The Urgency of 30% Value Addition to Nigeria’s Raw Material Exports

The imperative for Nigeria to transition away from the cycle of raw exports is more pressing than ever. With its vast natural resources, including crude oil, cocoa, solid minerals, and agricultural produce, Nigeria remains heavily reliant on exporting unprocessed commodities. For instance, in 2022, crude petroleum alone accounted for $52.1 billion of Nigeria’s exports, while petroleum gas added another $9.04 billion. In 2021, raw cashew nuts accounted for $251 million of Nigeria’s exports, while unprocessed cocoa beans contributed $689 million. Similarly, raw lead ores and concentrates amounted to $801 million in exports in the solid minerals sector.

Despite this abundance of raw materials, the country imports finished products at a significant cost. In 2022, Nigeria imported refined petroleum worth $20.7 billion, along with other goods such as wheat ($3.03 billion), cars ($1.24 billion), and broadcasting equipment ($852 million). Nigeria had earlier in 2021 imported processed food products worth $1.9 billion, including sugar confectionery ($142 million) and pasta products ($135 million). In the same year, the country spent $1.5 billion on importing vehicles and $1.1 billion on machinery. This pattern of exporting raw materials and importing finished goods has several detrimental effects on the economy.

The unfavourable gap between export earnings and import costs exacerbates trade imbalances. In 2022, Nigeria’s total exports were valued at $63.4 billion, while imports totalled $60.7 billion. However, the composition of these trades reveals a deeper issue: raw materials accounted for 81.15% of Nigeria’s exports, while consumer goods, which include many imported finished products, made up 51.07% of its imports. This trade structure contributes to persistent trade deficits and weakens the economy.

The low levels of value addition in Nigeria’s non-oil sectors hinder job creation and economic development. Processing raw materials domestically could generate thousands of jobs in agriculture, manufacturing, and technology, substantially boosting the country’s economy. For instance, the agricultural sector, which employs about 35% of Nigeria’s workforce, could significantly increase job opportunities with more value-added activities. Nigeria exports raw agricultural products such as cocoa beans and cashew nuts, which accounted for $689 million and $251 million in exports in 2021, respectively. However, processing these products into chocolate and roasted cashews would have increased the value of exports, creating thousands of additional jobs in the processing and packaging industries.

Moreover, domestic processing could foster the development of industrial clusters and promote the growth of small and medium enterprises (SMEs) engaged in various industries. For example, Nigeria’s textile industry can potentially create millions of jobs. Still, the industry suffers setbacks orchestrated by importing cheap textiles and exporting raw cotton. With more than 350,000 employees, the textile industry was the second-largest employer in the manufacturing sector in the 1980s. However, by 2021, the industry had declined significantly, with many textile mills shutting down due to the influx of imported fabrics. If Nigeria processes its cotton domestically and supports the local textile industry, it could revive this sector and create numerous job opportunities.

Similarly, the petrochemical industry could benefit significantly from domestic processing. Nigeria’s petrochemical exports are currently limited to raw materials such as liquefied natural gas (LNG). However, the industry could create more jobs and contribute more significantly to the economy by processing these raw materials into higher-value products such as plastics, fertilizers, and synthetic fibres. An excellent example is the Dangote Refinery, which many claim to have the capacity to process 650,000 barrels of crude oil daily and can produce a range of refined products, including polypropylene and fertilizers. This project alone can create over 250,000 direct and indirect jobs, highlighting the potential of domestic processing to foster job creation and economic growth.

Similarly, processing agricultural products locally could significantly boost Nigeria’s textile and cosmetics industries. The country is the fourth largest producer of cocoa worldwide, accounting for 6.5% of global production, with cocoa beans making up almost 90% of the $804 million in Nigerian cocoa exports. However, the international value of raw cocoa exports is only $10 billion, while the total value of all finished goods from cocoa annually is $200 billion, with chocolates alone accounting for $100 billion. Nigeria could capture a much larger share of the global cocoa market by processing cocoa beans domestically into chocolates, cocoa butter, and other value-added products. This local processing capacity would increase Nigeria’s export earnings and generate more jobs and income. For example, if Nigeria were to process its cocoa beans into chocolate, it could potentially increase its revenues from cocoa exports by a factor of 20, given the vast difference between the value of raw cocoa and finished chocolate products.

In the textile industry, processing raw cotton domestically could revive this sector, which has declined significantly due to the influx of cheap imported fabrics. With over 350,000 people working in the 1980s, the textile industry was the second-largest employer in the manufacturing sector. However, by 2021, many textile mills had shut down. By investing in local processing and manufacturing, Nigeria could create a thriving textile industry, generating jobs and contributing to GDP growth. A low level of value addition in the textile sector is evident because Nigeria exports raw cotton while importing finished textiles, which not only exports job opportunities but also worsens the country’s foreign exchange crisis.

Moreover, the agricultural sector presents significant opportunities for value addition. Between 2016 and 2018, Nigeria’s total agricultural exports were driven by commodities such as sesame seeds, fermented cocoa beans, cashew nuts, and crude palm kernel oil, totalling N0.53 trillion. However, the country’s agricultural import bill over the same period stood at N2.39 trillion, resulting in a trade deficit of N1.86 trillion. By adding value to these agricultural products, Nigeria could reduce this deficit and become a net exporter of processed agricultural goods. For instance, the estimated untapped potential for Nigeria’s agricultural exports, particularly in markets like China, Germany, and Japan, is substantial. The Nigerian Export Promotion Council (NEPC) estimates that the untapped market potential for sesame seeds alone is around $170 million, and for cocoa beans, it is around $425 million.

The benefits of value-added exports extend beyond economics, positioning Nigeria more competitively on the global stage and better integrating it into regional trade networks. The African Continental Free Trade Agreement (AfCFTA), which came into effect in 2021, offers Nigeria a potential market of 1.3 billion people with a combined GDP of $3.4 trillion. Nigeria could significantly increase its share in this market by focusing on value-added exports. Intra-African trade accounts for only about 17% of African exports, compared to 59% in Asia and 68% in Europe. Increasing value-added exports could help Nigeria tap into this potential and diversify its foreign exchange earnings.

This transformation can reduce unemployment, strengthen foreign reserves, and enhance Nigeria’s competitiveness in the global economy. Nigeria’s unemployment rate, according to unofficial statistics, stands at about 65% and is one of the highest globally. By developing value-added industries, the country could create millions of new jobs. For instance, the cocoa processing industry alone could create over 100,000 jobs if Nigeria processes all its cocoa beans domestically.

In any case, recent African policy initiatives aim to address raw material exports by promoting local processing. For instance, Ghana has implemented a policy to ban the export of unprocessed minerals like lithium, bauxite, and iron ore, effective by the end of 2023. This move aims to retain a significant proportion of the value chain within the country. Similarly, Uganda has banned the export of unprocessed iron ore and other minerals since 2015 to spur local industries and create employment opportunities. In another example, Indonesia has progressively prohibited the export of nickel ore since 2014, requiring nickel to be processed domestically.

However, achieving 30% value addition faces significant challenges. Nigeria’s manufacturing sector suffers from several bottlenecks, including unreliable electricity supply, with power outages occurring for about 30% of production time, compared to less than 1% in China. Poor transportation networks and limited access to finance also hinder growth. The World Bank’s Ease of Doing Business Index ranked Nigeria 131st out of 190 countries in 2020, reflecting businesses’ bureaucratic challenges.

To overcome these obstacles, Nigeria needs a multi-pronged approach. This approach includes incentivizing industries to invest in processing facilities and developing Special Economic Zones (SEZs). For example, the Lekki Free Trade Zone in Lagos has attracted over $20 billion in investments and created thousands of jobs. Investing in infrastructure, especially power and transportation, will be crucial. The Nigeria Electrification Project aims to provide electricity to 5 million households and 20 million people through off-grid solutions, which could significantly reduce production costs.

Capacity-building programs are also essential, particularly to enable the realization of the manufacturing goals of Nigeria’s National Industrial Revolution Plan (NIRP). Launched in 2014, the NIRP is a strategic framework designed to accelerate the country’s industrialization and reduce its dependence on raw material exports. A key objective of the NIRP is to increase the contribution of manufacturing to Nigeria’s Gross Domestic Product (GDP) from 9% to 20% by 2025, creating a more diversified and resilient economy. The plan focuses on developing key sectors such as agro-processing, petrochemicals, textiles, construction materials, and solid minerals, aiming to promote value addition across these industries.

Finally, achieving a 30% value addition on all raw material exports is essential for Nigeria’s economic transformation, as it offers a pathway to sustainable growth, job creation, and trade diversification. By processing a significant portion of its crude oil, minerals, and agricultural products domestically, Nigeria can reduce dependency on volatile global markets, address trade imbalances, and unlock higher-value export opportunities. The benefits of value addition include strengthening local industries, increasing foreign exchange earnings, and fostering industrialization through Special Economic Zones (SEZs) and targeted policy incentives.

However, success requires overcoming infrastructure deficits, unreliable electricity, and a skills gap, which requires strategic investments in power, transportation, technical education, and export financing. Additionally, aligning with global trade standards and adopting sustainable production methods will ensure Nigeria’s processed goods remain competitive in regional and international markets. With bold action and coordinated public-private partnerships, Nigeria can break free from the cycle of raw exports, achieve economic resilience, and secure long-term prosperity for future generations.