Weak non-oil export sector dampens possible naira devaluation gains

A weak non-oil export sector may foreclose the possibility of Nigeria gaining from the Central Bank’s decision to devalue the naira to N168/US$, from N155/US$ reported before Tuesday.

Nigeria’s Central Bank announced the devaluation Tuesday, to save the naira, dwindling foreign reserves and the economy, while widening the band around the midpoint by 200 basis points from +/-3 percent to +/-5 percent.

Analysts assume that one real impact of devaluation is increased export, which is now expected to be cheaper in international markets. Ideally, also, a regime of devaluation expects imported products to be more expensive for consumers and consequently decline.

However, analysts see a big

challenge for Nigeria, whose non-oil export sector is mainly weak and agricultural, and whose manufacturing sector cannot meet the demands of the ever-growing 174 million people, amid more expensive import products. This is also coming when Nigeria’s oil export is increasingly depleting.

“The challenge here is that the non-oil export sector, which is supposed to rise in a circumstance like ours, is facing a lot of difficulties,” said Tunde Oyelola, chairman, Manufacturers Association of Nigeria  Export Group (MANEG).

“Export Expansion Grant, which has been long suspended, is yet to be reversed. This is the time to deliberately stimulate non-oil exports and consumption of value-added agric products such as cocoa, whose market is very low.

“ This is the time to provide packaging incentives for manufacturers whose  raw material costs will automatically be increased and whose cost of borrowing will likely rise,” Oyelola  said.

For Ede Dafinone, CEO, Sapele Integrated Industries Limited, the new trend will drive manufacturers and businesses into caution, while a number of them will likely defer investments. Dafinone said the trend could eventually have unlikeable inflationary impact.

Muda Yusuf, director-general, Lagos Chamber of Commerce and Industry (LCCI), said Nigeria’s non-oil export sector may not likely benefit, as the entire system is import dependent. According to him, manufacturing exporters who will gain more,

are those that are resourced-based and source the majority of their raw materials locally.

“This type of situation should even encourage non-oil exports and even Diaspora fund because you will have more naira. But it takes a manufacturing sector that sources raw materials locally to benefit from the system,” Yusuf said.

He further said only a manufacturing sector that is competitive and looks more inwardly will hedge the economy,  as the naira depreciates and oil prices fall.

In the last four to five years, specific attention has been paid to the cement, sugar and now automotive sub-sectors at the expense of 74 other manufacturing industries, which have the capacity to create thousands of jobs and enlarge manufacturing’s contribution to Gross Domestic Product (GDP).

Sub-sectors such as fruit juice, electronics, aluminium, iron and steel, paints and varnishes, toiletries and cosmetics, rubber and foam, have suffered, owing to the absence of strong policies to drive them.

Apart from these, sub-sectors like domestic/ industrial plastics, nail and wire, packaging, printing, carpet and rug, furniture and plywood, school chalk, crayons, glass, and ceramics, among others, have been unable to compete with imports due also to absence or near absence of clear-cut policies and well-defined incentives to drive them.

Stakeholders say now is the time to take the manufacturing sector seriously, by looking at it holistically rather than as units.

Remi Bello, president, LCCI, pointed out that  economic diversification must be the central focus of the government now, while unnecessary spending must be jetisoned.

Meanwhile, experts in the real estate sector of the economy say there is a likelihood that there will be an increase in house prices, following the devaluation of the naira.

The industry experts in  telephone interviews with BusinessDay, said the new monetary policy would push up construction cost significantly.

Abimbola Ajayi, former chairman of Nigeria Institute of Architects, Lagos state chapter, explained that “Nigeria is a trader that imports virtually everything”.

Continuing, she said, “because everything we use in housing construction is imported, house prices must go up”.

Emeka Eleh, immediate past president of the Nigerian Institution of Estate Surveyors and Valuers (NIESV), agrees. Eleh however adds that the CBN’s move is welcome.

“This is a bold step, notwithstanding the difficulties it comes with. It is a macro economic decision that will affect the entire economy, real estate inclusive”, he said.

He observed that a lot of things would depend on the price of crude oil, explaining that if the price of oil is stabilised, it would save a lot of things.

Emmanuel Obire, a structural engineer and MD/CEO, Multi-Purpose Infrastructure Development Company, said the development was unfortunate, lamenting that the home buyer would ultimately bear the brunt.

Obire, the developer of Teju Royal Garden–a low cost housing community in a Lagos suburb–hoped that the impact on house prices would not be much, since the price of cement came down recently.

He advised that all the money said to be used to subsidise oil should be channeled into developing the mortgage sector.

“Britain does not depend on oil, yet it is a strong economy that depends mainly on real esate. Government should focus attention on non-oil sectors and save itself from the headache of falling oil prices”, he advised further.

Businessday