Nigeria has entered into bilateral and multilateral trade deals with several countries, but analysts say the country seems to be getting the shorter end of the stick.
The reason is quite obvious: Nigeria is mostly competitive with crude oil and minerals and less competitive with non-oil products. In the second quarter of 2020, for instance, 70 percent of Nigeria’s exports were petroleum oils and butiminous minerals, while 12.6 percent was liquefied natural gas. This amounted to 83 percent already. Out of total trade valued at N6.24 trillion in the quarter, export was worth N2.219 trillion, representing 36 percent of total trade. Agro exports were merely N78 billion and the commodities exported were cocoa beans, sesame seeds, shea nuts, coconuts, cotton lint and cashew mainly to the Netherlands, United States, China, Vietnam, Japan and other countries where these items would be converted to finished products and then re-imported into Nigeria. On the other hand, solid minerals worth N30.5 billion (1.4 percent of total export) were exported mainly to China and Senegal.
Minerals exported included cement clinkers, manganese ores, and concentrates. It is understandable that cement clinkers might have been exported by Nigerian cement makers such as Dangote Cement with factories in other African countries, but many of these minerals also served Chinese factories. In terms of imports, calcined gypsum was imported from Turkey, Egypt and Spain. Nigeria has continued to import gypsum because of poor level of beneficiation in the country. Gypsum in the country needs to get to the level of quality and quantity needed by cement makers, but this requires huge investments which will pay off in the future because of high demand for it in the global market. Manufactured goods worth N254.2 billion, representing 12 percent of total export, were shipped out of the country and they were mainly assembled vessels. On the other hand, raw materials exported were valued at N585.4 billion, representing 27 percent of all the exports. Products exported were urea and leather to Brazil, Spain and other countries. In other words, Nigeria sells its leather to Spain to produce shoes while its shoemakers in Aba, Onitsha and Lagos look for leather from China.
Experts say it is impossible for Nigeria to reap much benefit from trade with the current structure of its economy. When President Muhammadu Buhari was elected into office in 2015, he vowed to change this situation, but nothing has changed five years after. While there is nothing wrong with imports or exports, there is everything wrong when a country exports its raw materials while its factories scramble to buy them from the global market.
Moreover, the non-oil export products, which should benefit from trade deals, are suffering rejections at the EU borders. The EU rejected 24 exported food products from Nigeria in 2016, according to the National Agency for Food And Drug Administration and Control (NAFDAC). Mojisola Christianah Adeyeye, director-general of NAFDAC, said in 2019 that over 70 percent of Nigeria’s products were rejected at the borders.
Up till today, groundnuts, beans and several agricultural products are on the EU prohibition list and there is little hope that the ban will be lifted soon. Many Nigerians often see the bans as an EU conspiracy. While this may be partly true in the light of the role played by Nigeria against the EU-proposed Economic Partnership Agreement (EPA) with West Africa, the truth remains that many exporters from Nigeria fail to follow rules and standards, according to experts.
“The exported palm oil did not scale through the EU’s test because it also contained a colouring agent that was carcinogenic,” Abubakar Jimoh, NAFDAC spokesperson, said in 2016.
“Beans was banned by EU some time ago but it was illegally exported to European countries.
“Beans was initially banned for one year, when EU was not satisfied with our exported beans in terms of quality assurance, it extended the ban by another two years, which expires next year,” he further said.
Apart from the EU, Africa’s largest economy and most populous country is benefitting little from the United States- supported African Growth and Opportunity Act (AGOA).
In 2000, the US opened its market for sub-Saharan African (SSA) countries through the AGOA. The idea was that countries like Nigeria would export up to 7,000 products to the U.S. without paying any duty or tariff.
The arrangement was supposed to end in 2015 but it was extended to 2025 to enable SSA countries, which did not take full advantage of the first tranche, to do so.
Some of the products/commodities eligible for export to the U.S. market are poultry, bees, meat of goats, fresh, chilled or frozen, turkeys, live ornamental fish, other than freshwater, mackerel and sardines.
Others are fresh or chilled swordfish other than fillets, milk and cream, yoghurt in dry form, butter, cocoa powder (sweetened or not), guava, apples, ginger, juice and pine apple, among many others.
Unfortunately, despite this opportunity, Nigeria is yet to take advantage of the market opening to ship its local products to the U.S. market. Only petroleum products have benefitted from this trade treaty.
The US goods and services trade with Nigeria amounted to an estimated $12.1 billion in 2017. Its exports to Nigeria were $4.6 billion, while Nigeria’s exports to the U.S. were $7.5 billion, according to the Office of the United States Representative.
In other words, the U.S. goods and services trade deficit with Nigeria was $2.9 billion in 2017. This may look good on the face value until one understands that oil and minerals were basically what Nigeria offered the U.S.
In 2014, Nigeria non-oil exports to the U.S. were $2.6 million while South Africa exported in excess of $1.2 billion.
Brent Omdahl, former commercial counsellor, US Consulate, Lagos, told BusinessDay in an exclusive interview in 2019 what Nigeria must do to export more goods to the US.
Omdahl said products exported to the U.S. would still undergo and pass through necessary regulatory tests, among which are phytosanitary regulations.
“There are some minimum standards that countries have to adhere,” he said.
“Zero duty access does not mean you have to just start exporting. You have to organise yourself.
“In exporting agricultural products, for example, such products would have to be subjected to all of the Food and Drug Administration (FDA) regulations and comply with sanitary and phytosanitary regulations,” he explained.
Omdahl pointed out that the U.S. government, through the US Agency for International Development, had some small resources available to help companies locally to develop their expertise in order to take the advantage of AGOA.
Omdahl said it was unfortunate that crude oil that had been the biggest beneficiary from the AGOA initiative most, which was against the original intent of the Act.
He said the intention of AGOA was to create the pathway for a country like Nigeria to move up the value chain.
“It is the Nigerian industry that needs to organise itself,” he noted.
Recounting lessons US-Vietnamese bilateral agreement, which is similar to AGOA, Omdahl said Vietnam did a very good job by adding value to their products in order to meet up with the U.S. standards.
In doing this, Vietnam attracted investments from Taiwan in the textile sector in order to develop their textile industry as well so as to take advantage of exporting it to the U.S., he explained.
The country equally developed its furniture sector and even started importing some hard woods from the US to augment existing local woods, turning them into furniture and sending them to the US to sell in big outlets, he added.
“With this arrangement, Vietnam created wealth and employment,” he said.
Omdahl said Nigeria had a lot of products that could make it to the U.S. markets if properly harnessed and improved upon.
“Nigeria needs to look inwards to find those products, develop them, increase their value addition, export them, and through that, create wealth and employment for the country.”
“So, the question for Nigeria is, what are the products that are going to do that? I can think of some. Talk about the shoes. There is a history of making shoes here. The sky is really the limit,” he concluded.
Apart from AGOA, the Common External Tariff (CET) agreed upon with West African countries is not working. Due to poor negotiations, pharmaceutical firms in Nigeria initially suffered losses as their raw and packaging materials were levied five to 20 percent tariffs while finished products from West Africa entered Nigeria without duty payment. The textile industry in Nigeria also felt the pains with smuggling hurting the industry between 2016 and 2017.
“There were many countries that resorted to self-help,” Segun Ajayi-Kadir, director-general of the Manufacturers Association of Nigeria (MAN), said in an interview with BusinessDay earlier in 2020.
“We did not negotiate the process properly, so we were left with incapacity to impose the kind of tariff needed to support our industrial aspiration,” he further said.
Muda Yusuf, director-general of the Lagos Chamber of Commerce and Industry (LCCI), believes that the major challenge is lack of competitiveness of manufacturers and exporters due to lack of infrastructure such as power, rail and good roads to aid their production.
Africa’s largest economy also lacks cheap capital like China to support its entrepreneurs.
Nigeria’s Monetary Policy Rate is 11.5 percent, while South Africa’s repo, equivalent to Nigeria’s MPR, is 3.5 percent. Kenya’s MPR is 7.25 percent, while Zambia’s is 8 percent.
At least the benchmark interest rate of most sub-Saharan African (SSA) countries have remained single digit, barring few, meaning that it is cheaper for businesses to access funds in those countries than in Nigeria. Experts call for cheap capital to fund the real sector of the Nigerian economy.
Border closure has fuelled inflation to 13.7 percent in September 2020. Many exporters now move their goods to other countries by sea owing to the closure of Nigerian-Benin border, which should be open for all. Analysts call for opening of the border to support the growth of all sectors of the economy and help the country trade better and reap gains of trade deals.
