In spite of oil, agriculture remains the backbone of the Nigerian economy, as it contributes about 21% to GDP and is the main provider of income, employing more than twothirds of the entire labour force. Even during the economic downturn, the agricultural sector was one of the rare sectors to maintain positive growth.
Accordingly, the Nigerian government has identified agriculture and processing as one of the sectors that will aid the export revenue diversification initiative of the government, propelling economic growth in Nigeria.
With abundant arable lands, agriculture in Nigeria has the potential to drive foreign exchange earnings. However, Nigeria has only achieved self-sufficiency in a few crop productions, like, cocoa, rubber and cassava – Nigeria remains the second largest producer of cassava in the world. Ironically, it has been a major importer of staple foods especially wheat, rice, maize – which are consumed in high quantities but could be cultivated in the country (with the exception of wheat). This has adversely affected the economy’s current account balance. The tilt towards a more export-focused agrarian economy has exposed Nigeria to the interplay of global demand and supply in agricultural commodities.
Cocoa production, which is used to produce chocolate, has been Nigeria’s leading food foreign exchange earner. The sector contributed 0.19% to total export
value for Q3’17.24 Cocoa production benefited from favorable weather conditions during the year, eventually leading to a glut in supply. Cocoa yields also improved in Nigeria, but Nigeria lags behind its West African counterparts, Ivory Coast and Ghana, which account for more than 50% of global supply.25 The glut in cocoa output saw cocoa prices decline from $3,390 in December 2015 to a low of $1,809 in December 2017. EIU’s 2018 outlook for cocoa establishes that global output is likely to remain in excess of demand, so cocoa prices will hover around current prices.
However, there is also the opportunity to engage in cocoa powder and butter processing, which generates more income compared to raw cocoa exportation, given the competitive rivalry in raw cocoa exportation.
Sesame seed, popular for its oil, is another foreign exchange earner that has gained traction due to interests from Europe and East Asia. In Q3’17, sesame seed exportation closely followed cocoa, contributing 0.16% to total export value. Sesame seeds are used to cook and also for health benefits. Sesame seed is widely used for baking, medicine, animal feeds and oils in key regions like India, China and Turkey.
Considering its health benefits, the growing preference for organic foods will likely see the global sesame seed market soar. This would further bolster Nigeria’s trade in sesame seeds, and an opportunity for investors to widen its customer base, leveraging on its labour and arable lands.
Moving forward with commodities in 2018
According to the EIU, the commodities market outlook for 2018 will be mixed. Average oil prices will rise by 7%, owing to the pact between OPEC and Russia. Russia is likely to maintain this agreement in the short term as the country recovers from 2 years of recession. Agricultural prices will remain weak in early 2018, owing to bumper harvest. Weather conditions are expected to be favourable during the year. However, the uptick in world population and average income levels will
absorb some of this excess supply, mitigating the adverse effect of the glut.
Consequently, Nigerian investors in the commodities value chain need to diversify their portfolio, either vertically or horizontally. Vertical diversification would support a shift from the production and distribution of raw materials to refining and processing these raw materials and manufacturing final products. Horizontal
diversification would entail embarking on new product development outside of respective commodity portfolios.
Horizontal diversification is particularly important for investors in fuel commodities, as the world moves to embrace alternative energy sources that are more ecologically sustainable, i.e. renewable energy. This will reduce the relevance of fossil fuels, and negatively impact prices. To further bolster economic growth, Nigeria needs to strive in the development of other revenue sources like manufacturing, agroprocessing and services, so as not to be caught in the evolution of renewable energy. Maintaining status quo will be unfavourable to Nigeria’s long-term economic development, as our overreliance on commodities will at best lead to a meek economic growth.
The federal government of Nigeria, through its ministries, department and agencies (MDAs), has moved to intensify its revenue earning potential by attracting investors, through foreign portfolio and direct investments in industrial and infrastructural development. Its ability to facilitate trade beyond commodities without being complacent will be a key decisive factor in accelerating sustainable economic growth in Nigeria.
Despite a tepid recovery in 2017, Nigeria has been poised to grow by only 2.1% in 2018, based on stable crude oil production and price, and a boost in non-oil earnings of the economy.28 However, with limited funds at its disposal, Nigeria needs to be efficient, in taking decisions on ‘what to produce’, ‘how to produce’, and ‘for whom to produce’, in order to pull off this feat.
The following is an excerpt from a Financial Derivative Company (FDC) report, titled Agricultural raw materials have seen growth but still have a long way to go.
