IN February 2019, the National Bureau of Statistics (NBS) reported that the Nigerian economy grew by 1.93 per cent in 2018. This represents a 135 per cent improvement when compared to 2017’s 0.82 percent growth. Specifically, Nigeria’s Gross Domestic Product (GDP) grew by 2.38 percent in real terms in the fourth quarter of 2018 when compared to the same period in 2017 which indicates that the economy rebounded in the last quarter as against the lull in the second and third quarters of 2018. Remarkably, the non-oil sector contributed significantly to the increase with a 2.70 per cent growth in real terms in the fourth quarter. No doubt, the steady growth in the sector is very welcoming news particularly at this period that the clamour for economic diversification is rife. Nigeria relies heavily on crude oil earnings, which account for 95 per cent of its export earnings and 70 per cent of government revenue, thereby signposting the country as a single product economy. Previous efforts by successive administrations to stimulate growth in the non-oil sector of the economy, particularly agriculture and solid mineral resources through dedicated polices, have yielded little success and barely outlived the administrations that formulated them.
After five consecutive quarters of contraction, Nigeria finally exited economic recession in the second quarter of 2017, a performance largely buoyed by a rise in global oil prices. However, results also show that performance in the non-oil sector has been growing steadily. A breakdown of reports by NBS and other economic reporting institutions on the quarterly performance of the non-oil sector for the greater part of 2017 and 2018 showed noticeable increases in volumes and value in sectors such as raw materials, agriculture, solid minerals and manufactured goods. This signifies that the deliberate efforts at diversifying the economy have begun to yield fruits. Notable among the export items were frozen shrimps and prawns exported mainly to the Netherlands, Belgium, and USA; flour and meals of soya bean exported mainly to Spain, Ghana and Senegal; ginger exported to Vietnam, Morocco and Sudan; while manufactured goods such as cigarettes were exported to mainly West African countries. These contributed significantly to the country’s trade balance.
Prominent among companies that have increased the country’s non-oil earnings are Olam Nigeria, which exports agro-based products, including fermented cocoa beans and sesame seeds to the United Kingdom, Netherlands, Turkey, Japan, and Jordan; Eleme Fertiliser and Chemicals Limited with large exports in granular urea to South American countries Argentina, Uruguay and Brazil; Atlantic Shrimpers Limited with fresh crabs to the United States, China, Vietnam and the Netherlands, among others. Also included are manufacturers like the British American Tobacco Nigeria (BATN) that exports tobacco products to Ghana, Liberia, Cote D’ivoire, Niger, and Guinea, among other West African countries; De-united Foods Industries Limited exports Indomie, and Minimie noodles to destinations such as the United States, and neighbouring West African countries; Guinness Nigeria PLC shipped Malta Guinness to Ghana and Cameroon while Friesland Campina WAMCO exported full cream milk powder and evaporated Peak Milk to Sierra Leone and Ghana.
Interestingly, the sector is also benefiting from increasing patronage of private sector players, particularly manufacturing companies who have adopted backward integration models. Backward integration refers to the process in which a company purchases or internally produces segments of its supply chain. It helps organisations to guarantee access to key materials. The backward integration policy, which was introduced in 2002, has resulted in a gradual and steady increase in installed capacity of local manufacturers in the country in recent years as they continue to increase the local sourcing of critical materials, which were largely sourced externally in the past. This has also created new capacity and jobs as the sourced inputs usually undergo some processing before final application.
In the solid mineral subsector, for example, the policy has helped to harness Nigeria’s huge limestone deposit saving the country about N240 billion per year, according to economic experts. Cement producers that have relied heavily on the use of local content are Dangote Cement and Lafarge Africa PLC. Data from the Nigerian Bureau of Statistics show that local production capacity of cement products in the country has increased, thereby changing Nigeria’s status from a top 10 cement importer to a net exporter of cement. Similarly, in the manufacturing sector, Unilever Nigeria, through its ‘Partner to Win’ initiative, is strengthening its local supply chain by investing in capabilities of intermediary companies to enable them to locally produce usable goods that will be sourced by the company as part of its raw materials. With this the company hopes to significantly reduce the importation of raw materials by working with partners that possess localised manufacturing processes. According to Unilever West Africa Procurement Director, Thomas Mwanza, the company has achieved over 90 per cent in local sourcing of packaging materials. Also, BATN, which topped the list of non-oil exporters in 2018, sources a significant quantity of its tobacco leaves locally which has empowered local farmers. The British American Tobacco Leaf Office coordinates all domestic tobacco growing operations and rural agricultural development activities, an operation that continues to train and enable thousands of farmers adopt more efficient farming practices.
The improvement in foreign exchange earnings recorded by a number of manufacturing firms in the country in recent years, particularly after the last economic recession, is a testament to the benefits of the backward integration model. Other benefits of the backward integration model to the economy include local capacity development, employment generation and growth of local raw materials industries. It is expected that more and more business organisations in the non-oil sector will begin to realise the imperative of looking inward in a bid to reduce dependence on imported raw materials and create a competitive supply chain, improve exports to boost foreign exchange, diversify the economy and help sustain the present economic growth.
- Sobowale is of the Centre for Promotion of Enterprise and Business Best Practices