Great nations trade. Nigeria must be a serious trading nation
When William Bernstein’s book ‘A Splendid Exchange: How Trade Shaped the World’ was published in 2008, it was immediately shortlisted for the Financial Times/Goldman Sachs Business Book of the Year Award. And not for nothing! Bernstein vividly told the epic story of world trade from its pre-historic origins to the modern day, and showed how global commerce has directly propelled national and global prosperity. Another powerful insight came from the words of Charles Molloy, the 17th century Irish maritime lawyer, quoted in ‘Schmitthoff’s Export Trade’, one of the best legal tomes on international trade. Molloy famously said concerning his country: “What would this island be without foreign trade. It is foreign trade that renders us rich, honourable and great, that gives us a name and esteem in the world”.
I am a strong believer in the power of trade to stimulate intellectual and industrial progress, and to make nations and people prosperous. For this reason, I am an economic liberal in the traditions of David Hume, Adam Smith and David Ricardo. But international trade is not just of theoretical interest to me. My involvement in promoting trade dates back nearly 25 years. I would crave your indulgence, dear reader, to start this piece with a brief story of my long-standing interest in global commerce.
In1991, I started a business magazine called Marketfinder International. It was probably the first Nigerian-owned publication in London since Peter Enahoro’s Africa Now in the 1980s. The aim of the magazine was to promote trade between Africa and Europe and to report and analyse trade and investment developments affecting Africa. In March 1993, we formally launched the magazine at a business conference that I organised at the London Hilton Hotel, Park Lane. The magazine was launched by the then Nigerian High Commissioner to the UK, Abubakar Alhaji, who was represented by the Commercial Attache, Ben Ameh. For many years, through the publication and business events, I actively promoted trade and investment opportunities between businesses in Africa and Europe.
However, in the mid-1990s, I packed it in, after concluding that I could add more value to advancing the cause of global commerce through a career in law and in academia than publishing! Consequently, I studied law, with a master in international business law, and qualified as an English barrister; then did a master’s degree in political economy and a doctorate in law, both at the London School of Economics, specialising, as you would imagine, in international economic and trade law! And for the past fifteen years or so, I have been involved in teaching and writing on the law, practice and policy of international trade, as well as advising and consulting for governments and international organisations on economic and commercial diplomacy.
Throughout all these years, I have not abandoned my first love, and my hopes have not dimmed. I want to see Africa trading more with the world and with itself. I want to see Nigeria becoming a major exporting country beyond oil trade. For instance, it would gladden my heart to see several Nigerian-made products in supermarkets and shops in Europe, the United States and around the world, and to see Nigerian businesses offering their services in many foreign countries, from airline business to banking services, as well as investing in foreign assets, including owning Arsenal Football Club, as Aliko Dangoke hopes to do one day! Surely, exporting more Nigerian goods and services and investing in foreign assets would boost Nigeria’s foreign exchange earnings and national income.
That was what motivated me to start the Marketfinder magazine some 25 years ago, and it is what drives my intellectual and professional interests in global commerce, with an African focus, today. It is also, now to the main theme of this piece, why I am disappointed that, despite all the rhetoric about promoting non-oil exports, Nigeria is doing nothing tangible to become a serious exporter of manufactured products.
In an interesting paper, titled “The African trade profile for manufactured goods”, prepared for the Trade Law Centre (Tralac) in South Africa, Ron Sandrey, an economist, analysed data from the Geneva-based International Trade Centre (ITC) to show how each African country fared over a ten-year period up to 2013 in manufacturing exports to a number of key markets, namely: the world, the EU, the US, the BRIC countries (Brazil, Russia, India and China), and other African countries. The analysis shows that Nigeria’s share in Africa’s total manufacturing exports to each of the key markets is ridiculously miniscule.
Take a look at the evidence. Nigeria accounted for 0.9 percent of total African manufacturing exports to the world in 2013, compared to South Africa’s 38.6 percent. Of course, South Africa is the industrial powerhouse of Africa, but Nigeria also fell below Egypt at 11.1 percent, Zambia (7.6 percent) and even Cote d’Ivoire and Ghana at 1.1 percent each. In terms of Africa’s manufacturing exports to the US, well, Nigeria does not contribute up to 0.5 percent to the continent’s total, compared to South Africa, which accounted for 72 percent. Then, take the EU. Here again, Nigeria accounted for just 0.8 percent of the total African exports of manufactured products in 2013, whereas Mozambique and Zambia had around 96 percent of their exports to the EU in the form of manufacturing products. As for the BRIC, Nigeria’s share of Africa’s total manufacturing exports to Brazil, Russia, India and China, all taken together, was 0.5 percent in 2013, in a market dominated, from an African perspective, by South Africa, Zambia, Morocco, Democratic Republic of Congo (DRC), Egypt, Tunisia and Tanzania. The picture is also depressingly grim in terms of intra-Africa trade. Nigeria’s share of total intra-Africa manufacturing exports was just 0.8 percent in 2013, compared to South Africa’s 48 percent, Egypt’s 7.1 percent, Congo’s 4.9 percent, and below Ghana, Zimbabwe and Kenya at 2.4 percent, 2.2 percent and 2.0 percent, respectively.
A lot of statistics, no doubt, but the big picture should not be lost on us. And the big picture is that Nigeria is not a serious trading nation beyond oil export. Clearly, if Nigeria’s oil were to disappear today, this country would be selling virtually nothing to the rest of the world! That statement is, of course, not revelatory; it’s a fact well-known to all Nigerians. But my point is that it shouldn’t be so. There is certainly no reason why countries like Zambia, Mozambique and DRC should be exporting more manufacturing products than Nigeria.
Yet, as we all know, Nigeria is in this parlous state primarily because it lacks the industrial base to produce goods for export. The fundamental determinant of a country’s ability to trade internationally is its productive capacity. But Nigeria has a narrow production base, and hence a narrow export capacity. For instance, although the rebasing of the Nigerian economy shows that manufacturing has increased its share in the GDP, it is still very low at just 7.4 percent. In a world economy dominated by regional and global value chains, even a small country can ‘punch above its weight’ in international trade if it exploits its comparative advantage and produce quality goods and services that enable it to establish a few niches in regional or global value chain. But Nigeria is far removed from being able to participate effectively in regional, let alone global, value chain.
The structural supply-side impediments to manufacturing in Nigeria are just too great: from poor infrastructure and limited access to finance to lack of adequate skills and high-quality inputs. At the same time, policy failures are militating against Nigeria’s ability to industrialise. For instance, in 2014, the Jonathan government developed the Nigerian Industrial Revolution Plan (NIRP), which identified four industry groups and 20 sub-sectors as the basis for promoting industrial development in Nigeria. Clearly, having such a long list of sub-sectors for industrial development suggests a lack of prioritisation. Indeed, as the United Nations Economic Commission for Africa (UNECA) noted in its 2015 Economic Report on Africa, the selection of the sectors “appears to be based on rule of thumb and not known rigorous studies”. UNECA also noted that the plan has been poorly implemented, monitored and evaluated. As I wrote recently, making policies without sound evidence and analysis and without robust implementation plans are the bane of governance in Nigeria. Yet no country should approach policies on industrial and economic development in such a haphazard manner.
But there are other problems beyond industrial capacity. For instance, with manufacturing representing 7.4 percent of Nigeria’s GDP, but emerging as the single largest contributing sector to non-oil GDP growth at 22.1 percent in 2013, according to the World Bank, Nigeria could still increase its share of Africa’s total manufacturing exports, despite its weak industrial base. However, Nigeria’s ability to do this is seriously hampered by poor quality infrastructure and weak export promotion capacity. Let’s take quality infrastructure first.
Nigeria’s largest non-oil exports are plastics and rubber products. But this sector accounts for less than 1 percent of GDP. By contrast, the food sector accounts for 4.4 percent, more than half of the manufacturing sector’s total GDP. Thus, the food and agro-based sector should be contributing more to Nigeria’s non-oil exports. But, sadly, Nigeria is failing to export food products to large markets, such as the EU and the US because it couldn’t meet the standards set by these countries. The truth is that international trade is now affected less by tariff barriers but more by standardisation and all other factors relating to quality. As a result, exporters now need to meet stringent quality and packaging requirements.
The recent EU ban on some Nigerian food products, such as beans, melon seeds and dried fish, because they did not meet EU food safety standards, shows how seriously deficient Nigeria’s quality infrastructure is. Nigerian exporters of agro-based products are also failing to take advantage of the preferential US African Growth and Opportunity Act (AGOA) to export to the huge US market because of standardisation. So, even when, potentially, there are products to export and there are international markets for them, Nigeria is short-changing itself by failing to meet international standards. Certainly, a country that is serious about increasing its non-oil exports would establish world-class laboratories, secure the certification of its major trading partners and educate its exporters so that they can exploit any available opportunity to export more.
That brings me to export promotion or what I would call commercial diplomacy. The Nigerian Export Promotion Council (NEPC) and the Nigerian Export-Import Bank (NEXIM) are probably doing their best with limited resources. But elsewhere governments are helping their businesses in a more direct way through export finance and insurance and by helping firms to identify and exploit export opportunities. For instance, the UK Trade and Industry (UKTI), the country’s export promotion agency, has local experts in all its embassies who carry out research into potential markets for UK exporters, and help them to make valuable contacts in those markets. UKTI actively encourages UK firms to export and help them develop their export plans. Its “Passport to Export” service is particularly targeted at SMEs.
Yet there is hardly any Nigerian embassy or high commission with a serious commercial unit. How would they help Nigerian exporters to access overseas markets? And how effective are the NEPC and NEXIM in providing critical support for Nigerians firms to export? That’s what UKTI does, and what the export agencies of other serious trading nations, such as Japan’s ‘JETRO’ and South Korea’s ‘KOTRA’ do. And it is what NEPC and NEXIM should do if they want to help Nigerian manufacturers to take advantage of export opportunities.
Recently, an African based in the US, John Akhile Sr., sent me book he has just written, titled ‘Unleashed: A new paradigm of African trade with the world’. He brilliantly tells a story of Africa’s marginalisation in world trade, and posits that Africa’s future lies in export-led industrialisation. He is right. Great nations are trading nations. And if Nigeria truly wants to be among the world’s greatest economies, it needs to manufacture quality goods and create quality services, and then export them to the world. The current situation in which manufactures account for just 1 percent of Nigeria’s total exports is certainly not sustainable.
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