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- 1 - Olam Impact of incentives on Nigerias agribiz Non-oil export business in Nigeria Impact of Incentives on Agribiz Presented by Creating Value is our.

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Presentation on theme: "- 1 - Olam Impact of incentives on Nigerias agribiz Non-oil export business in Nigeria Impact of Incentives on Agribiz Presented by Creating Value is our."— Presentation transcript:

1 - 1 - Olam Impact of incentives on Nigerias agribiz Non-oil export business in Nigeria Impact of Incentives on Agribiz Presented by Creating Value is our business Olam Nigeria Ltd. November 2012

2 - 2 - Olam Impact of incentives on Nigerias agribiz Contents 1Introduction 2Prospects 3 Impact of EEG 4 Need for incentives 5 Challenges faced by Nigerian exporters 6 Way forward

3 - 3 - Olam Impact of incentives on Nigerias agribiz Introduction 1

4 - 4 - Olam Impact of incentives on Nigerias agribiz Introduction This presentation highlights the potential of developing the non-oil export sector in Nigeria and challenges faced by the non-oil sector The focus areas of this presentation are: Review of recent surveys by international development agencies Need for diversification of the economy Significance of the agro-allied sector Growth of non-oil exports in last 10 years Policy somersaults faced by the private sector Realisation of the Transformation Agenda hinges on economic diversification

5 - 5 - Olam Impact of incentives on Nigerias agribiz Prospects 2

6 - 6 - Olam Impact of incentives on Nigerias agribiz Nigerias long-term economic potential Agribusiness has tremendous growth potential given right policy framework According to a widely read study by Mckinsey,only 1/3 rd of Africas arable land is cultivated. Africa needs to create jobs at a faster pace to absorb its growing labour force The same study identifies 3 key sectors with highest employment potential a)Agriculture b)Manufacturing c)Retail & hospitality Agriculture accounts for 40 % of Nigerias GDP and 2/3 rd of employment Existing low agri productivity provides huge headroom to grow Federal government Agriculture Transformation Agenda provides an impetus to realization of Nigerian growth potential in food and cash crops

7 - 7 - Olam Impact of incentives on Nigerias agribiz Nigerias long-term economic potential Agribusiness has tremendous growth potential given right policy framework Nigeria – richly endowed with fertile land Long history of cash crops cultivation – cocoa, cotton, cashew Agricultural production more difficult to migrate than manufacturing Agricultural products – demand is relatively stable and resilient even in recessions and financial crisis Supply chain and infrastructure deficiency – can be mitigated with policy intervention Huge job/livelihood creation and wealth creation potential

8 - 8 - Olam Impact of incentives on Nigerias agribiz Nigerias long-term economic potential There are several transformation opportunities in agric sector Oil-Palm – large domestic market, good soil and climate challenge of security, long gestation Cotton : provide jute bags to farmers better quality and higher farm realisations Bio-fuel: Potential to replace imports and be an export base. Policy framework required Rice : import substitution as well export into regional ECOWAS markets over the long term clearly articulated long term policy on tariff and investment incentives Sugar: development of industrial scale sugarcane farming to address local consumption Sugar masterplan – a way forward ! Farm Yield and Quality: Nigeria lags behind other West African countries. WA countries lag behind Asian/Latin American region. Bridging this gap can create transformational growth in the sector.

9 - 9 - Olam Impact of incentives on Nigerias agribiz Impact of EEG 3

10 - 10 - Olam Impact of incentives on Nigerias agribiz EEG Impact - Agric sector Growth in crop size( 10%- 25% per year) – Sesame, Cocoa, Cashew Growth in Farmer Incomes- across almost all products Farm-gate prices as % age of FOB values are highest in West Africa for agricultural-crops like cocoa, sesame, cashew etc. Multiplier Effect of 2.36 as per USDA on agricultural exports –> 70% of non-oil exports is agric high knock-on +ve impact in GDP and employment Farming is turning from subsistence to commercial in export led sectors (cocoa/cashew/sesame etc,)

11 - 11 - Olam Impact of incentives on Nigerias agribiz EEG Impact – Case Study - Sesame Crop volumes have grown almost 3 times in 5 years 65000 MT (2005-06 ) to 180,000 MT (2011-12) Farmer incomes have trebled Average Naira 50000 / MT (2005) to 165000 / MT (2010) Farmer realization ~ 85% of CNF price( higher than Ethiopia and Sudan etc) Export profile shifting from natural seeds to de-hulled sesame seeds – greater export revenue, greater local value addition, more investments, more local jobs, Diversifying markets – Far East, Middle East, Europe & USA

12 - 12 - Olam Impact of incentives on Nigerias agribiz Nigerias non-oil export growth Nigerias non-oil exports have grown 300% in the last 6 years(2005-11) growing at a CAGR of 25% Source :Cobalt/NEPC shipment statistics Exports ($ Bn)

13 - 13 - Olam Impact of incentives on Nigerias agribiz Nigerias non-oil export growth Agro-allied products drive Nigerias non-oil exports with Cocoa and leather contributing about 50% of total exports Product wise market share of non-oil exports: 2011 (%) Source: Cobalt/NEPC Cocoa Leather

14 - 14 - Olam Impact of incentives on Nigerias agribiz Need for incentives 4

15 - 15 - Olam Impact of incentives on Nigerias agribiz Incentives are needed to offset competitive cost disadvantages faced by Nigerian exporters Nigerian cocoa exporters face a disadvantage even after taking EEG into account(1/2) FactorsUSD/MT Power cost disadvantage in processing 30 Additional port charges10 Additional freight charges10 Additional finance cost @ 8% p.a.200 Disadvantage on account of low productivity(yield/ha) 350 Import duty imposed in EU due to non- signing of EPA by Nigeria 180 (A) Total disadvantage780 (B) EEG Benefit at full rate900 (C) Net benefit to exporter (A-B)120 Subsidy available in Ivory Coast188

16 - 16 - Olam Impact of incentives on Nigerias agribiz Incentives are needed to offset competitive cost disadvantages faced by Nigerian exporters Nigerian cocoa and cashew exporters face a distinct cost disadvantage Cost/MT (US$)Ivory CoastTanzaniaNigeria FOB charges211730 Fuel & Energy3310 Wages205190370 Cost disadvantage faced by Nigerian cashew processors

17 - 17 - Olam Impact of incentives on Nigerias agribiz Challenges faced by Nigerian exporters 5

18 - 18 - Olam Impact of incentives on Nigerias agribiz Constraints faced by Nigerian exporters The government policy encourages diversification of the economy by boosting non-oil exports. Incentives in the form of export grant are given to cushion the impact of infrastructural disadvantages and high cost of doing business in Nigeria However, there is a need to improve the implementation of the policy to realize the full potential of the non-oil sector Major challenges facing the non-oil export sector are Inconsistency in implementation of export incentive policy – frequent interruptions restrictions by customs to accept NDCCs Lack of appreciation of the contribution of the non-oil export sector to the economy Loss of preferential market access to EU due to non-signing of EPA Present system only allows payment after 1 year of export – causes delays Erosion of the benefit due to climbing discounts of NDCCs Nigeria was ranked 127 among 142 countries in terms of competitiveness (2012)

19 - 19 - Olam Impact of incentives on Nigerias agribiz Policy instability and discontinuity have weakened the non-oil export sector and is affecting Nigerias image as a reliable international trading partner The value of non-oil exports increased by 37.1% attributed to improvement in production,processing and packaging of Nigerias products........... Despite this development the non-oil export subsector performed dismally accounting for only 3.6% of the total exports due to poor Infrastructure,policy slippages and volatility of commodity prices. CBN Annual Report 2010 (P 146) Constraints faced by Nigerian exporters

20 - 20 - Olam Impact of incentives on Nigerias agribiz Way forward 6

21 - 21 - Olam Impact of incentives on Nigerias agribiz Conclusions Non-oil export promotion by way of incentives (EEG) should be sustained Realization of governments Transformation Agenda depends on diversification of the economy Non-oil exports have increased by 300% during 2005-11 investments, job creation – growth much higher than Nig GDP growth rate EEG is required to cushion the effect of infrastructural and other disadvantages faced by Nigerian exporters Need to have more effective inter-ministerial coordination on implementation of policies by relevant agencies Affirm clear and strong commitment to the incentive policy(no policy can be perfect) for 5-7 years and review every 5 years to refine/improve – to attract long term and big ticket investments 1 2 3 4 5

22 - 22 - Olam Impact of incentives on Nigerias agribiz Thank You


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