This is the eighth in a series of articles being written to advise the President of the Federal Republic of Nigeria on what must be done to grow the non-export volume to match and even surpass that of crude oil and gas exports. In this edition, the focus will be on the policies relating to reducing the cost of doing export business to boost the competitiveness of Nigerian products in the export markets around the world
This policy is therefore aimed at increasing the non-oil export volume by reducing the cost of doing business in exports, thereby enabling Nigerian products to gain a larger market share abroad through competitive pricing. This will therefore require putting together a bouquet of programs that support and help exporters reduce the costs of doing business within the export value chain. This involves the provision of different incentives to reduce the cost of exportation and consequently reduce the pricing of Nigerian goods in order to beat the competition in the export markets.
The vital components of the recommended policy to boost the competitiveness of Nigeria’s products in the export market should include: Infrastructure Improvement, Investment in Research and Development, Subsidized Shipping Rates, Bulk Purchasing Agreements, Energy Subsidies, Market Access Programs, Logistics Support Services, and Tax Incentives.
The policy must be deliberate about investment in infrastructure in order to reduce the cost and time for the movement of goods to the port. By investing in transportation networks, such as roads, railways, and ports, the government can significantly reduce logistics costs. Improved infrastructure ensures that goods are moved efficiently from production sites to export points, reducing delays and associated costs. This will consequently make the Nigerian products to become more competitive.
Another aspect of the government policy on boosting export volume in Nigeria is through price competitiveness in investment in research and development. Funding research and development initiatives can lead to the adoption of cost-effective production techniques. For example, developing improved seedlings that yield higher outputs per hectare can enhance agricultural productivity, which is vital for exports. This investment can lead to more competitive pricing on the international market.
The cost of moving goods from Nigeria to the destination countries (either by road, sea, or air), also called the freight charge, particularly within Africa, is very outrageous, and this has made Nigerian goods uncompetitive. This is why the policy of government on export pricing should include shipping freight charge subsidies. The government can negotiate with logistics companies and shipping lines to secure discounted shipping rates for exporters. By reducing the cost of transporting goods to foreign markets, exporters can offer more competitive prices, making their products more attractive to international buyers.
As an exporter who has done many shipments to China in the past and dealt with the government-owned trading companies in China as a buyer, I can say that a government policy on export pricing that includes bulk purchasing agreements is highly indispensable. By engaging in bulk purchasing of essential raw materials needed by exporters, the government can facilitate lower input costs. Selling these materials at a subsidized rate to exporters allows them to reduce production costs, ultimately leading to lower prices for their final products.
According to the Manufacturers Association of Nigeria (MAN), about 30% of the cost of production in Nigeria is directly related to energy cost. This is why a policy on export pricing reduction must include subsidies on energy. This can come in the form of a grant based on their export volume. Providing subsidies for energy costs can significantly benefit manufacturing exporters, who often face high energy expenses. By lowering these costs, the government enables manufacturers to maintain a competitive edge in pricing, allowing them to compete more effectively on the global stage.
Another important aspect of the policy of reducing the cost of doing export business and consequently the pricing of export products is the signing of strategic trade agreements with target export markets for strategic products. Actively negotiating trade agreements that lower tariffs in target markets enhances access for Nigerian exports. Lower tariffs make Nigerian goods more competitive by lowering the final cost to consumers in importing countries.
In order to improve the efficiency of the export process, government policy on reducing the cost of exportation must include the establishment of a logistics hub. Another name for this is the inland ports, which are already established within the country but with low patronage. Establishing logistics hubs close to railway terminals makes it attractive, and this can centralize and streamline the shipping process. These hubs would reduce the complexity and costs associated with logistics, making it easier for exporters to manage shipments and decrease overall transportation expenses.
A policy on reducing export costs must include a tax break for the exporting companies. This enables the government to compensate the exporters for the cost infrastructural deficit and inefficiencies of the government. Implementing tax breaks or credits for exporters can reduce their overall tax burden. Such financial incentives would free up resources that exporters can reinvest in their businesses or pass on to consumers in the form of lower prices.
In summary, I am convinced that if the policies discussed in this article for reducing export pricing from Nigeria are considered and effectively implemented by the government, they will greatly improve the competitiveness of Nigerian products in the export market. This enhancement will aid the government in achieving its objective of boosting the volume of non-oil exports in the country, ultimately establishing this sector as a key contributor to the nation’s foreign exchange earnings.
Bamidele Ayemibo, Ph.D
International Trade Consultant/Member, BoT Network of Practicing Non-oil Exporters of Nigeria
(NPNEN)
For questions, send an email to [email protected]