Unlocking the potential of Nigeria’s logistics market

BY MICHAEL MAKINDE

As Nigeria draws closer to the 2023 general election, conversations around the economy are expected to dominate and feature prominently on the political agenda. From worsening macroeconomic fundamentals, unemployment, multi-dimensional poverty, inflation, and hunger, the fragile economy continues to have a significant impact on individuals, businesses, and even the government.

At least two of such challenges suggest that Nigeria may be approaching a potential fiscal crisis. The first challenge is that of inadequate government revenue that is enough to meet government obligations and other development objectives, the other challenge is the growing debt crisis which has reached an unprecedented level. In the 2023 budget that was signed into law earlier in January, out of the entire N21.8trn budget size, N11.34trn was estimated as the budget deficit, while another N6.31trn constituting an estimated 29 percent of the budget was earmarked for debt servicing.

According to the Debt Management Office (DMO), Nigeria’s total debt stock (external and domestic) is expected to rise to N77 trillion by May 2023. For the avoidance of doubt, Nigeria would experience a transition of political power by May 2023; the implication, therefore, is that the next government would be inheriting a high debt stock.

This glaring challenge of inadequate revenue, and rising public debt, suggest that there is a need for a radical economic approach to manage the looming fiscal crisis. The danger however is that if it is not immediately addressed, the government would have less to spend on its development programmes that should guarantee shared prosperity for the greatest number of our population.

It is therefore not surprising that perhaps, for the first time in a long while, every Nigerian irrespective of persuasion is united in their conviction that a strong economy is required to deliver democratic dividends to the people. There is also a further admission that as the revenue from the oil sector continues to decline, in the light of a gradual global shift from oil, Nigeria must begin to consider the non-oil sector as the major driver of the economy. Already, the non-oil sector has continued to show promises and great prospects. In 2022 for example, the total revenue from oil as of November 2022, was N586bn while the non-oil revenue had contributed N2.09trn, within the same period.

One such sector within the non-oil sector that offers significant potential is the Nigerian logistics and supply chain ecosystem. According to the 2018 Logistics and Supply Chain Industry report, the value of the logistics sub-sector of the economy was estimated at N250 billion ($60 billion), making it one of the fastest-growing sectors. Experts believe that the Nigerian logistics sector has a strong potential for growth if properly harnessed, and can serve as the path to building a strong economy that can support government revenue and improve Nigeria’s foreign exchange earnings.

The question has always been whether the government can see this potential and if there is the political will to institute the necessary reforms that are required to reposition the sector. What is however certain is that in either the local or cross-border movement of goods, Nigeria has the capacity to translate its land, geography, demography and a huge market to become a global leader in the logistics value chain.

To maximise the sector, Nigeria must immediately commit to improving export, bridging its infrastructure deficit, committing to stronger bilateral and multilateral relations, and ensuring an enabling business environment that addresses bottlenecks at the port terminals.

There is no doubt that Nigeria requires an improved level of value-added export to achieve a competitive logistics and supply chain ecosystem, our year-on-year trade deficit will continue to impair the country’s ability to fully maximise the sector. For example, in 2021, Nigeria’s total imports were valued at N20.84 trillion, while exports totalled N18.91 trillion, resulting in N1.94 trillion (USD 4.4 billion) trade deficit. Trade balance is essential to harness the opportunities in the supply chain industry.

To support the sector, Nigeria must commit to bridging its infrastructural gap. According to the Federal Government, Nigeria needs $1.5 trillion over the next 10 years to bridge the current infrastructure deficit. Closing the infrastructure gap within a short time would immediately accelerate the sector. Nigeria also requires strong multilateral relations to support the supply chain industry. Already, Nigeria is making efforts in this regard, as one of the member nations under the African Continental Free Trade Agreement (AFCTA), the country must sustain this effort and consolidate its regional collaboration.

For the sector to scale there is a need for government to implement enabling business reforms that support the ease of doing business along the key value chain. This is in addition to port reforms that will ensure easy access and evacuation from the ports. The key reforms can accelerate the sector and its contribution to the growth of the economy and GDP.

Already, the sector has provided jobs to many Nigerians, at the retail level, with the potential to create more jobs. If effectively maximised, the logistics and supply chain industry has the capacity to boost government revenue and improve Nigeria’s foreign exchange earnings.

Michael Makinde CMILT is a logistics and supply chain professional.