Trade agreements are pivotal in determining the flow of goods and services across international borders and have, by that fact, profoundly impacted Nigeria’s raw material market, bringing benefits and challenges. Whether bilateral, multilateral, or regional, they boost national economic prospects. Effective trade agreements enhance market access, attract investment, reduce trade barriers, and increase competitiveness. While such agreements are not free of some unpalatable consequences, there is no debate that Nigeria can leverage the opportunities for regional integration, technological advancements, and policy reforms to develop its raw material market further and achieve sustainable economic growth.
In fact, regardless of these numerous benefits, including increased exports of raw materials, prioritizing raw material beneficiation will better unlock Nigeria’s economic potential, create jobs, and achieve sustainable growth. Exporting raw materials in their natural form without adding value undermines Nigeria’s economic growth and development. Understandably, low technological capacity, weak regulations and an uncompetitive business environment make it challenging for entrepreneurs to fill this raw material beneficiation and value-addition gap. Beneficiation increases export earnings, generates employment, and reduces vulnerability to global commodity price fluctuations.
According to the African Development Bank [AfFDB], every 10% increase in value addition in the manufacturing sector leads to a 2.5% increase in GDP growth. In a similar report by the Nigerian Bureau of Statistics, in 2020 Nigeria exported $33.6 billion worth of crude oil, but if refined, the value would have increased by 300% to $134.4 billion. The International Cocoa Organization also noted that Nigeria exported 1.4 million metric tons of cocoa beans worth $1.3 billion in 2020. However, processing and exporting chocolate of the same amount would have generated $6.5 billion. The Nigerian mining sector’s value addition through processing and refining can equally create 500,000 jobs and generate $1.5 billion annually.
As already argued, improving the raw material value before export is preferred. However, with or without beneficiation, international trade agreements have far-reaching impacts on the raw material market. Nigeria’s membership in regional and global trade organizations, such as the Economic Community of West African States (ECOWAS), the African Continental Free Trade Area (AfCFTA), and the World Trade Organization (WTO), has created opportunities for trade and investment while imposing obligations and constraints on Nigeria’s raw material sector. For example, 2020 intra-ECOWAS trade was approximately $12 billion, with Nigeria accounting for over 76% of the region’s total trade volume. The agreement allows Nigeria to export goods such as crude oil, cocoa, and solid minerals, taking advantage of duty-free and quota-free access within the West African market. On the flip side, under the ECOWAS Trade Liberalization Scheme (ETLS), Nigeria is obligated to lower its tariffs on imports from member states, leading to increased competition from neighbouring countries that export similar raw materials and manufactured products, such as Ghana’s cocoa and Côte d’Ivoire’s palm oil.
The African Continental Free Trade Area (AfCFTA), which came into force in 2021, presents even more tremendous potential for Nigeria’s raw material market. The AfCFTA, covering 54 African countries with a combined GDP of $3.4 trillion and a market of over 1.3 billion people, is designed to reduce tariffs on 90% of goods, enhance cross-border trade, and foster economic integration. For Nigeria, which relies heavily on crude oil exports, accounting for 86% of its export revenue in 2021, the AfCFTA promises to facilitate the diversification of its economy by increasing non-oil exports. However, the agreement also introduces competitive pressures from other African countries, potentially challenging Nigeria’s dominance in specific raw material markets like agriculture and solid minerals.
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On the international stage, Nigeria’s membership in the World Trade Organization (WTO) has subjected it to rules-based trading obligations that impact the raw material sector. Under WTO agreements, Nigeria must eliminate trade barriers and subsidies that distort global competition. In 2020, the average tariff rate on raw materials entering Nigeria was around 12.3%, and the WTO’s push for liberalization has pressured Nigeria to lower such tariffs, leading to increased imports and greater competition for local producers. At the same time, access to global markets has boosted Nigerian exports, albeit with crude oil being a prime example.
Despite the long list of challenges that trade agreements present to Nigeria’s raw material market, three are most significant: our dependence on primary commodities, limited value addition on the raw materials, and unfair competition.
Nigeria’s economy remains heavily dependent on primary commodities, particularly oil and natural gas, which account for approximately 90% of the country’s export earnings and 70% of government revenue. This dependence makes the economy vulnerable to price volatility in global markets. For instance, the International Monetary Fund (IMF) reckons a 10% decrease in oil prices can lead to a 2.5% decline in Nigeria’s GDP growth. The same effects, such as global commodity price volatility, are noticeable in the non-oil sector. For instance, as of 2020, the Food and Agriculture Organization [FAO] observed that the agricultural sector in Nigeria, which employs 30% of the workforce, contributes only 22% to GDP. In much the same way, the manufacturing sector’s contribution to GDP remains stagnant at 10%.
Trade agreements have historically encouraged Nigeria to export raw materials rather than processed goods, which has hindered the country’s ability to generate higher revenues and create more employment opportunities. As of 2021, 85-90% of Nigeria’s export revenue came from crude oil, a raw commodity, with minimal local processing or value addition. This pattern extends beyond oil; for instance, Nigeria is the world’s fourth-largest producer of cocoa beans, exporting about 300,000 tons annually. However, only about 0.1% of the country’s cocoa exports are processed domestically, meaning Nigeria captures only a fraction of the potential revenue from chocolate and other processed cocoa products. Countries like Switzerland, which process and add value to cocoa, generate far more income from chocolate exports than raw cocoa producers like Nigeria.
The emphasis on raw material exports leads to economic stagnation, particularly in industrialization and job creation. By exporting unprocessed goods, Nigeria loses the opportunity to develop manufacturing sectors that could employ millions of people. For instance, in the palm oil industry, Nigeria, once the world’s largest producer, now ranks behind countries like Indonesia and Malaysia, which have invested heavily in processing and refining. Malaysia, for example, earns over $20 billion annually from processed palm oil products, while Nigeria lags with an estimated revenue of only $800 million despite having similar natural resources. In general, if properly developed, the agro-processing industry alone could create millions of jobs, particularly in rural areas, which are the basis of raw materials. For example, processing just 30% of Nigeria’s cassava output could create 400,000 jobs along the value chain.
Furthermore, trade agreements have placed Nigerian businesses in the raw material markets at a significant disadvantage, exposing them to unfair competition from foreign companies. These foreign entities often benefit from better access to technology, capital, and larger markets, which enhances their competitive edge over local industries. This competitive imbalance gains roots in the sector’s reliance on imported raw materials. Nigeria imports over 60% of the raw materials used in its production, increasing costs for local manufacturers. This dependency on imports heightens exposure to foreign exchange fluctuations and raises operational costs significantly. For example, the naira depreciated from 416.52 to 854.61 against the dollar within a year, exacerbating the financial strain on businesses reliant on imported materials.
In addition to this challenge are high logistics and supply chain costs driven by fuel price hikes and poor infrastructure. The Nigerian Ports Authority has reported an increased number of abandoned containers at ports, highlighting the logistical challenges that further escalate the costs for businesses reliant on imported raw materials.
It is worth noting that while these agreements can facilitate access to larger markets and foster economic integration, they also expose local businesses to intense competition from foreign companies with better resources and technology. To maximize the benefits of trade agreements, Nigeria must undertake a multifaceted approach that diversifies its economy to reduce reliance on primary commodities and promote value addition. This shift will enhance local industries’ resilience and create a more sustainable economic environment. Furthermore, investing in transportation, storage, and logistics infrastructure facilitates trade and ensures Nigerian businesses can compete locally and internationally.
A contrarian albeit unpopular view is that Nigeria’s raw material market may be better off without international trade agreements, which have historically hindered its ability to develop its domestic industries. As unpopular as it sounds, there is no gainsaying that The African Continental Free Trade Area (AfCFTA) and the World Trade Organization (WTO) agreements, for instance, have led to flooding the Nigerian market with cheap, imported goods, undermining local production and industrialization. According to the Nigerian Bureau of Statistics (NBS), the country’s trade deficit increased 145% between 2015 and 2020, with imports accounting for 70% of total trade. Furthermore, the WTO’s Trade-Related Investment Measures (TRIMS) agreement has restricted Nigeria’s ability to implement policies that promote domestic investment and industrialization.
The Nigerian manufacturing sector’s contribution to GDP has stagnated at around 10% since 2015, primarily due to the influx of imported goods. In contrast, countries like China and India, which have implemented protectionist policies to shield their domestic industries, have experienced rapid industrialization and economic growth. China’s manufacturing sector, for example, accounts for over 30% of its GDP. Nigeria can adopt similar strategies to protect its raw material market and promote domestic industries.
In conclusion, to successfully navigate the complexities of trade agreements and their impact on the raw material market, it may be worthwhile to consider the following: First, the Nigerian government should conduct regular impact assessments to evaluate how trade agreements influence the raw material sector, enabling informed policy adjustments. Additionally, establishing policies that promote value addition and economic diversification will be crucial for reducing vulnerability to external shocks. The private sector should also play a proactive role by investing in research and development to enhance competitiveness and innovation within the industry. Lastly, civil society organizations should engage in advocacy efforts to ensure that trade agreements reflect the priorities and interests of Nigerian stakeholders.
