The announcement by the Minister of Budget, Planning, and Finance, Zainab Ahmed, on the depleting excess crude oil account to $376,665.09 as of June from $35.37 in May has heightened talks of Nigeria’s struggling economy and the need for urgent steps to reverse the situation, including raising revenue to avert further fiscal dislocations. There are, however, ways for the country to make revenue considered low-hanging fruits.
Beyond oil and gas, which has been the mainstay of the economy since 1959, earning as much as $394.02 billion since 2011, according to the Nigerian Extractive Industries Transparency Initiative (NEITI), Nigeria can bolster non-oil exports to good effect, harness remittances from abroad; encourage hot money and create an environment that will attract Foreign Direct Investments (FDI).
Improving non-oil exports
According to the National Bureau of Statistics (NBS), non-oil exports accounted for 11.32% of the total exports in 2021. In a similar vein, according to reports, non-oil exports have decreased by 39% from N6.9 trillion to N4.194 trillion in 10 years. The importance of improving non-oil exports has shown that it has the potential to create new markets, helping boost the economy and also serving as a major source of FX. Back of the 2021 report, the Q1 2022 reports from the NBS showed that Nigeria exported goods worth N7.1 trillion. However, crude oil accounted for N5.62 trillion, which represents 79.16%.
The agricultural sector closely follows the oil and gas sector in terms of revenue and trade for the country. According to the Food and Agriculture Organization (FAO), Nigeria has 70.8 million hectares of agricultural land area, a representation of about 80% of the 92.37 million hectares in the country. According to reports, agriculture accounted for 4% of the world’s GDP in 2018 and has risen to 4.33% at the end of 2021. In 2021, according to an earlier report by Nairametrics, Nigeria’s agriculture export increased by 57.02%. Top Agriculture exports include Cocoa beans, sesame seeds, cashew nuts, and coconuts, amongst others. The manufacturing sector also contributes to Nigeria’s GDP. Asides from diversifying the economy and limiting reliance on crude oil, improving non-oil exports will chart a new way for FX inflow into the country as Nigeria will trade with other countries.
FX remittances from abroad
As many Nigerians continue to move abroad for greener pastures, and education, among other reasons, this contributes to diaspora remittances as people send money to their loved ones in the country. Nigerians have now found solace in different countries such as Canada, France, Germany, the UK, U.S.A, and Australia, amongst others. The entrepreneurial spirit of Nigerians has seen many set up businesses in the countries where they now reside. According to reports, Nigeria has a diaspora population of 1.7 million people. The remittances from diaspora over the years have contributed to the economy, $22bn in 2017, $25bn in 2018, $23.81bn in 2019, $17.21bn in 2020, and $19.2bn in 2021. According to the World Bank, diaspora remittances are set to increase to $29bn in 2022. As more diaspora contribution increases, this will contribute to FX inflow into the country.
Hot Money refers to funds under the active management of short-term return-seeking investors. This can also be called portfolio investment. It is done to increase interest or gain more money which can be repatriated in the short-term by the investor based on how they see the business environment or the economic realities of the country they invest in. Hot money includes investment in equities, and foreign bank loans, amongst others. Hot Money can help in the inflow of FX into the country. However, Hot Money is sensitive to certain economic indicators like the state of the economy, favourable business climate, and recession, amongst others.
This behoves the government to work at improving the business climate and the macroeconomic environment both for short-term and long-term investors to feel comfortable bringing in their investments.
Foreign Direct Investment (FDI)
Foreign Direct Investment (FDI) happens when a business or organization based in a country buys a percentage or stake, buys it totally or completely from a company domiciled in another country. FDI mostly helps in expanding a business, and also the economy of the country it intends to invest in. This can happen through opening an associate company in a new country, buying a local company, or through mergers and partnerships.
FDI helps in economic boost and economic growth. It helps in the creation of jobs and also makes the goods available in the host country. FDI is an alternative way of getting FX, as the intending company invests in the economy of the new country. Like Hot Money, it is also sensitive to some economic indicators like political affiliation, and ease of doing business, amongst others.
Indeed, current realities have shown that overdependence on oil might affect Nigeria’s economy in the long run given its boom-burst nature. This calls for deepening the diversification of the economy towards earning more dollars. Also, the CBN should take proactive measures to ensure it aids the ease of doing business in the country.