria exported Raw Cashew nuts that was worth $152M while the world traded volume of this product in the same was $6.1B. A product like wood charcoal generated an export inflow of about $38.5M for Nigeria in 2015 while the world traded volume in the same year was $1.08B. On the other hand, we have huge potentials yet to be tapped from the exportation of solid minerals. In 2015, Nigeria was only able to export lead ore that is worth only $16.2M whereas the total volume traded in the world in the same year was $5.96B.

These huge potential will remain at the level of potential if the myriads of challenges confronting export businesses in Nigeria are not resolved. These challenges revolves around Products, Pricing, Purchasers, Paperwork, Payment, Promotion and Policies. These are hydra-headed problems that militates against export growth not just in Nigeria but also in any nation of the world. I will attempt to summarise the issues around each problem in this article.

The challenge of product is in two parts, on one hand it has to do with the quality of product being exported, and on the other hand is the focus on only exportation of primary products. The quality issues are mainly due to knowledge gap on the part of Exporters, dubious practices among exporters and local suppliers, inadequate quality inspection agents, inadequate laboratories for testing and sometimes unprofessional and dubious inspection agents. All these hinders the exporters from getting paid after shipment and this makes them to be discouraged and halt further shipments. The focus on the exportation of primary products also reduce our foreign exchange earnings, because the more the value addition to the product, the more buyers are willing to pay.

The problem of pricing is majorly due to the high cost of doing business in Nigeria, which is a direct result of the huge deficit in the infrastructure especially the very poor road network, inefficient railway system, inadequate power supply etc. Also contributing to the high cost of exportable commodities is the high exchange rate of Dollar to Naira. This should have been a good news for export but due lack of price control in the local market, the farmers and middlemen increase their commodity prices in line with the increase in the foreign exchange rates in the parallel market.

Purchasers is another important factor that hinders the export business growth. This is mainly due to the bad image created by either lack of credibility, (which result from inconsistency) or lack of competence to the deliver the right quality on time and in line with the sales contract. These two factors makes getting buyers a herculean task.

The importance of Paperwork in international trade cannot be over emphasised. The buyer is likely going to pay for the goods sometimes before receiving it. The documentation is what gives the buyer the comfort that the goods has been shipped and also that it is the right quality and quantity. Depending on the nature of the product and the degree of processing involve, there could be international certification or licensing that will qualify the product for sales in the export market. These can be very expensive and involve a rigorous and bureaucratic processes that discourage a number of Exporters.

Payment is another very critical challenge that discourage exporters especially the new entrants in the business. The fact that over 80% of world trades are done on Open Account (shipping goods to the buyer and waiting for payment after the buyer must have cleared and sold the goods), which invariably increase the risk of non-payment after shipment makes many exporters to either reduce the volume they ship per time or avoid doing the transaction altogether.

The cost of Promotion, a critical elements in marketing a product abroad, is too high for many SMEs to bear. This is because it involves traveling to the targeted export markets abroad to promote the products at trade shows, fairs, conferences etc. Inability to do will mean you have to use the online channels which is less costly but more risky because of the difficulty in confirming the genuineness of the intending buyers on the online trade portals.

On a final note, I will like to say that, to resolve all these problems, there is need for practical training (in all the critical areas highlighted above) of the intending and existing Exporters on one hand and a Public-Private Partnership Arrangement on the other hand. The government has to work with the private sector to come up with policies and support to address these challenges and do everything possible to ensure that there is strict adherence to these policies through enforcement. Some of these policies include an export growth desk in the presidency to fund and drive a well articulated promotional strategies. A completely tax free regime should be given to company that add value to their products and export them. A quarterly intensive training that will last for one week should be organise free of charge only for those that have already started production of their products to build their capacity, connect them with sources of funds and potential buyers in the export market. A committee should be setup that will review the progress made on a monthly basis, address the challenges and report to the export growth desk in the presidency through the Nigeria Export Promotion Council.

In conclusion, if these two tools (practical training and relevant policies) are adequately deployed, Nigeria will soon convert her export potentials into actual benefits, which means a massive increase in the foreign exchange earned via non-oil exportation from the country.

Bamidele Ayemibo
3T Impex Trade Academy

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