Insights on how local Nigerian brands can become regional and pan African giants by leveraging opportunities that AFCFTA provides. The role of government and private sector investors in this drive.
The year 2021 has probably seen the worst food inflation in Nigeria, and even the statistics agree with this. Compared to 2020 which saw 19.56% inflation in December, and the year before where we had a 14.67% food inflation in December 2019. The year 2021 has broken all past records already with almost 23% food inflation in March 2021, and the year still has four months to go.
Besides the constantly increasing price of the food items, maybe what one should consider more worrisome is the availability. A 2021 Global Report on Food Crises (GRFC 2021) – prepared by 16 leading global and regional organizations belonging to the Global Network against Food Crises – has listed Nigeria among six countries in Africa with worsening food crisis, with predictions that place 13 million Nigerians at risk of falling into acute food insecurity in the coming months. The report recommended the federal government establish a food reserve to avert a crisis likely to arise from food shortages.
The reasons for the imminent food insecurity and dangerously increasing food inflation are not far-fetched. Simple secondary school economics taught us that inflation is the higher prices that result from too much money chasing few goods.
The next practical question will now be – where did all the goods go?
Since the announcement of a shutdown of Nigeria’s porous land borders to curb importation, smuggling and the associated corruption, and equally trigger mass production of food locally, food inflation has been on a steady rise.
At the time of the border closure, experts had criticized the decision as coming too soon, as local production needed to have been increased prior to shutting of borders. Insecurity has been on the rise, causing farmers to stay away from their farms. With the drop in production, it makes practical sense that local food demand will continue to outweigh production unless something is done.
From October 2019 when the announcement was made, inflation has been on the rise and never looked back. The 13.5% food inflation in September 2019 now seems like child’s play compared to the 22.9% peak inflation we have seen in 2021. With the National Bureau of Statistics confirming this when it announced in April 2021 that food inflation has accelerated at the highest pace in 15 years.
The exploding population figure does not make the picture any better. According to data from the World Bank, Nigeria’s population is estimated at 206.14 million as of the end of 2020, representing about 2.66% of the world population. A cursory analysis also revealed that Nigeria’s population has recorded an average annual population increase of 2.62% in the past 5 years, so we should be expecting similar growth this year. The number of Nigerians who migrate in search of greener pastures on a yearly basis is so insignificant that it barely makes any dent in the figure.
Import vs export
Since the border closure, the Federal Government and the Central Bank have carried out significant interventions in the sector. Despite this, food imports have been on the increase and Nigeria’s agricultural trade balance continues to be a cause for worry. Specifically, a recent analysis by Nairametrics, revealed that despite border closure as well as multiple bans on food imports, Nigeria spent about N3.1 trillion on Agricultural imports in two years.
The agricultural imports have nearly tripled within just 6 quarters; from N233.3 billion in Q4 2019, N262 billion in Q1 2020, N415.6 billion in Q2 2020, N503.4 billion in Q3 2020, N532.39 billion in Q4 2020, to N630.1 billion in Q1 2021.
On the other end, agricultural exports have moved from N68 billion in Q4 2019, N127 billion in Q1 2020, N78 billion in Q2 2020, N60.6 billion in Q3 2020, N55.7 billion in Q4 2020, N127 billion in Q1 2021. This increase may not signify any change in the trend as past years has shown that agricultural exports are highest in the first quarter than any other quarter of the year,
Even then, Local manufacturers will tell you that they have not been able to meet local demand and are not maximizing the export option. What we can see resulting from weak local production is an import-dependent economy that is as bad for the average man, as it is for the currency strength. Worse still, the agricultural value chain has a lot of gaps. Raw products are exported in large quantities, only for the finished products to come back into the country as imports.
Some manufacturers have pointed to the energy sector as a reason for the unnecessarily high cost of production in Nigeria compared to other countries. Some small and medium scale businesses are spending almost twice their operations costs to generate energy to keep their plants running. Even when they manage to produce, their pricing cannot compete with imported equivalents where the cost of production is less, so the Nigerian market ends up flooded with imported goods.
Little wonder mini-importation is now being advertised as a gold-mine across several social media. Manufactured goods imported into the economy ran up to the tune of N3.9 trillion in Q4 2019 and has grown to N4.5 trillion worth of imports in Q1 2021. Inversely, exports of manufactured goods have halved in the same period from N509 billion in Q4 2019 to N250 billion in Q1 2021.
AfCFTA & the foods manufacturing sector
AfCFTA has been signed and different sectors are waiting to cash in on this and move their brands beyond national borders. Given that Nigerian farmers and food manufacturers cannot meet up with local demand, how can they take advantage of the Act and make their Nigerian brands become Pan African?
There is a good opportunity for investors here. If Nigeria’s energy sector could attract the kind of investments fintech attracted in 2019 and 2020, there could be a more affordable and sustainable energy alternative to give local manufacturers a fighting chance at thriving and become Pan-African brands.
Clearly, even the Nigerian foods industry will need greater investment actions from all corners. A look at the capital importation data from the National Bureau of Statistics (NBS) shows that foreign inflows into Nigeria in the form of investment have dwindled over the past few years, with the agricultural sector accounting for only a meagre part of the inflows. An analysis of the latest data reveals that the Agricultural sector only accounted for 3.3% of the total capital inflows in Q2 2021.
From $125.76 million in Q1 2019, Foreign Direct Investment in the sector has shrunk steadily to $66.4 million in Q1 2021 and a paltry $28.9 million in Q2 2021. It will take a lot more than these to make any significant impact in the sector.
Part of the investment trigger will have to come in the form of better government policies. The year 2021 has witnessed a major drop in FDI in the sector after a boost in the last quarter of 2020. There is no clear reason for this but the trend in government policies and actions since 2021 appears to be sending certain signals to the investment community, and the sharp drop from $66.4 million in Q1 to $28.9 million in Q2 2021 is another pointer in this direction.
As innovations spring up in different sectors, businesses in the food and manufacturing sector should also consider the backward integration strategy where they can gain a competitive advantage over foreign manufacturers, increase revenue and cut down costs. When they have finally conquered the local market, they can now be ready to take their wins across Africa.
This is an opportunity that private sector players and investors should not let slip by. They need to rise to the occasion and channel the resources, investments and strategy needed to salvage the food manufacturing sector. The Nigerian Exchange Group (NGX) is a good platform for raising needed capital for this purpose and should not be left unexplored. The NGX recently unveiled the campaign, “The Stock Africa is Made Of’. And an offshoot of this is the NGX Chairman’s push for greater investment participation by the general public to create stronger markets across Africa. This move can be made to fit perfectly into the capital drive for Nigeria’s food manufacturing sector, especially with active contributions from big players within the private sector.
There would, of course, be returns on such investments, and both the industry and the investors would be better for it. More importantly, the Nigerian food manufacturing sector would become better poised to explore all the opportunities that the AfCTA offers. Vice-President Yemi Osinbajo in a pre-recorded message at a roundtable organised by the Manufacturers Association of Nigeria (MAN) on Thursday, September 2, 2021, discussed the AfCTA and its impact. He emphasised that “manufacturers must also strive to become competitive after clearly specified time periods so that they can withstand the ever-present danger of stiff competition from imports.”
With African cross border trade estimated at $93 billion, this may be the opportunity that African brands have been seeking.