The Centre for the Promotion of Private Enterprise (CPPE) has cautioned against implementing premature value-addition policies in Nigeria, warning that such measures could undermine the country’s economic growth and harm primary producers.
In a policy brief signed by Muda Yusuf, director of CPPE, the think tank emphasised that compulsory domestic processing prior to export must be guided by the principle 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,” Mr Yusuf said.
Last November, the Nigerian government announced a plan to mandate a 30 per cent value addition on all raw materials before export.
Mr Yusuf highlighted that Nigeria’s non-oil export sector has recorded significant growth over the past two years, driven by foreign-exchange reforms that strengthened export incentives and competitiveness.
However, he said premature or poorly sequenced value-addition mandates could undermine these hard-won gains.
Fundamental principle
The CPPE said the core principle underpinning sustainable value-addition policy is to ensure that “compulsion must follow capacity, not precede it.”
It added that 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 and the capacity of processors to purchase primary products at prices reflective of international market realities.”
The think tank said 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
Mr Yusuf emphasised that 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, he said, 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.
“A compulsory value-addition regime that suppresses producers to support processors creates a zero-sum dynamic that undermines inclusive and sustainable growth,” he said.
According to him, value addition yields economic benefits only when processed outputs are globally competitive in price, quality, and reliability.
He said 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 and smuggling of primary products outside the country.”
Under such conditions, he noted that restricting primary-product exports may destroy existing export value without ge Strategy nerating sustainable new industrial value.
Strategy
The think tank said achieving durable domestic value addition requires a sequencing strategy that prioritises competitiveness before compulsion.
First, he said 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, he added that 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,” he said.
He noted that 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.”
Mr Yusuf said 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.
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“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,” he said.
He added that domestic value addition remains essential to Nigeria’s long-term industrial transformation. However, he said, policy sequencing is decisive.
“Processing capacity, efficiency, and competitiveness must precede compulsion. Reversing this order risks suppressing primary-product prices, penalising rural producers, discouraging aggregators and weakening export performance.”
“A balanced, inclusive, and capacity-driven strategy will deliver credible export growth, resilient rural livelihoods and durable industrial development for Nigeria,” he said.
