CFTA AND NIGERIA’S PARIAH TENDENCIES

A couple of weeks ago, 44 African countries at a summit of the African Union in Kigali signed the much talked about agreement to create the African Continental Free Trade Area (AfCFTA). It is important to note that Nigeria, Africas largest economy and 10 other African countries did not sign the agreement.

It is also instructive to note that alongside Nigeria, South Africa also did not sign the agreement although for different reasons other than those given by Nigeria to wit: Nigeria believes it will undermine local manufacturing or lead to Nigeria becoming a dumping ground for finished goods. This was backed by the organized private sector demands led by the Nigeria labour Congress (NLC).

According to the Nigerian authorities, it is a renewed, extremely dangerous and radioactive neoliberal initiative being driven by the Ministry of Trade and Investment that seeks to open our seaports, airports and other businesses to unbridled foreign interference never before witnessed in the history of the country’. This position is at best a myopic representation of the true intent of the agreement and other similar agreements which countries have been entering into to facilitate trade and boost their economies.

The CFTA which aims to reduce barriers to trade such as removing import duties and non-tariff barriers, hopes to boost intra-continental business. The African Union Commission (AUC) estimates that if coupled with complementary trade facilitation measures to boost the speed and reduce the cost of customs procedures and port handling, the CFTA could more than double share of intra-African trade to 22 percent of total trade by 2022.

For perspective most Free Trade Agreements (FTAs) owe their success, at least in part, to prior reductions in trade barriers between the parties to the agreement. This then enables the countries to assess if entering into a trade agreement is the right step to take to boost trade between the countries. For example, the case in point will be the ECOWAS ETLS which has been in play in ECOWAS countries, a good place to start will be to examine the project since inception to understand if this has worked well and this will then lead to greater confidence to get in to the broader TFA or in this case a CFTA agreement. Nigeria could borrow a leaf from these types of examples to then decide if we can begin to enter into agreements or otherwise.

Some of the arguments the Nigerian authorities have put up are as follows; customs revenue will drop once duty-free regime commences, opening the borders to goods from other developed countries will naturally serve to kill local industries which primarily churn out low standard ‘un-competable’ products; Nigeria will need some time to build capacity and infrastructure before thinking of going that way; Nigeria is already solely import dependent. Etc.

The fact is that we will never get to a state where we are comfortable enough to open our markets to trade. In a situation where we are looking to diversify the economy from a single source of foreign exchange earner we should work towards lifting all barriers to trade and indeed emphasis should be less about protectionism but on putting the right enablers in place for us compete favorably.

Nigeria today is focusing on the wrong objectives going into these trade negotiations. While it is important to protect the local manufacturing sector, it is important to also ensure that we build it to a level that can compete with manufactured goods from the region. It is important to note that at this point, we have not even begun to talk about competing with Europe. We have been in a position where we have been susceptible to headwinds in the oil sector, as a disruption in the oil prices globally leaves our economy in shambles. We need to take a stance on what must be done to ensure we don’t go down that spiral of devaluation, inflation and currency crashes again. Indeed, this should serve as a compass in steering the country’s economy in the right direction by truly diversifying.

In the last quarter of 2016, we were at a stage where we began as a country to put in restrictions on certain categories of imports simply because the foreign exchange wasn’t there to meet out import obligations. 60% of the import bill catered for the importation of petroleum and related subsidies. The rest was spread between scarce but necessary imports. Fiscal and monetary policies began flying all over the place with each competing for messiah status to save us from total recession. Indeed, for the first time in a long while, Nigeria recorded two consecutive quarters of negative growth.

At this point of relative stability, and as we continue to build our reserves in this fragile state of relative peace in the Niger Delta, we need to truly take stock of the situation and ask ourselves tough questions on where we are headed as a nation.

Having the ‘gut’ to take tough decisions and see it through in the face of opposition from all angles is the true mark of a leader.

As with my previous essays on the topic, this is what I propose;

I still maintain that something must be the catalyst to force government to either build the required infrastructure or to encourage the private sector to develop these infrastructure for us to move ahead as a nation. What Alh. Aliko Dangote is doing in this regard is instructive and should serve as a guide to be replicated across all sectors.

-    He has realized that the government is not going to fix infrastructure any time soon.

-    He has gone ahead to fix the roads leading to the ports.

-    He will in return get tax breaks for a period.

-    It’s a win-win situation.

No wonder he has gotten to where he is in life. That’s smart right.

The truth is that at this point in the country’s growth, we know for certain that relying on the government to fix critical infrastructure which will make us compete favorable will probably never happen. However, we also know for a fact that we need to compete favorably with other nations. Now, let us imagine if what Aliko is doing is replicated by other companies across all sectors. In no time, we will ourselves rush to other countries to beg them to open our borders.

The point to this write up is that already entering into these trade agreements upfront will be the catalyst to force company/government to enter into these types of agreements. Otherwise, we will remain complacent and never grow as a nation.

The answer is not to make us a pariah nation, shy from engaging and with the outside world.

Also, this is to also note that for Nigeria as a low hanging fruit, in going into these negotiations, our negotiators can insist on certain clauses like regulations within the agreements which will protect against the identified disadvantages. i.e we can insist that developed economies should reduce their business subsidies for their companies as this will keeping emerging market companies in business and to compete effectively. Furthermore, we can also insist that foreign companies build local factories as part of the agreement, including the requirement of these companies to share technology and train local workers. 

Countries are moving towards industrializing their economies and expanding trade with other countries in other to boost their balance of payments. They are being forward thinking and not being introverted about this at all. We should think of moving the goods produced in Nigeria to other nations, expanding new markets and territories and truly diversifying our economy from oil.

Nigeria can be likened to a lady who doesn’t not want to have anything to do with the men specie but also wants to get married to a man at the same time. The marriage concept in this case is a farce unlikely to materialize unless we make tough choices, hard decisions which may not look appetizing in the short run, but will serve to build our economy in the long run.

I totally agree with the CFTA representing a significant opportunity to redress the vulnerabilities of Africa’s economies within the global economic order and Nigeria serves to gain and truly rise within the world order if we leverage this agreement.

Do we need more than free movement of people across the African Union??

The long-awaited Pan-African passport was launched recently at the opening ceremony of the 27th Ordinary Session of the Assembly of the African Union. Dr. Nkosazana Dlamini-Zuma, the Chairperson of the African Union Commission, handed two representational African passports to President Paul Kagame, and to the Chairperson of the African Union, President Idriss Deby of Chad. The move to launch the African passport was reached during the Summit in January this year, with the AU deciding that the passport would be launched in Kigali, starting with Heads of State and Government, with Foreign Ministers and the leadership of the Representatives of the AU Executive Councils and Organs. What this means for countries doing business in Africa’s emerging markets is that simply put, one step in the mobility blockade of their human capital needs has been lifted. This is despite the fact most are struggling under various stages of economic recession, brought about primarily by the lack of proper economic management and planning and phenomenal cases of ineptitude in the management of their commonwealth. While you could argue that the free movement of people as enshrined as part of the African Union’s seventeen objectives provided in Article 30 of the Constitutive Act of the African Union, is one of the key principles of the African Union, care should be taken that it should not be tested to its limit when fully implemented. There is no gainsaying the fact that there is always this rush by people from economically less developed countries to move en-mass to other better developed economies. This is usually the case and typically happens over a duration of time, unless spiked by certain natural phenomena like wars, famines etc. In Africa for example, I must say at this point that in 2014, Africa experienced more than half of worldwide conflict incidents, despite having only about 16 percent of the world population. This is a slightly larger share of the world’s conflicts than even during the chaotic years of the post-Cold War 1990s. Geographically Africa’s conflicts are tightly clustered along an arc stretching from northern Mali through southern Algeria and Libya into Egypt, extending into the Sinai Peninsula. The Boko Haram conflict in northeastern Nigeria is another epicenter and situated in relative proximity to an area of conflict hot spots in the Central African Republic, eastern Democratic Republic of the Congo, Niger, Burundi, South Sudan and Darfur. On Africa’s eastern coast, the Somali civil war is still going strong in its third decade. Modern conflicts in Africa are thus highly localized, and they defy simplistic explanations based on stereotypes. That being said, the above tells us that we might already be at that point where there might be a migrant crisis already across these hot spots, and care should be taken in launching this AU passport which will eventually allow members of the 54 nations in the African Union, which includes every country on the continent except Morocco, to move freely between borders and war thorn regions, similar to the way the Schengen Area works in the European Union to lead us to what the EU is facing at this time with some countries being forced to opt out of the union. The AU believes that the fact that over half of the countries in the AU currently require visas for visitors from other countries on the continent is one of the causes of Africa’s dismal intra-continental trade, which makes up only 11 percent of trade in the region. The fact is that there have been some attempts at easing trade and investment in the continent in the past and these efforts have not been centrally coordinated by bodies like the AU but within regional blocs. For example, last year, 16 African nations signed an agreement to establish the Tripartite Free Trade Area. The Tripartite Free Trade Agreement (TFTA) was signed into effect in Cairo in June 2015, amalgamating three of Africa’s main trading blocs: the Southern African Development Community (SADC), the East African Community (EAC) and the Common Market for Eastern and Southern Africa (COMESA). However, investors will have to wait longer to reach a regional markets with 625 million consumers as only 16 out of 26 nations have signed an agreement to combine three trading blocs in Africa. Under FTA, a designated group of countries have agreed to eliminate tariffs, quotas and preferences on most — if not all — goods. However, of note is the fact that no country has yet ratified the pact, raising concern over delays in the implementation of the merger plans by the target of 2017. I believe the AU should also focus on facilitating these types of Trade agreements which will create a free trade union capturing more than 60 per cent of the continent’s economic activity and investors will easily reach a market of 625 million consumers from South Africa to Egypt, as opposed to just opening the borders to free movement of people. Also noteworthy is the fact that with the strong countries getting stronger by the day, and paper giants struggling with how to catch the northeast trade winds, forward looking companies would want to move to areas/regions where they feel they can guarantee return on investments for their stakeholders, and regulatory fluidity would be a factor not chasing them about the continent. For a country like Nigeria which has an economy that is shrinking by the day and has technically been in recession after a fall in GDP for two successive quarters, in the past six months, the prices of essential food items have risen significantly in consonance with the rising level of inflation in the country, which hit an 11-year high of 16.5 per cent last month. The Nigerian National Bureau of Statistics this week released the Consumer Price Index, which measures inflation, stating that the country’s inflation rate rose from 15.6 per cent in May to 16.5 per cent in June. June’s rise in the inflation rate represents one of the highest to be recorded by the country over a decade. For Corporates, the rising trends of various costs of production will make manufacturing in Nigeria no more attractive and competitive. Where does that leave us for export? These costs of production including Labor will skyrocket in response to the harsh operating environment. For this singular act by the AU, the fact that labour is now mobile across the region guarantees that companies are not going to be moving around due to the need to find cost effective labour alone as they can now get from across the region. Or wait; would they be moving around given the fact that the cost of labor is one of the most singular huge cost of production, and if reduced significantly, their goods might become competitive and thus attractive for export?. One really cannot tell at this point until we see the policy play out. While we cannot specifically say that encouraging intra-African trade or labor mobility is the reason the AU decided to reach this singular passport decision, according to Rwanda’s Foreign Affairs Minister Louise Mushikiwabo, the issuance of African passport is among the African strategic initiative intended to come as a possible rescue to disband all the restrictions to move which will eventually create a conducive environment for Africans to trade with each other. However once these restrictions to move have been addressed, the questions around the right to work in different countries still has to be addressed, i., e first you have moved to another region, however, questions like does this now give the you the right to live and work in these other countries in Africa, or it just has a short sleeved process of just traversing the length and breadth of Africa trading and moving on?. These are questions the policy makers need to address to be able to model the policies of the AU like a truly integrated customs union. Companies on the other hand typically move from place to place in search of greener pastures. In this sense a place where the cost and ease of doing business is competitive and they are able to guarantee good return on their investment. In Nigeria a typical case in point would be Dunlop moving from Nigeria in the 80ties to neighboring Ghana when the cost of doing business in Nigeria became exorbitant. While it might be true that free movement of goods and services in the region has the ripple effect of growing the economies of these African countries in the Union, companies now need to evaluate their production, distribution and sourcing options in order to determine where to get the best value. This is because it will not make economic sense for the AU to still have other forms of trade restrictions when other countries/regional blocs trade with countries in the AU and then allow the movement of persons within the region to be free. For these type of inter-regional trade restrictions to still coexist side by side with the one passport regime and be successful, the AU needs to get to a stage where they can be self-sufficient enough to be able to address sourcing requirements for businesses in the region for them to say that their isolationist policy will be sufficient to address the regions challenges to regional trade. Scenario 1 Plausible scenarios for the AU to explore would be to source raw materials from some parts of Africa, then manufacture in other countries where it makes financial sense (other factors of production) and then distribute to the rest of Africa leveraging the right of people to move freely within the region. The only barrier in this case will be the cost of duties particularly when they are not leveraging the ETLS. What this means is that companies are able to plan ahead and maximize costs in the region through the lifting of these movement and trade barriers. In the case where costs of duties are eliminated due to the regional arrangements, i.e. ETLS, Preferential trade agreements, etc. all factors of production becomes mobile and then there is good ROI and the region will flourish. The AU in this case can make a conscious effort to develop some of the countries in areas of their strengths, i.e. some can produce raw materials and then others can become industrial hubs Another scenario If the first scenario above is not developed in the long run, Africa will still continue to source from the rest of the world and manufacture locally. This leaves room for a lot of development as regards backward integration. Arguments against this scenario is that it discourages trade with other countries, however, it is my opinion that as a matter of fact, trade with other countries will be encouraged due to the fact that the AU would produce end to end purely made in Africa goods and then export to the rest of the world, in return for whatever they currently export. This scenario however is currently what is in existence as Africa has not reached that level of sufficiency to be able to meet its raw material requirements. I close this by submitting in my opinion that while the AU single passport is a step in the right direction the AU needs to legislate all other trade barriers with the aim of lifting the restriction on the movement of goods and services within the African Sub-region.

Protectionism? – We are all guilty!!

I write this article to clarify my stance on the question of protectionism that might have arisen from my previous article on the EPA between the EU and ECOWAS, and the hesitance of the region to run with the agreement. It has been pointed out to me severally that non-assent to the EPA or non-implementation of the assented EPA or in this case the pushback by the government backed by the organized manufacturing sector tends towards a form of protectionism being introduced by the region and that the result is that it will do the region no good in the long run. As a matter of fact, some of the arguments against protectionism that was then given to me is the example of South Korea i.e. that South Korea used export promotion policies to move from a GDP lower than that of Bolivia or Senegal 50 years ago to being the world’s largest ship-builder and fifth largest car manufacturer today. Very true indeed. However, I must confess that with the case of South Korea, there was a concerted, strategic, deliberate, measured and planned execution of the development of the industrial sector by their successive administrations for this to come to fruition. As the popular saying goes, ‘where there is a will, there is a way’. African governments have not shown any desire to implement policies of previous administrations that tends towards industrialization and eventual competence, no matter how nationalistic they might be. Thus we also perpetuate a circle of good programmes, good economic policies that have a four year life span, (at best five) and will not give room to grow the local economy. Thus I see a constant need for African governments to constantly protect the ever infant local industry at the expense of encouraging inter regional trade. This is in no way the fault of the local manufacturer who sees his goods as inferior or non-competitive on an international stage, and who in return is constantly lobbying his government to put in place protectionist measures to guaranty his investment. As a matter of fact, in fairness to him, the fact remains that the obvious first reaction of governments is to protect and develop whatever local industry they have while they try to explore other trade options. At face value, the objective at first seems to be very clear i.e. we need more protection, we will deal with our country’s lack of competitiveness and the core causes thereof later – just not now, not yet. Or as soon as we deal with other issues Sub-Saharan Africa is also the recipient of preferential access to the markets of many industrialized countries. Now there are a group of likeminded people within the region who generally see the benefits of free trade. But that view is not necessarily widely held in the broader society, where protectionism attracts a lot of support. What this tell us is that we need to increase our share of voice on this issue and have more discussions about the issue of free trade and its attendant benefits to the region. We need to stimulate more debate about trade policy, tease out different viewpoints, and hopefully end up with policies that better suit both our national self-interest and the global interest in returning to growth as soon as quickly as possible." While this is being said, there is also a need to place more emphasis on the commensurate development of infrastructure that would ensure that local industries are not swallowed in process. With the current emphasis on Nigeria as a giant within the region, the following question will guide our discuss on the subject matter of protectionism Vis a Vis free trade; 1. One will argue that giving the current Nigerian situation with a negative balance of trade and payment, an encouragement of import and export oriented policies will greatly assist the government in their drive to backward integrate 2. Another argument is that restricting access to the Nigerian market due to the need to grow local industries will not help the country to grow their products to the required standard necessary for the country to compete in the International stage 3. Another argument also is that the only way for the country to increase its foreign reserve is to encourage trade with other nations, and also to encourage the industrial sector to grow. And thus opening our borders to goods from other countries will not kill the local economy but in the alternative, will stimulate it. According to the Global Trade Alerts GTA's Pre-G8 Summit Report titled Protectionism's Quiet Return: it is Interesting to note that despite the resolve of the industrialized economies to prioritize combatting protectionism, the 12th GTA report which was compiled and released just before the G8 Summit in Lough Erne, Northern Ireland, on 17-18 June 2013, trade restrictions continue to become more pronounced than in the past. In April 2013, when introducing reduced forecasts for world trade growth, the Director-General of the WTO, Mr. Pascal Lamy, warned that the protectionist threat may be greater now than at any time since the onset of the global economic crisis. It is important to note that protectionism cases were more from the industrialized nations that the so called emerging nations. And this was on the basis of the evidence presented during the summit. What may be less well known is that sub-Saharan African governments have not resorted to protectionism on the scale of industrialized countries and some developing country peers. With recent summits, conferences across the length and breadth of Africa from Cape to Cairo to the Horn of Africa, Indeed, the drums to lure foreign direct investment appears to be beating. This is seeing governments and countries making repeated changes to policies that borders on taxation, ease of doing business, and other policies to convince foreign to bring in the much needed FDI. Ultimately, the protected industries supplying the raw or intermediate products experience reduced demand and suffer the same injury – a while later, when market share at a finished-product level has been lost to imports. Obviously, importers and their distribution channels are the first to feel the effect. They employ people who feed households, often in economically depressed areas where whatever social cohesion does exists depends on these jobs, which may be wholesale, retail or service related. Before we delve more into the discuss, at this point it is important that I give you more perspective on the topic What is Trade protectionism? Trade protection is the deliberate attempt to limit imports or promote exports by putting up barriers to trade. In economics, protectionism is the economic policy of restraining trade between states (countries) through methods such as tariffs on imported goods, restrictive quotas, and a variety of other government regulations designed to allow (according to proponents) fair competition between imports and goods Despite the arguments in favour of free trade and increasing trade openness, protectionism is still widely practiced for varying reasons the world over. The main arguments for protection are to protect infant industries, such as those involving new technologies. The belief is that it gives new firms the chance to develop, grow, and become globally competitive before they are now brought to the world stage. The argument is also that is exposed at the time they are forming, they won’t be given the opportunity to grow. It is believed that protection of domestic industries may allow them to develop comparative advantage. For example, domestic firms may expand when protected from competition and benefit from economies of scale. They are also introduced to protect strategic industries, such as energy, water, steel, armaments, and food and deter unfair competition. These barriers are erected to avoid issues of dumping by foreign firms at prices below cost. A host of other reasons are put forward to as to why countries introduced protectionist measures. While discussing the very obvious This article is also majorly concerned with the other, less visible, discretionary administrative practices that can have considerable restrictive effects on imports and not so much as the certain types of trade restrictions which are more prevalent, particularly increases in import tariffs, more non-automatic import licensing, and new export restrictions. One significant bit of detail I took from this Global Trade Alerts GTA's Pre-G8 Summit Report was that; 1. The most consistently affected country is China, whose commercial interests were hit by foreign protectionism just under 1,000 times since November 2008. 2. This rise in the issue protectionism has been done quietly. Countries through their various negotiators became adept at changing the playing field in favour of local firms without ticking off of trading partners. Let us not lose focus of the fact that, the long term result of these protectionist measures is that such measures reduces export revenues, threatens firms’ cash flows and their survival in what are already difficult times based on a harsh external operating environment, and poses a threat to jobs. According to the World Bank, since August 1996 Sub-Saharan Africa has declined in importance in world trade mainly because it has not remained competitive. External protection has not played a major role in this decline; indeed, OECD trade preferences gave Africa an advantage over many exporters. But Africa's own trade barriers are too high. Many studies show that liberal trade policies generally lead to superior growth, an important finding if Africa is to reverse its diminishing role in world trade. I do not totally agree that Africa’s trade barriers are too high, and that is the reason why trade with Africa has declined over time. I believe it is a question of regulatory harmonization more so than excess protectionist measures. Regulatory issues and standardization has remained the major protectionist tool of the industrialized nations. The goods and items produced in the ECOWAS region will not meet the extremely high regulatory standards set by these nations hence it becomes a natural protectionist measure. As science advances and these standards evolve, Africa is constantly struggling to bring its produce up to par with those produced in the Western World. Particularly as it affects agricultural produces. This I believe has been the reason for the decline as opposed to protectionist measures put in place by the African region. I also do not agree that Africa’s marginalization that resulted in Sub-Saharan Africa accounting for 1.2 percent of global exports from 3.1 percent within a 40 year time frame is as a result of protectionist measures put in place by the continent. The real reasons for this decline are important for policymaking and should be critically examined to ensure that Africa’s place in the world trade space is restored. Ng and Yeats find that Africa's extensive loss of competitiveness played a key role in its decline in world trade, and this is very true, and strikes at the heart of this discourse. As the inability to remain competitive due to a myriad of factors bordering on infrastructural decay, a high cost of production etc. is critical to playing on the world stage as international trade evolves rapidly. As a result, Africa is now among the regions mostly highly dependent on relatively few export products and -- unlike all other regions -- this dependence has increased sharply over the past three decades. In conclusion, just as developing countries start to compete with richer countries on trade and other topics, I will leave you with the following conclusive recommendations that should be food for thought. 1. There is a need for the world to start calling for regulatory harmonization that would see global standards which would in turn encourage and further push international trade. These standards should include critical issues like labour, product and agricultural produce and other critical sectors. 2. I believe that given the current economic crisis, international trade is the way to go for emerging economies within the ECOWAS region, this is because an increased balance of trade will help shore up their foreign reserves and also stabilize their local currencies. 3. Countries in this quagmire should ensure that strategies are put in place to develop and support local industries to a point that they are competitive enough to play on the international stage 4. Import competition should be the way to go as opposed to import substitution 5. The region should develop and support their local industries while at the same time encouraging international trade in export within the region and outside the region. 6. Tariff barriers to trade should not be used as measure of protectionism as is currently done by some countries within the region. The effects are usually counterproductive as they don’t achieve the effect of growing that sector is there is no committed plan to put in place the requisite infrastructure.

Concluding part - The Economic Partnership Agreement between ECOWAS and the EU, a case of the Elephant and the Tortoise??

Again, I write – please note the volume of trade between the United States and the European Union which I referred to in my last article. At the time they were entering into negotiations, they had reached an enviable level of trade and thus, a bi-lateral trade agreement was a natural progression for them. I would again ask some pertinent questions before I proceed with this narrative. 1. What is the volume/balance between Nigeria and the EU as at today – volume of trade between Nigeria and EU stood at €36.4 in 2013, accounting for 29.6 per cent of Nigeria’s total trade the same year. The interesting thing will be to also see the balance of same trade between Nigeria and the EU in that period as well. As this will help us understand if the goods produced in Nigeria today are competitive enough to give us that edge when we eventually go full throttle. 2. We should also question the EU’s dangling of a carrot to the region through the offer of €6.5 billion ‘bail out’ every five years beginning, from 2015-2019, as well as during the transition period of 20 years till 2035. It is my opinion that this was dangled purely in a move to aid the ratification of the Economic Partnership Agreement (EPA) by West African countries, especially by Nigeria and Gambia, is it an altruistic gesture or a proverbial Trojan horse. 3. A follow up question will also be have grants been utilized well in the past by African countries, enough to give the right level of comfort that this will also be well utilized? What form will the proposed development Assistance take? The answers or otherwise to the above questions will set the right perspectives for this discuss Going back to the analogy of the EPA between the US and the EU, before the parties got to this stage of negotiations, as a background, there had also always been regulatory cooperation and harmonization between America and the EU, which is key to the smooth workings of any bi-lateral trade agreement. Below are examples of existing positive examples of EU-US regulatory cooperation: Organic certification process: In February 2012, the EU and the US signed an agreement on mutual recognition of each other’s organic certification processes. This facilitates mutual trade in organic products by removing the need for dual certification and inspection. This benefits operators in the EU and the US, particularly small-scale organic producers. Supply chain security: In November 2011, the EU and US also signed an agreement on supply chain security. The agreement recognized each other’s security certified operators. Mutual recognition between the EU and US cargo security programs allowed one customs authority to treat members of the other customs authority the same way it treats its own program members. The agreement brought benefits to traders and customs administrations by reducing administrative burden and making trade smoother and quicker. Most importantly it brought benefits to all EU and US citizens by strengthening the safety and the security of the supply chain. REGULATORY HARMONIZATION BETWEEN THE REGIONS What this clearly tells you is that for an agreement of this nature to happen successfully, there must be in place regulatory harmonization which has to be spelt out clearly between the parties. Today, the question is what sort of regulatory harmonization exist between the EU and the ECOWAS and indeed Nigeria nation that would warrant a free flow and goods between the countries. The stark reality is that despite the agreement on paper, if the goods produced in the ECOWAS region do not meet the stringent European standards in terms of assessment, then the requirement to start the process in the EU will be cumbersome and ultimately defeat the purpose of the EP Agreement. CROSS BORDER MOVEMENT OF LABOUR BETWEEN EUROPE AND AFRICA Another school of thought throws this question into the mix for the purpose of giving further perspective into the EPA. Does cross border movement of labor exist between Europe and Africa that would ensure that there is the right balance of labor between the regions? Does this mix exist before the borders are opened between the regions?, further pertinent questions that countries within the ECOWAS region should ask is as follows, as a matter of fact, is the movement of people between both regions visa free as in what obtains in Europe and America, this evens and balances out the labor equation in the whole mix. According to that school of thought, we need to have gotten to that stage where we are can comfortably respond to these questions and reassure ourselves that the EP Agreement will not only provide jobs for Europeans in Europe who have all the factories and right competitive advantage and not leave the teeming unemployed youths of the ECOWAS region jobless and clueless due to the decisions of their leaders to once again sell them to economic slavery before we can agree to that Agreement. This for all intents and purposes applies to all the 15 countries that make up the ECOWAS regional block. THE SAD TRUTH One of the major fallout of Nigeria’s quagmire is that fact that once this EPA is entered into, companies would rather invest in Europe and ship to Africa with all its attendant freebies instead of facing Africa’s horse crap of huge economies of scale when they invest here. Now here is the thing, business decisions are based on facts that guarantee the greatest ROI. If in the long run, the above scenario works better for multinationals they then do not really need to invest in Nigeria or the ECOWAS sub region for that matter, with its attendant large scale infrastructural challenges and innumerable issues/skill gaps to get return on investment for their products. Companies would rather boost capacity in their existing production lines in Europe that offers great infrastructural support, great tax benefits, and huge ROI due to the competitiveness of the products in that region. One advantage of this development however is that although farfetched, it might achieve the effect of galvanizing the government to putting the requisite infrastructure in place to boost Nigeria’s competitiveness. On the part of the manufacturing sector, flooding is the major fear of the manufacturing body. However, I dare say that their claims are valid in the sense that it opens the economy to all sorts of goods that would otherwise not be eligible to come in. it will in the long run make made in Nigeria goods where they exist at best second fiddle. My submission for a successful EPA between EU and ECOWAS is that the balance of trade between both countries/regions should be such that it is either equal or the deficit not too substantial to be material in the grand scheme of things. Regardless of the fact that Nigeria has signed at this point, if we do decide to pull out at this point, the following variables can play out. Republic of Benin borders Nigeria in the west, Chad and Cameroon in the east, and Niger in the north. Nigeria’s coast further lies on the Gulf of Guinea in the south and it borders Lake Chad to the northeast. Smuggling into Nigeria from all angles of the country’s borders has always been the bane of the manufacturing sector. As goods produced in Europe find their way into the country through the country’s porous borders. One obvious factor that is fueling the ugly trend is the multiple entry and exit points around the land borders, which are generally unchecked, in a manner that suggests that the country lacks the wherewithal to block these inimical and illegal exits. The other factor is the huge tariff placed on products when they are imported legitimately. There is also still that issue of inadequacy in local production of goods consumed by nearly all Nigerians, with a population of about 170 million. Where does this leave us? With our neighbors within the ECOWAS region signing the EPA, unscrupulous individuals would simply import these goods from Europe leveraging the EPA and then smuggle them into the country through our porous borders. Where does this leave us in the long run? 1. There is huge Loss of tax revenue on these items to the Federal Government 2. The country is flooded with goods regardless 3. Investors are disillusioned 4. Would be investors are scared and FDI is immediately redirected to other countries 5. Our economy (manufacturing sector) is totally crippled. The hope of investors who had invested in the country with the intention of making the country an export hub will be dashed prematurely due to the fact that they would not be able to export into the sub region. I mean, why would a country prefer made in Nigeria products when they can get a made in Europe commodity (alternative) freely in their country It is pertinent to observe that side by side smuggling, the other African countries which have really nothing more to lose, would simply take advantage of the ECOWAS trade liberalization scheme (ETLS) to bring in made in Europe goods to Nigeria legitimately. So the question is, for Nigeria, how do you say no to an EPA with Europe just because it is Europe, with all the attendant advantages and disadvantages, just because of the colonial mentality of perceived imperialism of the west and in the same vein have an existing ETLS agreement that totally rubbishes the intention through legal trade between the consenting ECOWAS countries and Nigeria. In fact, one would argue that the fact that all other ECOWAS countries have agreed to the EPA makes a mockery of our refusal to sign, and that is why we signed in the first place. Fair enough! For companies in the European Union, their global operations definitely need open markets, this is due to sourcing of raw materials, etc. but then investments in the lesser nations are not protected once the borders are opened. Conclusively, I would like to say at this point that the flip side of a successful trade agreement entered into between ECOWAS and the EU might lead to consequences that might not be palatable for the weaker region due to the fact that one region is less competitive than the other and it will lead to under development of the ECOWAS region, however the import of Nigeria not proceeding with the agreement also is the fact that the lesser evil of smuggling would rear its ugly head. Indeed, for Nigeria and, the ECOWAS, it is believed by the manufacturing community that the EPA will not signal the long-awaited Euphoria capable of delivering substantial economic growth and jobs in the region. In fact on the other hand it is believed that it is just to open another market route to the European Union. In the current administrations quest to diversify the economy at this point in our nation’s history and given the crash in global oil prices Nigeria needs to understand the role that the Economic Partnership Agreement (EPA) can play in supporting the diversification of Nigeria’s economy if any. I would also suggest that the issue of regulatory harmonization, that includes standards and testing’s should have been looked into thoroughly before we even get to that stage of attesting to the document. Lastly, I would suggest that protectionist measures (which I will talk about in a separate write-up) adopted by the developed countries should still stand till a workable roadmap is designed and implemented for the development of the local economies of emerging markets. While I note that the EU is still the largest importers of products from the West Africa today, the tariff structure in place today which is an average of 9.8 per cent on imports from developing countries should still remain same to encourage us to produce locally for export. In conclusion, the government should urgently look into the agreement that was signed by the parties and truly decide if we can honestly proceed with the terms as at today or otherwise rescind if possible. Ikechukwu Ofuani

The Economic Partnership Agreement between ECOWAS and the EU, a case of the Elephant and the Tortoise??

Nigeria and the European EPA – A case of the lesser evil

Last year, Nigeria reached advanced stages in her negotiations with the Economic Community of West African states ECOWAS on the bilateral trade agreement between the European Union and the regional body. The country's industrial fate since then has been hanging in the balance between the dangled economic bloom on the one hand and total oblivion on the other hand. From an emerging markets PoV, with the five emerging markets of Nigeria, Indonesia, Mexico, the Philippines and Turkey collectively dubbed “NIMPTs being tipped to provide some of the most exciting growth opportunities for consumer goods manufacturers in the coming years, the NIMPT countries have similar levels of purchasing power on a per capita basis; and with the present economic downturn, their GDP growth seems to be slowing down on the average. With particular emphasis on Nigeria, GDP Annual Growth Rate averaged 5.82 percent from 2005 until 2015, reaching an all-time high of 8.60 percent in the fourth quarter of 2010 and a record low of 2.11 percent in the fourth quarter of 2015. The country and indeed the region has struggled to grapple with issues of overdependence on one source of income, in this case oil, that they have failed to develop other sectors of the economy. Thus sectors like the real, FMCG and manufacturing sectors have been left to wither with the resultant effect that our locally produced commodities cannot compete with other items produced in other parts of the world where there has been rapid industrialization and increased competence. This has made the current assent by the ECOWAS region to the European EPA a bit worrisome considering the fact that the goods produced in the region cannot favorably compete with items produced in the EU at the moment. The questions that come to mind here is as follows;] 1. Is this just a case of opening the borders to products from the EU to cater for local needs?. This is understandable as a short term measure of bridging the gap between local production and consumption. 2. Considering the foreign exchange issues we are currently encountering in the region, was this ever a wise decision?. It is my belief that the nation at this point should focus on backward integration as the next policy direction of the government with the aim of increasing the country’s balance of trade and subsequent payments. 3. Considering that the non-development of the local economy was the issue in the first place, is venturing into this type a trade agreement a viable option for the country at this point in our nation’s history. I mean, I have heard the arguments that the commencement of the EPA will have the effect of forcing local producers to ‘sit up’ and bring their products up to par. Proponents of this argument fail to understand the fact that the quality and affordability of the local alternatives is a function of the cost of production which is phenomenally high due to inadequate infrastructure. On hindsight, on a balance of probabilities, the fact that we have signed at the agreement is immaterial in the grand scheme of things, at least when the fact that the nations economy was not comatose at the point when were negotiating. Today however, the coming into force of the terms of the agreement will only serve to aggravate our economic status. However we must also understand the fact that regardless of what happens, our other brothers in the ECOWAS region will sign the agreement and leave big brother Nigeria in a very precarious situation. For more perspective, the Economic partnership agreement between the EU and ECOWAS is a bilateral trade agreement that I dare say is long overdue, this I say is overdue for all the right and wrong reasons. One school of thought argues that bilateral trade agreements between countries are usually a fallout of the countries or region having other agreements or partnerships which is always a function of regional integration. For example trade agreements between the EU and America is seen as a natural progression between the giants due to the fact that they are usually no restrictions on other subjects like the movement of labor e.t.c between both regions. To better help us understand the dynamics involved in putting together a bilateral trade agreement, it is important that we share an example between the US and the EU. The European Union and the United States leaders announced in February 2013, their decision to initiate the internal procedures necessary to launch bilateral negotiations of a Transatlantic Trade and Investment Partnership (TTIP), also known as Transatlantic Free Trade Agreement (TAFTA). The idea of a Transatlantic Free Trade Agreement was floated since the early days of the global economic crisis but had not gained traction until late 2011 when the EU and the US engaged on a High-Level Working Group on Jobs and Growth. This Working Group was tasked to identify measures needed to promote EU-US trade and investment exchanges to support job creation, economic growth and international competitiveness on both sides. Please note the word international competitiveness Like most EPAs, the TTIP was designed to focus on the following areas: 1. Market access, including tariff barriers, investment protection and government procurement. 2. Non-tariff and “behind the border” barriers, including opportunities for regulatory convergence or mutual recognition. 3. Setting the standards for worldwide trade rules to achieve shared economic goals vis-à-vis third countries. Of note and importance is the fact that the US and the EU are the world’s largest economies. Combined, they represent about half of the worlds GDP and one third of global trade. The EU and the US have the largest bilateral trade relationship in the world and are looking to further cement and improve trade with this new agreement. The volume of trade exchange is in the order of an estimated $2billion a day. But for them it is more of trade exchange between both regions as opposed to trade suppression in any shape or form.