CPPE warns against compulsory domestic value addition

The Centre for the Promotion of Private Enterprise (CPPE) has cautioned against compulsory domestic processing of primary commodities without adequate local capacity.

The body warned that poorly sequenced value-addition policies could distort markets, hurt rural producers, and undermine Nigeria’s recent gains in non-oil exports.

The warning was issued in a policy brief released on Sunday and signed by CPPE’s Chief Executive Officer, Muda Yusuf, following the growing government advocacy for mandatory domestic value addition as part of Nigeria’s industrialisation and export strategy.

In November 2025, FG announced a plan to mandate a 30 per cent value addition on all raw materials before export.

According to the policy think tank, 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.

The body insisted that any policy framework that mandates compulsory domestic processing before export must be guided by a fundamental economic principle.

CPPE stated that such economic principles must be “adequate, efficient, and competitive domestic processing capacity must exist before export restrictions on primary products are imposed.”

According to the CPPE, the absence of fundamental economic principles that guide domestic processing before export is consequential to commodity market distortion and significant hardship on actors in the primary production value chain.

“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,” CPPE stated.

Fundamental principles

According to the economic think tank, the core principles that must underpin sustainable value-addition policy have to ensure that “compulsion must follow capacity, not precede it.”

The organisation further argued that any policies that attempt to force value addition through export bans or restrictions are economically counterproductive and risk harming primary producers, processors, and the broader economy.

“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.

“It must also emerge organically from 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.”

Risks

CPPE also warned against suppressing domestic prices for primary products, saying such action exerts downward pressure on farm-gate prices, reducing incomes for farmers, aggregators, and rural communities.

It noted that such actions transfer value from primary producers to processors as a result of induced policies, and not from efficiency gains. This amounts to subsidisation of processors by primary producers, which the CPPE said is not sustainable.

“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,” the CPPE stated.

It added that value addition yields economic benefits only when processed outputs are globally competitive in price, quality, and reliability. However, CPPE explained that any processing sustained primarily by protectionist export restrictions rather than by efficiency and productivity.

The think tank noted that it also leads to elevated production costs, weak international demand for processed goods, the accumulation of unsold inventories, declining foreign-exchange earnings, and the smuggling of primary products out of the country.

Consequently, restricting primary-product exports can destroy existing export value without generating sustainable new industrial value, it said.

Solutions

The CPPE endorsed long-term investment across both primary production and processing, which, according to the body, depends on predictable, transparent, and market-aligned policy frameworks.

The think tank noted that achieving durable domestic value addition will require a sequencing strategy that prioritises competitiveness before compulsion, thereby promoting shared prosperity across the value chain rather than redistribution through distortionary controls.

The CPPE advised that Nigeria should first build sufficient processing capacity through coordinated public and private investment to expand installed capacity, improve utilisation, and enable processors to absorb domestic output.

It also stressed the need to tackle structural cost constraints by ensuring reliable power, efficient transport and logistics, access to affordable long-term finance, technology upgrades, and skills development.

“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,” CPPE stated.

The body added that producers must receive fair, market-aligned prices, and that any transition to compulsory value addition should be gradual, predictable, selective, and market-responsive.

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“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,” it noted.