• Friday, December 08, 2023
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Trade in service as a tool to balance Nigeria’s trade equation


Nigeria has often been branded an import-dependent country simply because it imports more goods than it exports, with consequent negative effect on its balance of trade position. Export of goods is sparse, save for crude oil export which, according to the Q1:2013 report of the Central Bank of Nigeria (CBN), accounted for over 76 percent of the Federal Government revenue. The effort by Nigerian Export Promotion Council (NEPC) to boost non-oil export has so far been restricted to physical goods, which, according to the agency, raked in $1.35bn in Q1:2012, largely from export of cocoa and cocoa preparations, oil seeds, sesame seeds, edible fruits, nuts, citrus, tobacco, fish, shrimps and gum Arabic.

Export expansion programme for physical goods is directly correlated to infrastructural and industrial development, both of which involve high set-up cost. No wonder the major products exported from Nigeria are basically agricultural products as well as goods from quarrying activities, all exported at the raw material stage. This has greatly stifled local industrial development and instituted import dependence because these raw materials eventually make their way back into the country as finished goods.

However, there is a game-changer capable of improving Nigeria’s balance of trade/GDP position and provide employment, all at a relatively lower set-up cost. It is called ‘Trade in Services’, which covers the rendering of a wide range of intangible services (like school fees, medical bill, annual subscription, etc) from the producer to the consumer. Though intangible (invisible as it is classified in Nigeria), services can be exported from one country to another, and as per available World Bank records, now represents more than two-thirds of the world’s GDP (77 percent in the United States).

Exportation of services has been ignored by most developing countries, including Nigeria, over time. As a matter of fact, the CBN takes little or no statistics of export of services, as data are collected only for the importation of services (data sourced through Form A), import of visible goods (Form M), commercial export of goods (Form NXP), non-commercial export of goods (Form NCX), as well as importation of foreign currency (Form TE & TM). This development makes it difficult to develop the country’s capacity in this area as relevant data are necessary to engender growth in services.

On the other hand, trade in services in developed countries has witnessed significant growth in recent years. This growth is boosted since January 1, 1995 by the enablement of General Agreement on Trade in Services (GATS), an aftermath of the Uruguay Round Trade Negotiation (1986-1993). This singular move was to accord trade in service a unique recognition, which distinguished it from trade in merchandise (goods) governed by the General Agreement on Tariffs and Trade (GATT). GATS thus became the first multilaterally negotiated and legally enforceable rules covering international trade in commercial services (excluding government services) and identified four basic modes through which services can be rendered in the international terrain, viz:

Mode 1: Cross-border supply – only the service crosses the border; example, call centre services for international telephone companies.

Mode 2: Consumption abroad – the consumers make use of the service while abroad; example, medical treatment.

Mode 3: Presence abroad – The service provider renders its service through its branch or subsidiary abroad; for instance, banking in another country.

Mode 4: Presence of natural person – temporarily moving personnel abroad to render service. A mining consultant who travels abroad to supervise activities is a typical example here.

From the above, Nigeria can conveniently and seamlessly utilise modes 1, 2 and 4 to render any service it wishes to specialise in. It must be stressed that breaking into the service exportation platform and achieving success will require deliberate and conscious efforts, with the following simple steps as a guide:

1) Introspect: By this, the country is required to look within, with a genuine desire to specialise in chosen area(s). Undoubtedly, Nigeria has numerous potentials, talents and abilities yet to be discovered, and a little effort or support could yield results of geometric proportions. Fellow developing countries like Cuba and India have realised their capabilities in medicine and have repositioned themselves as hubs for cheap but quality medicare for people from all walks of life.

2) Discover: An undeniable sequel to an intensive introspection process is the discovery of either an area of need that requires service or unique ability that can be used to serve others well. Barbados discovered that it could provide cheap back-office services, because of its relatively cheaper labour cost, and went on to develop its transaction processing skills, thus attracting back-office operations from American airlines. It is even building upon this discovery by diversifying into other cost-effective data capturing services and administrative support such as processing of credit card application, direct mail-order processing, insurance claim processing, litigation services, etc. These services are provided remotely.

3) Develop: Further to discovery of an inner strength or endowment is the development to exceptional level to make them attractive. Once a service skill is developed to a reasonable proficiency level, consumers will come rushing for it. One such factor that can be developed to gain competitive edge is human capital, as the skills, competences and knowledge acquired by the workforce can be improve through education and training. A good instance is India, which invested heavily in education in the 1980s – establishing the Indian Institute of Technology, research institutes and other private training institutions like NIIT. The result is obvious today – India alone controls more than 12 percent of the world’s software market.

4) Promote: Massive advertisement and promotion are essential to improve one’s market share in the international trade in service market. Notable here are the efforts of The English Football Association which promoted their league so well that it is now aired to about 212 territories around the world, with an estimated global audience of 4.7bn, and attracting wide range of investors. Furthermore, the carnivals in Brazil, which in 2011 attracted over 4.9m people (mostly foreigners), have gained massively through global promotion. Other examples are Malaysia which came up with ‘Malaysia truly Asia’ promotion, an advert which is so nice that it attracted a record 25m tourists to the country last year alone; and Dubai which has leveraged on its tourism potentials to promote its prowess in commerce.

5) Renew: The world is changing and so are the needs in the service industry. A country that had specialists in using the typewriter in the 70s and 80s will be out of business if it fails to renew their expertise in line with changing realities. Therefore, the need for renewal is a call for upgrading existing skills to make them in tune with ever evolving needs of the people.

In conclusion, the time for Nigeria to act is now. The authorities must initiate concerted efforts aimed at positioning Nigeria to take advantage of the enormous opportunities available in the international service market. The key message is: decide to move forward, whether it is in redesigning the numerous beaches, forest reserves, and other historical/natural tourist attractions, or in repositioning the rich cultural heritage to make them attractive to the tourist world, or better still utilising the enormous unemployed workforce and equipping them to specialise in rendering services at competitive prices. Efforts should also be geared towards educating companies operating in the service sector locally towards expanding their scope in order to gain international appeal.

Reorientation is also necessary to instil the can-do spirit so as to get people to change the mentality of being net importers of services to becoming net exporters. This will surely improve the country’s balance of trade, increase disposable income to citizens, boost taxes to government, and provide employment to the teeming unemployed. 


Ihejirika, a certified international trade finance professional, writes from Lagos.

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