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.