Commodities Exportation in Nigeria: An Insider Account

1.0 Preamble

The NBS has it that non-oil exports accounted for 23.9% (N1,141.3billion) of total exports in Q4, 2019 in Nigeria. In order to augment a predominantly oil-centered revenue (76.1% orN3,629.24 billion in same period), the Federal Government has long launched programmes to diversify the economy.

This had led to varied palliatives as incentives to non-oil business owners. As such, there has been much emphasis on non-oil, commodities exports. To achieve this, the Nigerian Export Promotion Council (NEPC) has been at the vanguard of this campaign trying to see how it could realize the goals of the diversification programme.

Nigeria exports such commodities as sesame seed, charcoal, raw cashew nuts, dried split ginger, lead ore, mica muscovite, cassia tora, cocoa, soybeans, shea nuts/butter, timber, etc. Every single day, containers of different sizes enter the two busy ports in Lagos (Tincan and Apapa wharfs) getting ready to go on board different business vessels enroute varied global destinations.

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Also, the cargo section of the Murtala Mohammed Airport (NAHCO) in Ikeja (Lagos) is as much busy as the sea ports. Our land borders are not left out. What this shows is that export business is a reality in the country.

2.0 Export Requirements

Before a business could export any commodity from Nigeria, it is expected to have registered with the CAC, the NEPC, the FIRS, and then opened an export proceeds account with a commercial bank.

2.1 Export Incentives

In order to encourage exporters especially those who add value to their products, the federal government introduced the Export Expansion Grant (EEG). This grant ranges from 5% to 30% of the FOB value of the export invoice and largely dependent on the degree of processing made on the product before exporting it. The NEPC oversees this scheme in conjunction with the Implementation Committee inaugurated by the federal government.

3.0 Foreign Buyers and Contract Agreement

The export market is very large for all intending exporters. What matters is the value you give to your products, your consistency of supply, the quality and standards, business transparency and accountability.

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There are varied ways to get buyers on the global scene. Many B2B marketplaces are out there on the net for you to explore. For example, we have www.exportersindia.com, www.tradekey.com, and so on, but you have to do due diligence to avoid losing your hard earned money or borrowed capital.

It is imperative you have a binding agreement signed and sealed with your buyer before you commence processing or production because that might be the only fallback you may have in the case of arbitration. Be sure to give the draft to a detailed lawyer before signing.

A contract could be for one single consignment or for a duration of time, say, one full year (in which case partial fulfilment may be allowed). Note that partial fulfilment could be allowed for a single order or agreement that involves large quantities done in batches of 2, 3, 5, 10 containers per B/L.

4.0 Order Fulfilment Process

When you have agreed with a buyer and you have a consequent order, you proceed to fulfil the order. The steps or procedures are not strictly same but there are the ones that are generic. It largely depends on the type of commodity been exported. The procedure for fossil energy (like hardwood charcoal), grains (like sesame seed, cassia tora); not same for nuts (cashew, groundnuts) and solid minerals (like mica, lead ore). They vary based on the documents and certifications (where applicable) needed to export them.

The generic procedure would involve the following:

4.1 Sourcing

Before you start negotiating with a buyer, you must have identified your source, done your price calculations to know the right price to sell. So, you fall back to source and, depending on the arrangement at the farmgate (with farmers), you start the processing.

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You need to be very attentive here. You do not need to be absent and do it by proxy, else they will put you into trouble. The buyer may reject the consignment and you start having issues.

You need to check quality like sun-drying in rainy season. Ensure agreed specification like moisture content, foreign matter, oil content, etc. (in sesame seed) and moisture content, fixed carbon, ash content, size, foreign matter, combustion rate (in charcoal).

4.2 Packaging

After processing, you need to package the products in the agreed packaging mode. It could be 10kg, 15kg, 20kg, 35kg, etc. in polypropylene (pp) bags or jute bags or any agreed packaging mode.

Before packaging, you need to scale the products to meet with your agreement. It is advisable to use digital scales instead of the manual ones. They are more accurate. After scaling, you sew the bags to fit. Then when the container arrives, you load. Load to contain agreed quantity.

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There are loading specialists for each product and each location. They ensure you get the agreed quantity with your buyer. It is better to load more than what is agreed because you will still get the money as extra profit.

4.3 Haulage

The next is to have a hauling company to come lift your products. This is where the export business has, for some time now, had issues. The prices here are unstable as these logistics companies keep INCREASING at will with the only explanation that it is mainly caused by the gridlock at the wharf.

You need to get a trusted trucking company because they can mess you up by delaying your consignment for months without end. The excuses they make are at the tip of their fingers always.

They can give you rickety trucks that would spoil more than a hundred times between your warehouse (loading point) and the wharf. The worst is that they would want you to also bring the money for repairing the vehicle after you must have paid in full. They will tell you that you will reconcile in your next consignment. With the same rickety truck?

Your guess is as good as mine. You need to work very closely with your forwarding agent here.

4.4 Documentation and Wharf Procedures

You need to engage a Customs licensed forwarding agent who would help you do the documentation process. Before you start processing, you must have initiated the NXP process with your bank. NXP stands for Nigeria Export Proceeds. You get, fill, submit the NXP form and pay the NESS fee.

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The bank will process it through their Head Office and issue you with the NXP number. This number is compulsory for all export clearance. This process is linked with Nigeria Customs Service and other relevant inspection agencies like SGS in a one-stop online umbrella called the Nigeria Single Window.

Once you book with a logistics company, you send the truck details and the container number to your agent to send to the shipping company. Note that before you finish processing, you instruct your agent to make a booking with your preferred shipping company so that they release an empty container for you. But if you got a returning empty container (usually called hijack), you need to send details to your agent.

The agent will monitor the truck’s movement to the wharf. By the time the truck is getting to the wharf, the agent already has all relevant documents for approvals and gate-in pass. On getting to Lagos, the requisite inspection agency would go and inspect the container to be sure it is not carrying contraband goods. It will then certify it.

Note that in some items like charcoal, you will need to take a physical sample to the Federal Institute of Industrial Research, Oshodi (FIIRO) for a self-ignition test. This is to know if it is safe to load in a sailing vessel or not.

With all necessary permits, certificates, clearances, the container(s) will be allowed into the wharf. It is important you insist on having your Verified Gross Mass (VGM) certificate because that is your proof of quantity. Every truck that enters the wharf is scaled but the certificate is printed on demand.

Your agent will follow up on the shipping company to get your draft bill of lading (B/L), this will be sent to you for correction. You will send to your buyer for correction too.

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When all corrections are made, you wait for the arrival of the scheduled vessel to load it. Once the ship sets sail, the shipping company would print your original B/L or issue you a Telex Release depending on the choice of your buyer.

5.0 Payment

You need an eagle’s eye here to assess every dot. Every single clause in the agreement concerning payment should be verified in the case of doubts. The risk is bigger on your side than the buyer.

5.1 Payment Methods

There are varied ways you can get paid in export business. This is part of what must be agreed ab initio in the contract before taking an order. Some of the most frequently used methods include:

1. Cash in Advance
2. Cash against Document (CAD)
3. Cash on Delivery
4. Letter of Credit (LC)

We cannot go into all these now but we will still find time to throw more light on them some time. The best is cash in advance but it is very rare to see a buyer who does that. It mostly exists between long standing customers. LC is the surest, safest way to protect your money. It is also hard to come by as a beginner.

5.2 Incoterms

This stands for International Commercial Terms. It stipulates the level of responsibilities and risks on both the buyer and the seller at each point of the shipment. There are eleven standard Incoterms though some school of thought added some extra two.

The most frequently used incoterms are Free on Board (FOB), Cost and Freight (CFR), and Cost, Insurance and Freight (CIF). We can still find time to discuss these in details with the other Incoterms.

6.0 Quality and Standards

This is where our people falter. When you agree a certain specification with your buyer, ensure to keep it to the letter; and that buyer will never leave you. Most of our exporters do not believe in the long term.

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Rather, they believe in shipping today and looking for a new buyer tomorrow. This explains why we have most of their details posted on various websites with a caveat. It is better to err in excess than in want. Let your buyer use your products as a paradigm for bargain with other sellers.

7.0 Advantages of Export Business

There are many advantages to this and cannot be exhausted here because it depends on the angle you are coming from. Let us look at a few.

1. Export attracts forex to both the country and the exporter. Because of the instability of the Naira over the Dollar, the propensity is more to profit than loss.
2. If you are into both import and export, you get inflow, use it directly for import payment thereby not paying at the market rate and invariably reducing cost. You can pay for school fees, medical bills, shopping, etc. without having to go to the mallam, BDC or bank.
3. The exchanged goods also build a brand for you if you are consistent with standards of quality and best business practices. This can give you access to the international community on a large scale with opportunities to travel for exhibitions and trade fairs. The NEPC helps in organizing these trips and the Federal Government subsidizes the expenses for the trip sometimes to the tune of 50%.
4. The EEG is another advantage of the export business. When it was smooth, unlike nowadays, exporters enjoy extra percentage on the prices of goods sold. If, for instance, the total FOB value was N10m, the FG will give you at least 5% which amounts to N500k. this comes in form of bonds not cash, and which can be used to pay taxes and other government revenues. You can also sell to other companies who need bonds to offset government bills.
5. You can also draw international collaborations into the country by having foreign partnerships in forms of franchising, licensing, contract manufacturing, foreign direct investment, joint ventures and strategic alliances. You can invest in other countries by citing subsidiaries there.

8.0 Risks

Just like every other business, export business is full of its own risks. These risks keep coming up almost every time. It is for the exporter to be on red alert to mitigate against these. In export planning, it is important to assess the possible risks to be able to know the options to follow.

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You can prepare the four quadrants of scenario planning to put in place escape routes in cases of eventualities. Force majeure could disrupt flow but risk containment measures are good checkmates to avoid capital erosion.

Some attendant risks in this business include:

• Price instability
• Fraud (foreign and domestic)
• Policy instability
• Haulage
• Port congestion
• Lead time

These are topics in themselves that would take pages but because of want of space, we will just mention them. A second phase of the paper can actually look only on the risks and challenges exporters face in Nigeria and the global scene.

9.0 Postscripts

The Nigerian commodities export sector remains largely untapped. Nigeria has lots of products to export but the major problem at this moment is that we mostly export these goods in their raw states. There was the case of a female lawyer who developed entrepreneurial interests as a law student. On graduation, she exploited her passion and started frying plantain chips.

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She made it spicy and packaged them in good labels (she was among the first to introduce the packaging angle to plantain chips). She chose a niche market, hawking along the international airport road. One day, someone travelling to Dubai bought a few to while away time at the lounge.

He liked the taste and kept some to eat in Dubai. Meeting with his business associate in Dubai, he offered some to him who also liked it and became interested. She had her number on the label and that was how she started exporting chips in containers to the UAE.

With expansion, she took four of her family members to Dubai, registered the business there and started frying. So, she exports raw plantain to the UAE, clears them via her Dubai company as import, processes them and sells them ‘locally’. Food for thought.

Thanks for reading.

Presented by;

Edokobi Azuka Stephen

+234 803 553 5948