PRIMARY PRODUCT EXPORT VS VALUE ADDITION: IMPERATIVE OF PROPER POLICY SEQUENCING

February 8, 2026February 8, 2026 admin 0 Comments

CENTRE FOR THE PROMOTION OF PRIVATE ENTERPRISE (CPPE)

POLICY BRIEF

Introduction

The Centre for the Promotion of Private Enterprise (CPPE) acknowledges the growing policy emphasis and advocacy on domestic value addition as a strategic pathway to industrialisation, employment generation, export diversification, and improved foreign-exchange earnings. Efforts to move Nigeria up the value chain in the production and export of primary commodities are both legitimate and consistent with the country’s broader economic transformation agenda.

However, any policy framework that mandates compulsory domestic processing prior to export must be guided by a fundamental economic principle, which is that adequate, efficient, and competitive domestic processing capacity must exist before export restrictions on primary products are imposed. Where such foundational capacity is absent, compulsory value-addition policies risk generating distortions across commodity markets and imposing significant hardship on actors within the primary production value chain.

This concern is particularly critical in the context of the strong momentum recorded by Nigeria’s non-oil export sector over the past two years, driven largely by foreign-exchange reforms that strengthened export incentives and competitiveness. Premature or poorly sequenced value-addition mandates could undermine these hard-won gains.

The Fundamental Principle

The core principle underpinning sustainable value-addition policy is clear: compulsion must follow capacity, not precede it.

Domestic processing should emerge organically from:

• Sufficient installed and operational processing capability

• Competitive production costs relative to global benchmarks

• Reliable infrastructure—especially power, transportation, and other logistics

• Access to finance at low interest rates, long-term funds, modern technology, and skilled labour

• Efficient commercial linkages between producers and processors

• The capacity of processors to purchase primary products at prices reflective of international market realities

Where these enabling conditions are weak or absent, forcing value addition through export prohibitions or restrictions becomes economically counterproductive and potentially damaging to primary product producers, processors, and the wider economy.

RISKS OF PREMATURE COMPULSORY VALUE-ADDITION POLICIES

Suppression of Domestic Prices for Primary Products

Restricting the export of raw commodities in the absence of adequate domestic processing demand artificially constrains the market and often results in excess local supply. This imbalance exerts downward pressure on farm-gate prices, reducing incomes for farmers, aggregators, and rural communities.

In effect, value is transferred from primary producers to processors—not through productivity or efficiency gains, but through policy-induced price suppression. Such an outcome amounts to an implicit subsidisation of processors by primary producers, a situation that is inequitable, distortionary, and unsustainable.

Penalising the Primary Production Value Chain

Primary producers constitute the foundation of commodity value chains and sustain the livelihoods of millions of Nigerians. Policies that depress prices or restrict access to export markets:

• Weaken incentives for production and long-term investment

• Threaten rural employment and household incomes

• Deepen poverty and vulnerability in agrarian communities

• Erode the supply base required for future industrial processing

A compulsory value-addition regime that suppresses producers to support processors creates a zero-sum dynamic that undermines inclusive and sustainable growth.

Loss of Competitiveness in Global Markets

Value addition yields economic benefits only when processed outputs are globally competitive in price, quality, and reliability. Processing sustained primarily by protectionist export restrictions—rather than efficiency and productivity—often leads to:

• Elevated production costs

• Weak international demand for processed goods

• Accumulation of unsold inventories

• Declining foreign-exchange earnings

• Smuggling of primary products outside the country

Under such conditions, restricting primary-product exports may destroy existing export value without generating sustainable new industrial value.

Investor Confidence and Policy Credibility

Long-term investment across both primary production and processing depends on predictable, transparent, and market-aligned policy frameworks. Sudden, arbitrary, or premature value-addition mandates heighten perceptions of regulatory risk, discourage investment across commodity sectors, and weaken confidence in Nigeria’s non-oil export environment.

A MORE SUSTAINABLE POLICY PATHWAY

Achieving durable domestic value addition requires a sequencing strategy that prioritises competitiveness before compulsion.

First, Nigeria must build adequate processing capacity through coordinated public- and private-sector investment aimed at expanding installed capacity, improving utilisation rates, and ensuring processors can absorb domestic output without distorting primary product prices.

Second, structural cost constraints must be addressed decisively. Reliable and affordable power, efficient transport and logistics, access to long-term and reasonably priced finance, technology upgrading, and workforce skills development are the true foundations of competitive processing. Reducing these structural barriers is far more effective than restricting primary-product exports.

Third, the economics of primary producers and rural livelihoods must be protected. Producers should receive fair, market-aligned prices, and industrial policy must not depend on depressing farm incomes to support downstream industries.

Fourth, any transition toward compulsory value addition should be gradual, predictable, selective and market-responsive—anchored on measurable increases in domestic processing capacity and developed through stakeholder consultation.

Trade restrictions should not be matters for legislative enactment; rather, they should be fiscal and trade-policy instruments administered by relevant fiscal authorities with sufficient flexibility to respond to prevailing economic conditions.

Such an approach promotes shared prosperity across the value chain, rather than redistribution through distortionary controls.

Conclusion

Domestic value addition remains essential to Nigeria’s long-term industrial transformation. However, policy sequencing is decisive. Processing capacity, efficiency, and competitiveness must precede compulsion. Reversing this order risks suppressing primary-product prices, penalizing rural producers, discouraging aggregators and weakening export performance.

Sustainable industrialisation is achieved by building competitive capacity that enables Nigerian processed products to succeed locally and globally on the strength of efficiency, quality, and cost competitiveness.

A balanced, inclusive, and capacity-driven strategy will deliver credible export growth, resilient rural livelihoods and durable industrial development for Nigeria.

Dr Muda Yusuf
Chief Executive Officer
Centre for the Promotion of Private Enterprise (CPPE)
8th February 2026

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