The Game-Changer: Foreign Exchange Policy on Oil Palm Investment in Nigeria

Nigeria’s new President, Bola Ahmed Tinubu is barely a month in office and his policies are already causing wide-ranging effects on Africa’s biggest economy. The burning topic in Nigeria is the decision to float the naira and harmonise official rates with black market rates, adopting a “willing buyer, willing seller” arrangement.

As of July 3rd 2023, the Naira trades at N755 to a dollar at the Investors and Exporters (I&E) window. Reactions have trailed this decision, but we are concerned about how Nigeria’s foreign exchange policy affects investors’ view of investing in the agricultural sector, especially the oil palm value chain.

Why Oil Palm?

Nigerians care so much about the dollar’s health because the country is heavily import-dependent. To reduce Nigeria’s dependence on importation, experts have emphasized increasing the export of agro-commodities one of which is Oil Palm. We are looking at oil palm because the Central Bank of Nigeria estimates that the value chain has a revenue potential of $20 billion. For investors and stakeholders, there is a need to understand what exactly is going on.

Nigeria is Africa’s largest oil palm consumer, consuming approximately 2.5 million metric tonnes yearly. In 2022, domestic production capacity reached 1.3 million metric tonnes, leaving a deficit of over 1.2 million metric tonnes. According to the President of the National Palm Oil Produce Association of Nigeria (NPPAN), Alphonsus Inyang; “oil palm import is around $600m yearly”.

Who Doesn’t Love Oil?

There is hardly any document of economic relevance here that does not talk about oil – mostly crude oil. But now that the world is transitioning from fossil fuels to renewable energy and demand for Nigeria’s most valued export will experience further decline in demand, it is only sensible to look elsewhere. Another oil.

The government has set ambitious plans to reach self-sufficiency in oil palm by 2024. Perhaps, the goal might not be attainable before the end of 2024, but progress is being made and investor-friendly policies are guaranteed to help Nigeria surpass Thailand and Columbia in the nearest possible future.

What’s in it for Investors?

As stated earlier, the country’s production is not sufficient to meet local demand. If access to the dollar is liberalized, the processing sub-value chain can experience production growth.

If the Naira is stable and gains, the price of exported agro-commodities will decrease making it easier for agribusinesses to export, and a unique opportunity to scale. On the other side, the price of imported agro-commodities will increase. It could lead to higher consumer import prices, encouraging local agro-commodities production.

With this policy, there is a window for investors to exploit the profitability of meeting local demand and exporting agro-commodities. Profits will increase as actors in the value chain will have access to higher liquidity for export-driven productions.

We are also expecting, an increased level of investment in agro-commodity production more so, oil palm because export-driven production will help agribusinesses generate more revenue compared to existing realities. If there is a time to invest, in Nigeria’s oil palm value chain, we believe it is now.

There is a huge demand gap for businesses to meet. With high-impact investments, agribusinesses can access current innovative technologies and seedlings to improve yield, maximize post-harvest processing, and increase storage and market linkage capacity.

High-Performing Actors in Nigeria's Oil Palm Value Chain

Ellah Lakes has a land bank of 2,400 hectares dedicated to the production of Oil Palm. They are currently embarking on an aggressive mission of rapid growth to develop Staple Crop Processing Zones (SCPZ) in Nigeria.

Releaf Africa – focuses on improving oil palm processing systems. Releaf helps farmers produce high-quality vegetable oil in a record time, using their proprietary hardware, Kraken which achieves 95% pure oil palm products with West Africa’s most innovative deshelling technology.

Sunchi Farms, Enugu and Hottadoz Oil Palm manufacturing companies are also fast-rising producers in the sector.

Okomu plc is one of Nigeria’s largest oil palm producers, their dual-product strategy has grown its revenue by 60 per cent from $30 million to $49 million in 2022 with 85 per cent of local sales while only 14.9 per cent from exports. Okomu’s plantation area in Edo state has about 19,000 hectares (ha) of oil palm and about 7,300 (ha) of rubber.

Another leading producer, Presco Plc has four large oil palm estates covering 39,500 hectares (including the recently announced Siat Nigeria Ltd acquisition) with oil palm processing, refining, and storage capacities. Their revenue grew from N47.4 billion to N83.1 billion in 2022. The increase is backed by expanded high Crude Palm Oil (CPO), and Fresh Fruit Bunches (FFB) production.

Remember, this is a $20 billion economy waiting for the right action. Oil palm is Nigeria’s next oil, don’t miss the boom. To invest in Nigeria’s Oil palm industry, visit the W2A Portfolio website and join the Investor Club for exclusive investment deals and insights.