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
Saturday, March 26, 2016
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
Thursday, March 24, 2016
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.
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