Nigeria must pursue comparative advantage trade policy – Isemede
Return to agriculture, solid minerals, petroleum, ICT will make Nigeria world, not just Africa’s giant
Nigeria, though, yet to sign the African Continental Free Trade Area (AfCFTA) agreement, a common or single market that will encourage unhindered inflow and outflow of goods and services in African key markets, will need to improve on the challenges to export trade as a means to capitalizing on the benefits in the untapped market potentials which the trade agreement offers. A recent report by PricewaterhouseCoopers (PwC), revealed some analysts positions on how the free trade arrangement offers a huge opportunity for Nigeria’s bourgeoning economy, while highlighting some of the many challenges responsible for the low level of exports of agricultural goods relative to total exports, which include but not limited to, logistics challenges at the ports, inadequate storage facilities, poor products for exports and the low-value addition to agricultural products.
Following the opening of AfCFTA headquarters in Accra, Ghana last week, Business A.M.’s CHARLES ABUEDE met with JOHN ISEMEDE, PhD, a former director-general of the Nigerian Association of Chambers of Commerce Industry Mines and Agriculture (NACCIMA), researcher and an international marketing expert with a demonstrated history of working in the international trade and development industry. A national expert on Value Chain with top skill in negotiation, Business Planning, Management, Risk Management, and Strategic Planning. He is also a strong community and social services professional with a Master of Business Administration (M.B.A.) focused in International Business/Trade/Commerce across the globe from Universities of Benin and Lagos, Nigeria, Alliance Franchaise and Paris Graduate School of Management, France, where he revealed the mysteries behind Nigeria’s low trade export over time and why the African giant has refused appending her signature to the AfCFTA in Niamey. Excerpts:
What makes international trade so important to any country’s economy?
There is nobody that is an island; any country that imports virtually everything won’t be involved in import and export. Import is what you bring and export is what you take out, and for you to have a balance of trade and balance of payment, you must be involved in international trade, for you to save the naira and have enough money for forex. Now we are not exporting, that is why we are borrowing.
In what ways have international trade impacted positively on Nigeria’s economy outside oil and gas export, and during the pre-oil and gas era? Can we have empirical evidence? What are we doing wrong?
With empirical evidence before oil: Oil exploration started in Nigeria in 1908 and those who came for the exploration, the Italians, left in 1914, not because of the amalgamation but because of the First World War. They came back in 1936 and worked for 20 years to discover oil in Oloibiri in 1956. We started the export in 1958 with 4100 barrels per day and at that period, Nigeria was exporting crude of 4000, which was over 90 per cent; and in 1960, it became 17100 barrels, and we were exporting 17000. When we gained independence in 1960, oil was contributing one per cent to the GDP. When the military came in 1966, it was contributing 9 per cent to the GDP. Today its revenue is almost 90 per cent.
And if we look at OPEC allocation Nigeria, with 200 million people, we are entitled to two million barrels per day. If we do the mathematics, 100 Nigerians are entitled to one barrel of oil. In Angola, it is 10, based on their population; Algeria is 15 to a barrel; in Kuwait, it is two persons to a barrel. If we look at the exchange rate of today multiplied by the OPEC allocation and the dollar, we can see that the average person in Nigeria today is entitled to N200 per day from there.
Prior to that, we were not in this loose grouping, we were in the regions. The University of Ibadan was University College, London until 1962. There was competition; Chief Obafemi Awolowo built the cocoa house, the University of Ife with proceeds from cocoa. The western region was the richest region in the world, as at then. Then, the easterners, Nsukka came up, and Okpara built the Umudike and the palm plantations in the east. Tafawa Balewa and Ahmadu Bello came up with the Ahmadu Bello University, then Mokwa Ranch, and others.
Nigeria was a very prosperous country; before independence it was 25 pence (as was in use then) to $1 USD. In 1973, when Nigeria started using naira and kobo, the naira was devalued by 50 per cent; the essence of that devaluation was to promote export, and it became 50 kobo to a dollar and 70 kobo to a British pound. What has happened between that [time and now]? Even in 1986, when structural adjustment programme (SAP) was introduced, we had foreign reserves of 18 to 24 months.
Today, Nigeria is buying the same pound of 70 kobo for N610 and the dollar for N480 as at this morning [Thursday 20, August]. We have a foreign reserve of 35 billion dollars and if we compare what we have with what we have borrowed and what we intend to borrow the reality is that the naira will still go down.
The only hope for Nigeria is to look at 3 things: Fix our refineries because, in the upstream, we are not there, for over 100 years. That’s the exploratory stage. The pipeline, and refinery, we are not equally there. Where we are very solid for over 200 years is … We started importing, before we discovered the exploration of oil and before we had few refineries. Now, we are importing and exporting crude, and importing refined products is like throwing away money because we are exporting wealth out of which they get different varieties. Look at cocoa; we are exporting cocoa beans for over 20 years and the biggest cocoa processing plan is located behind the Nigerian embassy in Netherlands.
Now, if we are adding value to this, the CBN’s position is that there is no allocation of forex. We are going to block this we are going to block that. If all these interventions are working, why did we not fare better? We still find ourselves where we are. Let us retrace our steps. Look at import substitution, backward integration and let us be producing. As long as we are not producing, we are looking up for palliatives, palliatives will lead to dependency and the naira will continue to suffer. As I speak with you now, the unemployment rate is 27 per cent, which has never gotten to this alarming rate before.
What happens to Nigeria’s trade policy? Where did we get it wrong? What has trade been adding to Nigeria’s revenue outside crude oil export?
For a country to survive, it must have a foreign policy. Nigeria has a foreign policy. The same foreign policy from 1960 till today, which is, Africa is the cornerstone. Nigerian foreign policy is not tied to trade. America will go to where it will favour them and whatever they do is tied to trade.
Then the last one, we talk of economic diplomacy. So diplomacy is this way: whatever I give to you, you give to me. But when you talk of Nigerian trade policy, the last trade policy we had was in the year 2000, which was submitted in the Doha conference of 2011. The one that was taken to Bali in 2013 was approved, but it was not taken to the National Assembly. As I speak with you, Nigeria has had no trade policy for 20 years.
Given an opportunity to drive trade as a minister, what will you do differently to diversify Nigeria’s export base and income from such diversification?
There is somebody in that seat. But, if I can advise Nigeria on the direction to go, I will suggest a comparative advantage. What to do is that God is not a debtor to anybody. What he gave to us is different from what he gave to America or Brazil. In this situation, Costa Rica can export pineapple to the UK; the beans we are getting in Europe comes from Madagascar, which is 12 hours by flight. Cut flowers from Kenya and Ethiopia. For a 737 Boeing aircraft to load agricultural produce in Kenya, its 0 per cent it pays to the government; to take agricultural produce from Ghana it pays $2500; and from Nigeria, it pays $35000. With those payments added to the cost, can one sell? Even at the airport, we see how these things are being weighed at N20 per kilogramme and nobody to assess these. If we look at petroleum, the refineries should work, Ajaokuta Steel Company should work, Iwopin Pulp and Paper Mill should work, Jebba Paper Mill should work. Then in agriculture, we will now develop the value chain.
It is not a matter of supporting farmers without supporting processors, because if you give money to farmers and you do not provide the seedlings, you can’t get good yield or good output; if you don’t provide good habitat they will train them [on]. Then, if you don’t process, for instance, rice which takes only 5 months; maize takes 3 months.
Then what of the domestic market and export? Some of the things we produce here cannot enter departmental stores. You will see apple from South Africa, banana from South Africa. Why is it that our own cannot even enter our own departmental stores? Then the solid minerals, 54 we have discovered, we should be able to add value; human capital development and diaspora remittances.
The World Trade Organisation (WTO) seems to have lost serious relevance in the past couple of years. In particular, it seems the big players, such as China, India, the US and Russia don’t play by the WTO’s rules and WTO appears helpless about it. An example is the on-going China-US trade war. Please, put the issues in perspectives. What has gone wrong? If the WTO fails to tackle powerful players, do you think it can still continue to be a force to reckon with in global multilateral trade?
In trade, you will want to claim superiority. It’s like football, FIFA is there regulating body. WTO, when you say a fair trade a fair trade, we refer to Africa, but have we been fair to ourselves? A country like Nigeria cannot export yam, beans, and we have the Oronsaye reports, more than 1000 MDAs, no target is given to them and the government is funding them. So, when we say fair trade or unfair trade, if the Japanese can compete because America controls about 25 per cent of the world trade, followed by China of about 18 per cent. Our own is just 0.0 per cent of the world trade. So WTO is still very relevant in the regulation of world trade. That’s why we talk of the rule of origin and trade facilitation.
The ACP-EU trading bloc earlier looked like it had some promises. But, looking back now, it seems to have become just a shadow of its old self. What has gone wrong and is there any hope of the ACP-EU trading bloc returning with strength?
ACP-EU is under the GSP arrangement that whatever I am giving to you, you are not giving to me. That one came up for 77 Africa and Caribbean countries to export agricultural produce. Even the agricultural produce here, we are not able to meet the standard because we don’t have laboratories and accreditation centres. We are having problems because of the collapse of the commodity boards. Part of the IMF conditionality was to collapse the commodity board in 1986 and by 1988, some of the incentives were given to people in the city who have been last, not the cocoa farmers. It became incentives for cocoa sellers. Those who worked for seven years will not get an incentive. Those who will now buy, put their own margin, will get an incentive.
So when drawn, ACP-EU is the GSP, that the European Union lowers the standard for us to enter their markets with agricultural produce. Why did they not say that we should add value and bring to them? And when the European Union was getting all these from us, that’s how America came up with their version called AGOA. Has Nigeria been able to benefit from one, and then D-8 came up. Eight countries, and for 20 years, Nigeria has been a member under them and has not signed one agricultural produce till date. So, if you see ACP-EU, I know what they are doing. I visited their office in Belgium in 2011 under [Obadiah] Mailafia’s reign as Chief of Staff. AGOA, I know what they are doing. During my time as chief executive of NACCIMA, even the D-8. But we are not prepared for these things.
Africa depends more on commodities export to countries outside Africa for its foreign exchange earnings. And trade between countries in Africa is lower than with outside Africa. Yet the commodities are mostly raw, unrefined and earn low because of little or no value-added. Is that about to change anytime soon? Are there coordinated efforts to boost intra-African trade and value addition to boost revenue and improve Africa’s economy?
When we started the business of export in West Africa, to do business in Europe was three minutes and to do business in Ghana was six months, while the Benin Republic was almost a whole year, because there was no bilateral air agreement. They do not take only our agricultural produce. Under the ACP agreement, what they want from us is produce and we have not been able to move and add value, that’s why I said there are gaps and if there are linkages we should be able to find ways to address it.
If we look at the African continent, we have about 1.2 billion population. Trade within the African sub-region is less than 20 per cent and it is mainly in the east and southern Africa. Trade within ECOWAS is about five per cents and if we now talk of informal trade, it goes as high as 20 per cent in the past, but today, it’s less than 12 per cent, because of the incursion from the Asian countries.
The coordinated effort to boost Intra-African trade is the single market we are working on, that the AfCFTA, AFREXIM and AfDB be up to the task. What is left is for us using the ECOWAS and our experts to coordinate activities.
The African Continental Free Trade Agreement (AfCFTA) has come into force and the permanent headquarters in Ghana seems ready for work. Do you think it is fully prepared? Where, in your opinion, are the likely crisis points and what should be done to prevent or overcome them? How much do you think AfCFTA has the potential of adding to Nigeria’s economy in the next five years, ten years? Same for Africa’s economy
AfCFTA headquarters being cited in Accra Ghana is ready. Ghana to Senegal and Nigeria must key in and drive the same agenda. Otherwise, we will not be able to compete with northern Africa, eastern Africa, and southern Africa. We should be very grateful we have AfCFTA and ECOWAS. People do not have such opportunities. What we need now is that there must be communication, coordination among the West African brothers. The secretary-general of AfCFTA is very capable; I have read a lot about him. So, we have a lot of professors on the continent; I know the capability of Africa, and I respect our professors. Also, there is no crisis because the rule of origin is there and the rule of compensation and competition. In Nigeria, there is no rule on competition. But in West Africa, there is.
The headquarters of AfCFTA is in Accra, Ghana. Why couldn’t it be in, say, Lagos or Abuja? Has Nigeria played any remarkable role in the setup?
The struggles others have passed through, as Nigeria didn’t sign the AfCFTA neither is the country a full member of the agreement, has led to the decision being taken in Niamey to site the headquarter in Ghana as a result of the roles played by Kwame Nkrumah and J.J Rowlings of Ghana. On the ETLS, we have ECOWAS, Egypt has AFREXIM, Abidjan has ADB, Cotonou has ECOWAS fund, Sierra Leone has the WABA, and Guinea has WACH.
Nigeria has not been a big beneficiary of the ETLS (ECOWAS Trade Liberalisation Scheme) relative to its size. Why? What chances has Nigeria in AfCFTA if ETLS didn’t add so much to its fortune?
Since Nigeria left, there are no export managers any longer. We were the promoters and we benefitted. We have major companies which can be found at Ijora, Apapa, Oregun, etc. Nigeria was the first country to put $10 million as a compensation fund. The compensation fund is when you export under the ECOWAS ETLS, if the country is not collecting duty on your product. Then, you will have to compensate them (the government of that country). Nigeria was able to play that role. If we are not benefitting from the ETLS, it’s just that people did not continue from where we stopped. Even with the border closure, it is an issue. You can’t carry cement by air, but through the sea with ship, and land.
How should Nigeria promote and implement its economic and trade diversification, especially now that the petroleum economy seems to be in its twilight, and – as Coronavirus pandemic has shown – has become unreliable trade commodity?
It is for us to come together – the universities, the private sector and the government. In the past, it is the private sector before the regulator. Now, it is the MDAs before the private sector. That’s why things are not working. Even where committees are formed, you don’t see the private sector. You hear of price increase of petroleum products and electricity hikes, the private sector doesn’t get the information like any other person, which is difficult for planning.
Are there any other insights on the subject of regional trade that you feel strongly about for Nigeria to adopt?
The problem we have now is the oil-based economy, and instead of being the agric-led economy of the past. But if we now go back to agriculture, solid minerals, petroleum, ICT, Nigeria will be the giant of the world and not just Africa. The giant is not by the population because our per capita income is one of the lowest globally, while the misery index has Nigeria ranking 5th in the world and the ease of doing has not improved.