Questions answered in this article: - What is the current state of agriculture in Nigeria and what challenges impedes it from reaching its full potential? - What are some potential benefits of bilateral trade in Nigeria and what is its current state? - What are some opportunities in bilateral trade for Nigeria's agriculture and how can government and private involvement improve the situation?
Nigeria is amongst the most agriculturally endowed countries across the African continent because of its vast arable land and abundance of vegetation. The nationâs farmers can cultivate a wide range of agricultural produce, such as cocoa, sesame seeds, ginger, cashew, prawns, and soya beans, amongst others.
However, the potential of the sector is subdued by inefficiency and underutilisation. In its current state, the sector has made it difficult for the nation to reap the benefits of export earnings and food security fully.
Bilateral trade is the exchange of goods between two nations promoting trade and investment. It can catalyse unlocking the potential in Nigeriaâs agricultural industry to achieve higher productivity levels and foreign exchange.
The two countries will reduce or eliminate tariffs, import quotas, export restraints, and other trade barriers to encourage trade and investment. Increased bilateral trade will not only drive export earnings but also improve the attractiveness of the Nigerian agricultural sector as an investment destination. This can be expected to spill over into increased economic development and profitability.
Japan is an excellent example of a country that has benefited from improving bilateral trade. It has established good trade ties with nations such as the United States and other Asian countries, contributing substantially to its economic growth. The value of Japanâs agricultural exports grew by 34%, from $10.5 billion in 2016 to $14.1 billion in 2021.
As such, this article will explore the benefits of bilateral trade, the opportunities for bilateral trade in Nigerian agriculture, and the role of the government and private sector in ensuring the development of bilateral trade in the Nigerian agricultural industry.
Current state of agriculture in Nigeria
According to the Food and Agriculture Organization (FAO), Nigeria uses 71 million hectares of land for farming practices. Thirty-four million hectares of arable land, representing the 7th most prominent area of arable land in the world.
However, access to this land is limited by excessive rainfall and a poor land tenure system, amongst other challenges. Crop production accounts for over 90% of the agricultural sectorâs GDP contribution, with the major produced crops being yam, maize, cassava, rice, millet and sorghum. Cocoa and rubber are the nationâs leading non-oil foreign exchange earners.
The modern-day Nigerian agricultural industry is faced with several challenges and issues that are hindering its performance and long-term growth prospects. Many of these issues are systemic and must be tackled to achieve full productivity and profitability within the sector. These challenges include lack of proper infrastructure, limited access to technology, lack of funding, lack of education on the part of farmers, poor government policies and regulatory oversights. The rest of this section will focus on the need for proper infrastructure and limited access to technology.
The lack of core infrastructure, such as adequate road networks and reliable electricity supply, is hindering the productivity of the agricultural sector and stifling growth. This is further illustrated by the large amount of food waste in the country annually.
Nigeria loses about â¦3.5 trillion annually to post-harvest losses equivalent to almost 8% of GDP. This has primarily been due to inefficient and inadequate transport and storage facilities. Nigeria lacks vital facilities such as refrigerated warehouses and transport trucks essential for preventing food waste.
Limited access to technology and funding also weighs down the Nigerian agricultural sector. Farmers in Nigeria cannot compete globally as the resources and knowledge they have access to are severely limited. This prevents the adoption of modern farming techniques and automation for certain aspects of farming, as seen in more developed parts of the world.
All these factors feed into the low productivity of the agricultural sector and prevent the nation from making significant gains on its export commodities.
Nigeriaâs export mix for 2022 shows that agricultural exports accounted for just 2.23% (â¦598.16 billion) of total exports within the period. This minimal contribution came despite an 18.55% increase in the value of agricultural exports over the previous year (â¦504.57 billion) and an 86.15% increase from 2021 (â¦321.34 billion).
Interestingly, while the oil sector accounted for over 80% of exports, it only contributed 4.34% to GDP in Q4 2022. This is significantly below the agriculture sectorâs contribution of 26.46% within the same period; this mismatch between the agric sectorâs high contribution to GDP and low export contribution spotlights an opportunity to unleash the industryâs full potential.
Potential benefits of bilateral trade for Nigeria’s agriculture
The potential positive effects of increased bilateral trade for the Nigerian agricultural industry and the broad economy cannot be overstated. Several significant challenges plaguing the agricultural sector can be solved or at least diminished through the direct impact of increased bilateral trade.
Some potential benefits arising from bilateral trade include increased investment into the agricultural sector, access to modern farming techniques and equipment for farmers, increased foreign exchange, and access to new markets for Nigerian agricultural products, amongst others.
The issue of poor infrastructure, which inhibits productivity and causes food waste, can be alleviated as the export of Nigerian agricultural produce gains more traction.
As bilateral trade increases and more buyers patronize Nigeria for its agri-goods, the sectorâs attractiveness as an investment destination will rise and prompt increased investment inflows to develop its business capacity and productivity. This will increase the financing options available to stakeholders within Nigeriaâs agricultural value chain and prompt the adoption of new technologies at all levels.
Bilateral trade agreements also encourage knowledge sharing amongst the parties involved. Nigerian farmers and agricultural value chain stakeholders could gain invaluable knowledge regarding modern farming techniques and storage, distribution, and marketing strategies that will ensure higher quality products and drive efficiency and productivity within the industry.
Increased access to foreign or otherwise inaccessible markets is another significant benefit of bilateral trade. Nigerian farmers will gain easy access to markets outside the country and tap into new customer bases they may have been initially unable to serve. This will increase the revenue accruing to these farmers and diversify their income streams.
Bilateral trade can serve as a means for the country to acquire essential goods and imports at a reduced foreign exchange expense. This is because trade agreements usually reduce the cost of tariffs which importers are liable to pay within the countries they export from. In some cases, goods may even be exchanged for goods. This could allow Nigeria, in some cases, to import the necessary agricultural products it needs without exacerbating the nationâs foreign exchange woes.
Current state of bilateral trade agreements in Nigeria
Nigeria has already been a beneficiary of bilateral trade agreements for several years. Based on information from the International Trade Administration (ITA), Nigeria has bilateral agreements currently in force with 15 countries, although it has signed agreements with 31 countries.
Additionally, Nigeria is a signatory to 21 investment-related instruments and has double tax treaties with 13 countries. Nigeria and the United States signed a Trade and Investment Framework Agreement (TIFA) 2000. The agreement enables dialogue regarding the improvement and enhancement of investment and trade opportunities between both nations. In Q1 2023, the US was Nigeriaâs second largest export destination, accounting for 8.93% of total exports over the period, which was valued at â¦579.35 billion.
According to the Nigerian Export Promotion Council (NEPC), Nigeria currently benefits from two main trade agreements – The African Growth and Opportunity Act (AGOA) enacted by the United States and the ECOWAS Trade Liberalization Scheme (ETLS) by the Economic Community of West African States.
AGOA provides importers in the US with unrestricted market access to purchase Nigerian products at competitive prices. Nigeria has been a beneficiary under the AGOA program since 2000. AGOA has encouraged integration between the two nations and has led to a host of benefits for Nigeria, these benefits include An increase in demand for Nigerian agricultural produce, increased foreign exchange, reduction in poverty as more farmers can sell their produce at competitive prices, and increased investment inflows from US agricultural stakeholders which have contributed to increased productivity for Nigerian products. Between 2015 and 2019 about $243 million worth of goods were exported from Nigeria to the US under the AGOA program.
While the present state of bilateral trade agreements in Nigeria raises concerns regarding why more agreements should be sought out if the current ones have not yielded a significant impact, it must be noted that engaging in bilateral trade agreements necessitates careful strategic planning, evaluation, and mitigation of risks that may arise. It is imperative to consider specific trade and economic dynamics, conduct thorough assessments, and negotiate terms that are mutually beneficial and fair. All these will contribute to fully maximising the benefits of bilateral trade agreements for Nigeria.
Opportunities for bilateral trade in agriculture
Nigeria currently produces several agricultural products that are in high demand across the world. However, the scale and quality at which Nigeria produces many of these products is far below what is required to achieve significant foreign exchange returns.
A key agricultural produce in Nigeria with high global demand is sesame seeds. In 2017, Nigeria was the third largest producer of sesame seeds in the world, with 580,000 metric tonnes produced that year, right behind India (890,000MT) and China (626,000MT). The following year (2018), Nigeria exported â¦89 billion worth of sesame seeds, more than double the â¦41.5 billion exported in 2017. In 2022 the total value of Nigeriaâs sesame seed exports stood at about â¦140 billion, representing a 57.3% increase from 2018.Â
Sesame seed sales and foreign investments in the sesame seed trade contribute to foreign exchange earnings that support international trade. Nigeria already has relationships with the major global importers of sesame seeds, including China, Turkey, and Japan; improved bilateral trade efforts could see Nigeria leverage its relationships to boost its sesame seed exports and productivity.
The global sesame seed market was valued at about $5.6 billion in 2021 and is projected to grow with a CAGR of 2.3% over the next five years. This presents a valuable opportunity for Nigeria to tap into this growth and reap significant returns from the sesame seed trade if it can institute efficient reforms and promote trade within the sector.
Pivoting away from sesame seeds to Yam, another major crop being neglected as a possible means of generating significant export earnings for Nigeria. Nigeria is the worldâs largest producer of yam, accounting for about 70% of global yam output.
However, the nation barely exports yam and fails to capitalize on its substantial production volumes. Most of the yams produced in Nigeria serve domestic demand, allowing smaller yam producers like Ghana to take up significant market shares and dominate the global yam export market.
Bilateral trade presents an avenue to boost investments into domestic yam production, enabling Nigeria to increase its yam exports and tap into a global market that it should ordinarily be a leader in.
There are other agricultural export products that Nigeria has under its belt, such as cocoa beans, cashew nuts, soya beans, and prawns, just to name a few, that are in high demand across the globe.
Yet Nigeria is consistently unable to produce these agricultural goods at a scale and quality that is globally competitive. As Nigerian bilateral trade develops, more investments will be channeled towards developing infrastructure, equipment, and financing to increase the production of these low-productivity and high-demand products. Not only do these products create an opportunity for bilateral trade and export, but they also present the opportunity for ensuring long-term economic development and food stability within the country.
Furthermore, given that most of Nigeriaâs exports are raw and unfinished goods, the country misses out on the profitability of exporting goods that have undergone some form of value addition. This is further compounded by the fact that Nigeria is forced to repurchase the goods that it had previously exported but at a much higher markup, given the value addition that they have undergone in other countries.
Role of government and private sector
As defined earlier, bilateral trade is the exchange of goods between two nations promoting trade and investment. This means that, by its nature, bilateral trade requires active government participation.
The Nigerian government must play an active role in seeking out and signing bilateral trade agreements with countries from which Nigeria stands to gain a lot in knowledge sharing, investment, and trade.
It is then the governmentâs role to support the entire agricultural value chain, from farmers to distributors, to ensure they have the conducive environment and infrastructure necessary to be productive and capitalize on the bilateral trade agreements.
Given that Nigeria has signed trade agreements with 31 countries but only has 15 of these agreements in force, the government should look into putting some of the inactive 16 back in force and signing new agreements with countries from more diverse markets it has yet to reach.
Furthermore, the onus is on the government to enable an adequate environment for the private sector to thrive. This would involve eliminating many of the barriers discussed earlier, such as poor infrastructure and poor access to funding, education, and technology. Recent policy reforms by the new Tinubu administration such as the establishment of a floating exchange rate regime and improvements to taxation, seem to be a major step in the right direction. For one thing, it can increase capital importation, which the agriculture sector needs.
Of course, too much government intervention could have the opposite desired effect and stifle the private sector and bilateral trade initiatives. Border closures and the current 44-item import ban best illustrate this.
Regarding the private sectorâs role, stakeholders must channel more investments into the agricultural industry and contribute to its overall productivity. Additionally, stakeholders must take advantage of the bilateral trade agreements signed by the government and explore the production and export of all types of in-demand produce. This will prevent the trade agreements from stagnating and even going dormant.
Conclusion
As discussed, bilateral trade can open up new opportunities for the Nigerian agricultural industry through knowledge sharing, increased investment inflows, lower import tariffs and several other benefits.
However, all this depends on the ability of the government and private sector stakeholders to work together to promote and capitalize on bilateral trade. Successful accomplishment of this will unlock the full potential of the Nigerian agricultural sector and bring the nation closer to achieving economic growth, poverty reduction, and food security.
