Naira float and SNG-driven export-for-IGR growth

Nigeria always places enormous importance on export revenue. However, policies promoting non-oil exports gained further momentum in the mid-80s in response to the oil price shock. Historically, oil-dominant export and revenue composition made Nigeria vulnerable to fluctuations in global oil prices, with devastating consequences on practically all aspects of our economic life. Ghana, for instance, with a more diversified export base, including gold, cocoa, oil, and services such as tourism, is less exposed. South Africa mitigates such exposure to the exports of a wide range of commodities, including gold, diamonds, platinum, and agricultural products, along with manufactured goods. Kenya exports tea, coffee, horticultural products, apparel, and services such as tourism. Non-oil export revenue has been unsatisfactory for decades and has not improved in recent times. The Nigerian Bureau of Statistics in its 2022 report showed that non-crude oil export growth dipped noticeably in 2022. It grew by 27 percent in 2022 and 46 percent in 2021. In the same vein, the percentage share of oil exports in total exports has declined consistently from 13.12 percent in 2019 to 9.54 percent in 2022. In 2020 and 2021, it was 11.45 percent and 11.32 percent respectively. Several intertwined factors, such as global demand, market conditions, exchange rate management, product quality and competitiveness, comparative advantage factors, trade policies and agreements, political and economic stability and technological advancements, considerably influenced this performance.

One of the early policy strikes by the new government of Bola Ahmed Tinubu is the unification of the exchange rates and the implied launch of the managed float. One theoretical expectation of this currency price policy is the possible competitiveness of our exports. Our exports may become relatively cheaper to foreign buyers. The resultant price competitiveness should, all things being equal, stimulate export demand. That also can stimulate the local sourcing of raw materials that were previously imported and substitutable locally. Assuming the business environment improves as well, such local substitution may also accord producers relative cost competitiveness and improved export volumes. Another expectation is the diversification of exportable products. Expected improvements in earnings from exports will naturally incentivize the discovery of new markets and products, and minimize dependency on a single market and fewer products. It may also likely attract more foreign direct investments in export-oriented industries and businesses. Increased foreign direct investments always lead to technological advancements, productivity and export capacity. This policy can generate huge revenue for subnational governments. Fortunately, every state in Nigeria has a good number of exportable products waiting to be developed.

In agriculture, many state governments can promote the production of oil palm, including palm oil, palm kernel oil, and palm kernel cake. Opportunities for oil palm production abound in virtually all states in southeastern Nigeria. Some states in the northern parts of the country also have favourable conditions and suitable climate, soil and access to water resources that could enable their production. Other products include cocoa, cashew nuts, rubber, sesame seeds, groundnuts, shea butter, cassava products such as chips, cassava flour and garri. All the states in Southwest Nigeria, in addition to Akwa Ibom and Cross River states, have significant advantages in the production of cocoa. Nevertheless, several other states, particularly in the southeastern parts of the country, have climatic and soil conditions that can support their production. Export opportunities also exist in yams, vegetables and fruits such as tomatoes, peppers, onions, pineapples, bananas and mangoes. Many subnational governments also can export such other products as maize, rice, sorghum, millet, livestock and fisheries products, particularly cattle. Apart from the export opportunities in agriculture, many states boast of significant deposits of solid minerals such as coal, tin, lead, zinc, limestone, bauxite, aluminium, gypsum, kaolin, gold, columbite and tantalite, gemstones and bitumen.

State governments can prosper their internally generated revenue by promoting the exportation of these products. The first is granting processing permits, particularly for exportable solid minerals. Although the federal government issues licences for the exploitation of solid minerals in Nigeria, subnational governments can earn substantial revenue from the process. The first includes all land-related earnings, such as issuing certificates of occupancy, permits for business activities and annual surface rents. The second line of earnings includes the personal income tax, both the estimated tax and the pay-as-you-earn (PAYE). The third revenue opportunity is in the thirteen percent derivation. As of 2016, states with active mining of solid minerals are to receive 13 percent derivation revenue similar to states in the oil and gas-producing areas. In agriculture, value-added processing (agro-processing industries) will most naturally spring up in response to burgeoning production. The more of these industries, the greater the opportunities for revenue from business permits, certificates of occupancy and personal income taxes, and a range of other licences and permits. Again, a forward-looking state can establish well-functioning commodity markets to provide a veritable platform for farmers to sell their produce at fair prices, which facilitates revenue generation from market fees, licences and other charges associated with the operation of these markets.

State governments in Nigeria can employ several strategies to increase agricultural productivity and exploit maximum revenue from it. First, they can invest in agricultural research, extension services, and training programmes to improve farming techniques, increase crop yields, and enhance the overall productivity of the agricultural sector. Second, they can encourage the establishment and growth of agro-processing industries. By providing incentives, infrastructure, and business support services, they can attract investors and facilitate agricultural products’ processing and value addition. Value-added processing activities create higher-value products, increase employment opportunities, and generate additional revenue streams for the state. Third, subnational governments can also actively support and promote the export of agricultural produce by providing market information, facilitating access to export markets, and assisting farmers and agribusinesses in meeting international quality and certification standards. Fourth, state governments can develop and maintain well-functioning agricultural commodity markets or upgrade existing ones. These markets provide a platform for farmers to sell their produce at fair prices and enable efficient market transactions. They can generate revenue through market fees, licences, and other charges associated with the operation of these markets. They can equally invest in rural infrastructure, including roads, irrigation systems, storage facilities, and market infrastructure. Improved infrastructure reduces post-harvest losses, lowers transaction costs, and enhances access to markets, resulting in increased agricultural productivity and revenue. Sixth, state governments can establish agricultural development funds, grants, and credit facilities to provide financial support to farmers, cooperatives, and agribusinesses. Access to affordable credit can facilitate agricultural expansion, promote investment, and enhance revenue generation within the sector.

State governments can also unroll significant production-boosting initiatives that will enhance their revenue receipts from the sector. One such strategy is the promotion of investments and partnerships. State governments can actively promote investment in the solid minerals sector by organising investment forums, engaging with mining companies, and showcasing the mineral potential of their regions. Encouraging public-private partnerships can facilitate the development of mineral exploration and mining projects, leading to increased revenue for the state. Second, it can invest in comprehensive geological surveys and mapping exercises to identify and quantify mineral resources within its territories. Accurate and up-to-date data on solid minerals can attract investors and provide a basis for strategic decision-making, ensuring optimal utilisation of mineral resources and revenue generation. The third is the provision of infrastructure and other support services such as roads, electricity, water supply, and transportation networks that facilitate mineral exploration, mining, and mineral processing activities. Furthermore, providing support services such as geological laboratories, research centres, and training institutions can contribute to the development of a skilled workforce and attract mining-related businesses to the state. State governments can also encourage value addition and mineral processing activities. Promoting the establishment of mineral processing plants, smelters, refineries, and downstream industries can add value to the minerals extracted, create jobs, and generate additional revenue for the state. They can enter into partnerships with private entities, including mining companies and investors, for joint exploration and development of mineral resources. These partnerships provide revenue-sharing mechanisms that benefit both the state government and private sector participants.

Excluding the states where the Independent National Electoral Commission (INEC) is to conduct off-cycle elections, there are currently 28 newly elected and reelected governors, implying that they have ample time to launch and sustain some of these initiatives. The guiding rule is to prioritise areas of comparative advantage. Therefore, subnational governments should identify and focus on exportable products where they have natural advantages for least cost production and where they can easily develop and strengthen strategic advantages. Ideally, four products should be the maximum so that sufficient attention and financing can be channelled to their efficient, top-quality, large-scale production. Secondly, to short-circuit the typical red tape drawbacks within government circles, appropriate and functional private-public partnership arrangements need to be in place to drive them. Developing rolling medium-term expenditure plans properly aligned with yearly budgets will help ensure reasonable sustainability. It is also important for the concerned states and local governments to develop strong governance frameworks to ensure that their eyes are always on the ball while specifying adequate punishments for infractions.

Finally, one of the theoretical expectations of the current administration’s unification of the exchange rates is their potential impacts on the exports of goods and services in the country. State governments can tap into this policy to strengthen their internally generated revenue by promoting productivity in products where they have comparative advantage and prospects for strong competitive advantages. Revenue opportunities exist for subnational governments in land and business premises related earnings, personal income taxes and other kindred rates and levies chargeable across the emergent value chains. For states with solid mineral opportunities, they have an additional 13 percent derivation revenue to exploit. Agriculture and solid minerals provide vast opportunities exploitable by several subnational governments. Progress-minded governors need to get down to work in promoting the large-scale, least cost and top-quality production of a number of these products for exports by their citizens. This is no doubt a great way to respond to this policy.