Manufacturers’ exports ride weaker naira to 9-yr high

Nigeria’s biggest manufacturers have a weaker naira to thank for a tripling in export sales in the first three months of 2024.

The latest financial statements of Unilever Nigeria Plc, Nestlé Nigeria Plc, Okomu Oil Palm Plc and Dangote Cement Plc show that their combined revenue from exports surged by 201.1 percent to N387.2 billion in the period, the highest in at least nine years.

That’s up from N128.6 billion in the first quarter of 2023 when their export revenue rose by 41.2 percent.

This development is a positive one for Africa’s most populous nation as it creates an opportunity for manufacturers to get more naira to source for more foreign exchange needed for production.

“One of the reasons why countries devalue currencies is to make exports cheaper relative to other goods so they can sell more. Devaluation helps to make goods cheaper which will achieve non-oil exports,” Adeola Adenikinju, president of the Nigerian Economic Society, said.

Adenikinju added that the government should create a more favourable environment for local industries so that they can take advantage of the cheaper currency to support the country’s export diversification.

Gabriel Idahosa, president and chairman of the council of Lagos Chamber of Commerce and Industry, said the increase in exports is a natural consequence of the devaluation that occurred for other reasons, not deliberately caused by the government to increase exports.

“It is not a deliberate policy decision to devalue the currency to increase exports. Countries often devalue their currencies to boost exports,” Idahosa said.

The naira suffered a near 30 percent devaluation this year following a 40 percent devaluation last June as a result of the FX reform implemented by the Central Bank of Nigeria (CBN) to revive the economy.

While the currency has continued to depreciate, the West African CFA franc, a legal tender in Benin, Burkina Faso, Côte d’Ivoire, Guinea-Bissau, Mali, Niger, Senegal and Togo, has appreciated.

This made some goods produced in Nigeria cheaper than other African countries.

At the official market, the naira depreciated from 463.38/$ on June 9 to N1,468.99/$ as of May 20, 2024. The naira has also weakened against the West African CFA franc, going from 0.76 per CFA1 on June 9 to 2.54 per CFA1 as at May 20.

“There were a lot more incentives for exporters, not the physical ones but the ones inherent in the currency devaluation,” Muda Yusuf, chief officer of the Centre for the Promotion of Private Enterprise (CPPE), said.

“Devaluation normally creates opportunities for exports. And the surge in exports would have been more if it included the ones that are not officially captured,” Yusuf said.

He said a lot of Nigeria’s fast-moving consumer products cross the borders.

“Once you have this deprecation, the export opportunities increase because our goods are cheaper but the question is what scale to make an impact at the micro level because it is not that much.”

Odiri Erewa-Meggison, chairman of the Manufacturers Association of Nigeria Export Promotion Group, (MANEG), said the devaluation is helping exporters to bring FX back into the country which means more naira for them but their cost of production is increasing.

“When you produce and export, you are competing with other countries that don’t have the currency issues you are having. So, before you can send those products outside, you are going to produce it here and suffer the impact of the increase in the cost of production,” she said.

Further findings from the companies’ statements show that Nestlé recorded the highest growth in exports of 275 percent to N964 million in Q1 from N257 million in the same period of 2023 followed by Dangote Cement with 201.7 percent to N381.3 billion. Okomu Oil Palm and Unilever’s own increased by 194.4 percent and 62.7 percent respectively.

“During the quarter, we intensified our emphasis on exports, dispatching seven ships from Nigeria to Ghana and Cameroon. As a result, our Nigerian exports surged by 87.2 percent, reflecting our commitment to expanding our presence in regional markets and capitalising on our export-to-import strategy,” Arvind Pathak, CEO of Dangote Cement, said.

Despite Nestle having the highest increase in exports, the multinational was the only one among the four firms that recorded an after-tax loss of N142.7 billion in the first quarter while the rest had an improvement in their earnings.

An official at the Manufacturers Association of Nigeria (MAN), said the devaluation only favoured a few manufacturers that can export.

“But their cost of production has increased since their raw materials are not totally from the third countries. The import duty is close to N1,500 per dollar. So, the devaluation has caused terrible woes for a lot of them,” he said.

According to the National Bureau of Statistics (NBS), the country recorded a positive trade balance of N2.9 billion in 2023, the second straight year in which exports have surpassed imports.

A trade surplus, also known as a positive balance of trade, occurs when a country’s exports exceed its imports, while a deficit is the opposite.

In a recent report, Standard Chartered projected Africa’s total exports will reach $952 billion by 2035 from $645.3 billion in 2022 and that the African Continental Free Trade Area’s full implementation could increase the figure by a further 29 percent.

“Rising regional trade levels and greater connectivity will unlock high‑growth corridors across Africa and beyond. Intra-Africa trade is expected to reach $ 140 billion by 2035, equating to 15 percent of Africa’s total exports,” the report said.

Erewa-Meggison of MANEG recommended that the government needs to engage manufacturers and exporters directly through MAN, to identify at least five critical and immediate interventions that are required from the government.

“There are steps that they can take (including FX availability, single-digit loans, and payment of Export Expansion Grant) that will help exporters to become more competitive in the short term, while we work on the mid-term/long-term solutions,” she said.

Yusuf of CPPE added that if the government wants to encourage exports and take advantage of the currency deprecation, it should remove all the barriers or obstacles to exports, especially the logistics and quality of products issue.

“In addition, they should create the environment to make their product even more competitive by reducing the cost of doing business.”

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