The Trumpian bias about the US trade deficits and the US-China trade war is beginning to spill over, and we are beginning to see domestic versions of it in Nigeria (and the rest of Africa). The reluctance that trailed the signing and ratification of the African Continental Free Trade Agreement (AfCFTA) was a harbinger; and the eventual border closure is exemplary. The argument put forward was that while the nation looks to grow its local industries, entering the agreement would open the economy to presumably uncontrollable volume of imports especially from foreign countries outside the AfCFTA—as Nigeria is thought to be the target market—which could challenge efforts made to develop the cottage industries.
Manufacturing countries in Europe, Asia, and America who have standing arrangements with sovereign states in Africa could exploit the free trade agreement to route their goods to other African countries, enjoying the exemption on tariffs and other benefits of the agreement. This would have a devastating effect on domestic manufacturing: business shutdown, job losses, and the loss of tariff and tax revenues. There would also be some exchange rate effects as the expanding import bill implies depreciation pressure on the naira exchange rate.
Nonetheless, it is also likely that the AfCFTA brings significant welfare benefits that offset the scenario above. For instance, increased imports could lower the prices of goods and services through economies of scale and competitiveness. This could, in turn, imply reduced inflationary pressure. Moreover, there is the “rule of origin” that attempts to checkmate the incidence of foreign goods smuggling.
Yet, faced with a budget deficit of N1.9 trillion in 2019 and planned deficit of N2.18 trillion for 2020, the Nigerian economy is in desperate need of finance and the administration is doing everything it can to increase revenue: we have seen the government raise the VAT from 5 to 7.5 percent and introduced new tax schemes. The CBN recently enforced the exclusion of 41 import items from accessing foreign exchange (forex) via the official exchange window in a bid to reduce the pressure of import demand on forex. Only three months after signing the AfCFTA in June 2019, the government shuts down all land borders with Niger, Benin and Cameroon in jittery reaction to the likelihood of import binge, and the other consequential issues that may follow the implementation of the AfCFTA in 2020. This, however, is not peculiar to Nigeria alone: in Equatorial Guinea, the government talks about building a wall to prevent illegal immigration from other West African countries. Xenophobia in South Africa is another overt resistance towards factor mobility.
The Nigerian government is under pressure to protect its economy and win in the AfCFTA but its approaches are anti-free trade, protectionist and nearly indigenization of the economy, very similar to the trade ideology of President Trump in the US.
As the government aggressively extracts revenue in tax from the society and prevents cross-border trade transactions, it directly stifles the economy, meting out hardship and misery on its citizens. By these actions, the government overtly reveals its preference for revenues over societal welfare, grossly undermining the continental trade agreement and the essence of regional integration; and by so doing, transmitting negative signals to other countries within the AfCFTA. Since the closure of the border, the consumer price index has gone up; small businesses struggle, hunger and poverty trend upward. Investors have also adopted a wait-and-see approach to the one step forward ten steps backward pace of the economy.
The economy admits its weak manufacturing and infrastructure base; it would not stand the competition that would come. Uncontrolled import would challenge local manufacturing and ridicule industrial development especially the target on food self-sufficiency in the Economic Recovery and Growth Plan (ERGP).
One way out of the woods
A World Bank data shows that as of 2017, total imports to Nigeria amounted to 13.18 percent of GDP and trade growth of 11.56 percent. Even though participation in intra-African trade is relatively low at 4.4 percent, the AfCTA holds the potential for increased trade. It is therefore important to establish a system of importers registry based on certain stipulated criteria in readiness for the deluge of importation. These registration criteria need not be monetary payment but would include minimum capital requirements, loans credibility, tax returns, storage/warehouse facilities, logistics ability and etcetera. This approach would eliminate the myriads of micro importers—as is the status quo—that contribute to the pressure on forex while broadening the import business by giving a formal structure.
The importers’ registry would complement the implementation of the rule of origin clause to eliminate round-tripping. It would allow for the efficient administration of regulatory checks on product destination, quality standards, and tracking. Other importers from across Africa interested in the Nigerian economy need only comply.
It would engender cooperation among the indigenous importers, the CBN and the Nigerian Customs Service.
Other benefit of the importers’ registry is that the registered import businesses would be buoyant enough to issue product warranty and return guarantee to dealers/retailer should the product not satisfy the customer as against the current practice where consumers are ambushed by petty importers who are unable to give these assurances. This would go a long way to ensure consumerism and consumer protection.
Also, by way of trade protection, the registered importers may organise themselves into unions according to their respective trade lines and help combat the incidences of counterfeit products so as to protect their market share/profit, licenses and avoid regulators knocking their doors. The intuition is that these importers are better positioned to curb the menace of substandard items, and with the right incentives, would develop the internal interest to do so.
We have signed the continental free trade agreement which opens our borders to a flood of importers from across Africa, if we cannot manage our own importers, what is to say we would be able to manage the multitude of importers from all over Africa? Yet we do not need to implement draconian policies that isolate us from the rest of the world. We need rather work towards increasing competitiveness by enhancing productive efficiency through technology and the requisite infrastructure. We have given conditions to reopen the borders; we may need also to build a database or register of importers.