ECONOMY: Nigeria Needs #79.5B To Meet Palm Oil Demands

Nigeria Needs #79.5B To Meet Palm Oil Demand  - FDC

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Nigeria, which is currently maintaining the Africa’s largest economy by Gross Domestic Product (GDP), is at the moment producing 970,000 tons of palm oil.

The figure, made available by the Financial Derivatives Company (FDC), and mainly produced from Cross River, Akwa-Ibom, Delta, Bayelsa, Rivers, Anambra, Enugu, Imo, Abia, Ekiti, Ondo, Oyo, Edo and Ogun, is a far cry from total demand of 1.3million tons by consumers, creating a deficit of 330,000 tons.

The implication is that government would need N79, 486,159,500 ($217,770,300) to import the needed tons so as to meet the local demand.

The conservative figure is arrived at based on the price of palm oil at the international market currently at 2,768 MYR (Malaysian Ringgit Rates) per ton. However, one MYR is $0.24 at international exchange rate, bringing to a total of $659.91 per ton.
Importation of the deficit of 330,000 tons from Malaysia, Indonesia among others at the exchange rate of $/N365, would mean spending the whopping N79, 486,159,500.

According to the National Bureau of Statistics (NBS) in the current Foreign Trade statistics released last week, the total imports value of N2,595.5 billion in Q2 2017 was 13.51% higher than Q1 2017 and 9.97% higher than Q2 2016.

Value of Imported Agricultural goods were 16.01 % higher than the value recorded in Q1,2017 but 61.02% higher than Q 2 2016.

Rostrum Economic Crew further gathered that, other oil products imports value was 6.4% lower than in Q1, 2017 and 18.48% higher than Q2, 2017.

But Bismarck Rewane, Chief Executive of FDC believes that the dilemma of multiplicity of exchange rate is another problem that would affect importation of the product. He disclosed that, “Nigeria has one of the world’s most complex foreign-exchange systems, with at least five exchange rates simultaneously available until recently.

Reforming the system to establishing a coherent and unified foreign-exchange market that can gain the confidence of its users is one of the biggest challenges facing the administration of President Muhammadu Buhari.

But his government, like all previous Nigerian governments, appears set on maintaining the myth of a strong naira and the belief that the state needs to subsidise and channel scarce resources to certain sectors of the economy and society.

After apparently floating the naira and ending a 16-month-long dollar peg in June 2016, which caused the local currency to immediately plummet from N197:US$1 to N282:US$1, the Central Bank of Nigeria (CBN) soon reverted to its old habit of endeavouring to manage the market, resulting in the re-emergence of multiple exchange rates. The regulator has since introduced new windows for foreign-exchange transactions, including for small and medium-sized enterprises and personal and business travel allowances. This has further fragmented the market. The authorities have also continued to prohibit importers of 41 categories of goods and services from accessing the country’s foreign-exchange markets, a policy introduced in June 2015 in an effort to suppress demand for hard currencies.”

Analysts opined that the current palm oil demand deficit underscores the bad policy on the ban imposed on the 41 items from accessing foreign exchange at the official window, stating, “What is in the sense of banning products which you cannot meet the local demand?”

Further investigations by the Rostrum team indicate that, based on the current production of palm oil in the country, about 50 per cent of it is lost to inefficient, outdated machinery and techniques.

According to the FDC Bi-Monthly Update, the challenge in improving these weaknesses, however, is daunting as two-third of crop output comes from dispersed small scale farmers, spread over an estimated 1.6 million hectares of land, and harvesting semi-wild plants through the use of outdated manual processing techniques.

These small-scale farmers rarely meet the standards required for exports and have improper documentation, certification, accreditation and product packaging.

The economist listed other challenges to include, weak milling infrastructure, challenges in accessing lands, community unrest, politics and rights activism, which contribute to hindering growth and development of the palm oil sector, and ultimately discouraging private investors.

However, about 80 per cent of current global palm oil production is consumed as edible oils, with food consumption rising rapidly which bode well for palm oil, as does the rising demand for non-food uses, such as: soaps, detergents, lubricants, greases and candles.
The multiplicity of uses for palm oil is likely to sustain rapid growth in its demand in the foreseeable future.

Furthermore, if Nigeria is going to take advantage of this opportunity, it needs to leverage the expertise, technological advantages and refining capacity of its large producers across its predominantly small palm oil producers to improve its yields, export capabilities and commercial packaging.

Over 50 years ago, Nigeria held the top position as the world’s largest palm oil producer with a robust global market share of more than 40 per cent, contributing about 82 per cent to the national export revenue. However, by 1966, Malaysia and Indonesia surpassed Nigeria as the world’s leading producers and exporters supplying around 85 per cent of palm oil products

 

 

Scripted by: Rostrum

 

 

 

 

 

 

 

 

 

 

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