Nigeria may have become the toast of foreign investors and governments in search of bilateral trade and investment opportunities. But, what is in it for the country? Experts say the country must prioritise infrastructure development, address its poor non-oil export capacity and sustain the momentum in the implementation of the ease of doing business to benefit from such investments. Assistant Editor CHIKODI OKEREOCHA reports.
Nigeria has become the beautiful bride for foreign investors and governments eyeing its huge market and population to claim a chunk of the West African market.
Between June and last month, no fewer than 10 Heads of State and Government have visited Nigeria as part of their economic diplomacy to explore trade and investment opportunities.
The prospective investors, who have stormed Africa’s largest economy and most populous nation ostensibly to expand their markets for goods and services, may have inadvertently heralded a season of bilateral trade partnerships and economic co-operation programmes between them and Nigeria.
Some of them include French President Emmanuel Macron, July 3; German Chancellor Angela Merkel, August 13 and United Kingdom (UK) Prime Minister Theresa May, August 29.
Even some less-endowed African countries and their investors have joined the race to woo Nigeria.
For instance, South Africa’s Cyril Ramaphosa was in Nigeria on July 11. Others include Togolese President Faure Ganssingbe, June 29; and Namibian President Hage Gottfried Geingob, July 4.
Niger Republic and Benin Republic Presidents, Mahamadou Issoufu and Patrice Talon, were in Nigeria, July 23 and July 25. Gambia President Adama Barrow visited Nigeria on August 1.
A common thread running through all the high- profile visits was the search for bilateral trade and investment opportunities in Nigeria. For them, the country’s bountiful, but largely untapped natural resources; large domestic market of over 180 million; a growing middle-class with spending power and an increasingly stable polity, among others, have become irresistible.
However, the flurry of shuttle economic diplomacy by foreign investors and governments may have raised some posers. Will Nigeria take advantage of the increasing attention of global leaders to emerge competitive? Can she translate what may have emerged as a season of bilateral trade partnerships and economic co-operation programmes between her and members of the international business community into concrete benefits for the economy and Nigerians?
Some experts and real sector operators fear that Nigeria may not benefit fully from the various bilateral trade partnerships and economic co-operation programmes being dangled before her, unless a number of issues such as dearth of infrastructure particularly electricity supply and the nation’s weak productive capacity are resolved.
Other formidable forces identified can work against Nigeria’s push to ride the wave to the centre of global trade and business include faulty fiscal and monetary policies, lack of robust policies to boost non-oil export, especially the export potential of value added products in critical sectors.
Weak manufacturing base justifies fears
Members of the Organised Private Sector (OPS), particularly manufacturers, are still up in arms against Nigeria signing the controversial African Continental Free Trade Area (AfCFTA) agreement.
The free trade deal seeks to create a continental trade bloc of 1.2 billion Africans, with a combined GDP of more than $3.4 trillion.
It commits African countries to phasing out tariffs on 90 per cent of goods, with 10 per cent of “sensitive items” to be phased out incrementally. It will also liberalise trade in services, while also signaling a step towards building strong regional value chains.
The agreement was seen by its proponents as an important milestone in promoting Africa’s regional integration and helping to increase intra-African trade, which stands at about 17 per cent, by more than 52 per cent, worth about $35 billion yearly.
But the deal has not gone down well with the OPS, which argued that the likely negative impacts of the agreement on private businesses and the economy far outweigh its supposed benefits. They insisted that the agreement will hurt the economy.
The OPS noted, for instance, that by opening Nigeria’ borders, which is part of what the AfCFTA entails, it will expose local manufacturing industries currently struggling to survive to undue competition.
They pointed out that at a time other countries are embracing the policy of protectionism for the growth and survival of their local industry, Nigeria cannot do otherwise by allowing a free trade policy.
The President of Manufacturers Association of Nigeria (MAN), Dr. Frank Udemba Jacobs, has been quite vociferous in the OPS’s sustained opposition against the deal.
Heexpressed worries that the agreement will open the floodgate for the influx of the European Union (EU) and other foreign goods into the local market and turn the country into a dumping ground.
Jacobs said, for instance, that the Rules of Origin (ROO), which is used to determine the country of origin of a product for the purpose of international trade, in the AfCFTA cannot be adequately enforced to guard against the influx of goods into the Nigerian market.
He expressed fears that the ROO cannot be adequately enforced because goods from the EU can find their way into one of the African countries that have bilateral agreement with the EU.
The MAN president also said the agreement’s market access was a concern to manufacturers as it leaves low protection to locally produced goods.
“The agreement says that 90 per cent of the tariff plan would be liberalised, leaving only 10 per cent to protect manufacturers. That 10 per cent is too low,” he kicked.
Addressing members of MAN at the 51th Annual General Meeting (AGM) of the association’s Ikeja branch held in Lagos, Jacobs also argued that there was the need to undertake a wider stakeholders’consultation for a holistic analysis of the impacts of AfCFTA to the economy.
Besides, he said there was the need to do a specific study to determine the possible impacts of the trade liberalisation deal to the economy and the manufacturing sector.
Although the OPS’s opposition forced President Muhammadu Buhari, who declined to sign the proposed deal, investigations by The Nation, however, show that the nation’s weak manufacturing base and lack of critical infrastructure were at the core of the groundswell of opposition against the deal.
Huge infrastructure gap also
The dearth of supportive infrastructure is said to have put fears of competitive disadvantage in the minds of manufacturers against their counterparts from other African countries.
There has been significant support for Nigeria to go ahead with the agreement initiated by the AfCFTA, including the avalanche of bilateral trade partnerships and economic co-operation programmes dangled before her by foreign investors and governments.
However, the nation’s decrepit infrastructure has continued to stand in the way. The Financial Derivatives Company (FDC) brought this reality nearer home when it said Nigeria requires $15 billion (about N4.59 trillion) worth of investments yearly for 15 years to adequately develop her infrastructure nationwide.
The economic and financial research firm, in its bi-monthly Economic and Business report for February 2018, said: “Nigeria’s under-investment in infrastructure has left it with a core stock of infrastructure of just 20 per cent to 25 per cent of GDP, compared to an average of 70 per cent of the GDP for more advanced middle-income countries of similar size.”
While FDC said “Bridging this gap will require investing about $15 billion annually for the next 15 years,” it added, “Given the government’s limited access to international debt, revenue constraints and competing priorities, the major question is where will funding be sourced?”
The research firm was emphatic that “One of the biggest constraints to Nigeria’s competitiveness, economic growth and diversification is the crippling infrastructure deficit, estimated at about $300 billion, about N30 trillion, by the African Development Bank (AfDB).”
When considered that Nigeria spent N2.7 trillion on infrastructure in 2016 and 2017 fiscal years, the challenge infrastructure gap poses to Nigeria’s competitiveness in global trade comes into bold relief.
However, hope of closing the gap brightened, following President Buhari’s visit to China where he participated in the seventh Summit of the Forum on China-Africa Cooperation (FOCAC). Buhari said Nigeria’s partnership with China through the Forum has yielded over $5 billion investments in the last three years.
Low non-oil export capacity is sore point
The economy, according to experts, is still going through a rough patch, despite exiting recession. Yet, efforts at leveraging a vibrant non-oil oil sector to reposition the economy sustainably have continued to be undermined by low non-oil export capacity.
Lack of standardisation caused by government’s failure to put in place functional laboratories for testing and certifying products before export is said to be hurting non-oil export business as well as diversification.
For instance, the Founder, Centre for Cocoa Development Initiative, a Non-governmental Organisation (NGO), Mr. Robo Adhuze, said lack of seriousness by the Federal Produce Inspection Service (FPIS), the agency responsible for checking and certifying agro-allied products leaving the country, was robbing Nigeria of the benefits of a vibrant non-oil export-based economy.
“The government is not serious,” Adhuze charged, pointing out that “Quality standards have moved from physical standards to biological standards, but FPIS appears not be up to speed with this reality.”
The expert also pointed out that Nigeria’s lack of seriousness was underscored by the fact that despite exporting cocoa for over 100 years, the country has no defined cocoa policy to identify the basic links in the cocoa value chain.
According to him, there was need for a policy on cocoa farming with appropriate institutional framework to boost its production through proper identification of all the actors who have stake in the industry, from farmers to processors, marketers and exporters, among others.
Adhuze further said lack of a clear cut policy direction was responsible for why the N100 billion Cocoa Sector Development Fund remained a proposal on paper years after the Federal Government announced the initiative aimed at supporting cocoa farmers and processors.
He told The Nation that the government’s inability to walk the talk by translating the proposal into reality constituted a serious setback to Nigeria’s plan to reposition itself to extract immense value from the cocoa industry.
Adhuze also said apart from staling Nigeria’s hope of reclaiming her position as a global powerhouse in cocoa production and export, the fund’s failure to get off the ground was frustrating efforts at riding on the crest of a vibrant cocoa industry to create jobs.
Sadly, cocoa was one of the 11 strategic products with high financial value that has been identified by the Federal Government under its ‘Zero Oil Plan’ to replace oil. Others include palm oil, cashew, soya beans, rubber, rice, petrochemical, leather, ginger, cotton and shea butter.
Under the Zero Oil Plan, which targets to replace oil as a major foreign exchange earner by growing non-oil export, the Federal Government targets annual non-oil export revenue of $100 billion (about N30.5trillion, at N305 per dollar exchange rate) through the implementation of the plan.
According to the plan “Nigeria’s trade has been largely driven by exports of petroleum products, which contribute about 17 per cent to the nation’s GDP, signifying about 90 per cent of total merchandise exports and more than 65 per cent of the government’s income.
“NEPC’s vision is to replace oil as a major national foreign exchange earner by growing non-oil export to $30billion in the next 10 years and eventually to $100billion yearly based on its Zero Oil Plan.”
NEPC Executive Director/Chief Executive Officer Mr. Segun Awolowo said if the country could effectively key into the Commission’s plan in taking advantage of the opportunities in the agricultural sector, there would not be any need to depend on oil revenue for survival.
He said the volatility in the oil market had made it imperative for the government to look inwards, adding that Nigeria could no longer depend solely on oil revenue for implementation of government’s programme.
Sound and patriotic argument no doubt, experts say that Nigeria’s failure to work on her safety and other industrial standards and tackle constraints to meeting the US and other importing countries’ specifications remains clod in the wheel.
The recent series of ban on the importation of agro products such as dry beans and cocoa from Nigeria by the US and the European Union (EU) underscored Nigeria’s lack of industrial standards.
The situation was seen as an embarrassing setback to the nation’s push to stimulate non-oil export and facilitate economic diversification.
Recall that the EU had in June 2015 banned the importation of Nigeria’s dried beans on grounds that it contained high level of pesticides considered dangerous to human health.
While relevant government agencies said they were working to get the EU lift the ban, the European body extended the ban by another three years, citing the continued presence of dichlorvos (pesticide) in dried beans imported from Nigeria.
This came after the Republic of Ireland rejected and returned five containers of beans exported from Nigeria to the country. The products were said to have been received with heaps of weevils.
The US also added to Nigeria’s woes when it recently banned the importation of Nigeria’s cocoa into its market over issues of quality and standard.
Lack of standards has also been cited as part of the reason Nigeria has yet to take full advantage of the 10-year extension of the African Growth and Opportunities Act (AGOA), for instance, to be competitive in the global market and also create jobs.
AGOA is the cornerstone of US trade and investment policy in Africa. The programme, which was signed into law by the US Congress in 2000, is a preferential trade agreement between the US and some eligible sub-Saharan African countries that allows the exportation of certain products into the US market tariff and quota-free.
The free-duty export programme essentially seeks to increase market access to Nigeria and 38 other eligible Sub-Saharan African countries to export about 7, 000 product lines to the US market.
Its ultimate aim was to give Nigeria and other qualified African countries opportunity to build capacity in the global markets and also create jobs.
Although, the Act initially covered eight years (October 2000 to September 2008), amendments signed by former US President George Bush in July 2004 extended it to September 30, 2015.
Again, in a bid to ensure that target countries take advantage of the export window, the US Congress extended it for additional 10 years, which means that it now expires on September 30, 2025.
However, an international trade expert, Dr. John Isemede, regretted that for 10 years, only very few Nigerian exporters have been able to export under the AGOA platform due to lack of information and proper documentation.
“Most of the nation’s farm produce have been rejected in the EU countries due to the high amount of pesticides, and poor storage methods, yet we are the highest producer of most of those foods.
“For instance, our yams, cassava, sesame seeds, Shea butter are being freely exported under documentation from countries like Ghana, Cote’d Voire,” Isemede said, in Lagos.
According to him, these countries were beating Nigeria to AGOA because of poor marketing capacity. “Informal export and import trade have also taken over the country and smuggling accounts for up to 80 per cent,” he added.
Also, the belief is that because of Nigeria’s over-dependence on the oil and gas sector, which provides the bulk of her revenue, it has been difficult for agric exports to play an important role in Nigeria-US trade under AGOA.
Why value addition is imperative
As Nigeria prepares to engage foreign governments and investors, experts argue that without adding value to natural and mineral resources, the envisaged benefits of such international trade/business deals may not come the way of Nigeria, let alone boost her competitiveness.
The consensus is that for Nigeria to be competitive in global trade, the era of exporting natural and mineral resources in their raw state must give way for value addition; that Nigeria must produce, and most importantly, add value to mineral and natural resources for export, which can be achieved through the use of appropriate technology. Virtually, all the basic raw materials to feed the local industries are available locally. The snag, however, is that they are not available in sufficient quantity and quality. Most of the available local raw materials are said to be in unusable form, requiring value addition before they can be used by industries.
The value addition, it was learnt, is done mostly by SMEs because they are the off-takers, taking the materials from the unusable form to the next intermediate stage. It is the intermediate raw material that industries require.
However, because of the low capacity of the SMEs to add value to available local raw materials, coupled with lack of access to capital to set up processing facilities, process technology and techniques, and spare parts, among others, they have not been able to fill the gap.
This explains why most of the local raw materials are exported for processing and later imported back into the country as finished products, with the addition of certain additives at great cost.
For Nigeria to get round this challenge, experts said she must not ignore the role of Research and Development (R&D) in its drive for competitiveness.
According to them, the majority of technologies required to reduce poverty, add value to natural resources, and upgrade the technological proficiency of local industry have already been invented.
What the Federal Government needed to do was to develop capacity to use existing technologies, which requires developing engineering, technical and vocational skills rather than conducting frontier-level R&D.
Renowned industrialist and Managing Consultant, Starteam Consult, Mazi Sam Ohuabunwa, did not mince words when he said one of the surest ways to Nigeria’s competitiveness at the global marketplace is through “a single-minded focus on manufacturing-production through value-addition.”
Ohuabunwa is right. Nigeria boasts bountiful agricultural and mineral resources that could make other less-endowed countries green with envy. Sadly, however, most of these resources, if not all of them, are exported in their raw form, without any value addition.
The implication is that Nigeria ends up losing money that could have been made from finished products produced locally. More importantly, Nigeria creates jobs for nationals in other parts of the world, while she continues to grapple with unsavoury socio-economic consequences of rising unemployment particularly, among graduates.
Calls for sustained implementation of ease of doing business
The Lagos Chamber of Commerce and Industry (LCCI) Director-General, Mr. Muda Yusuf, said for Nigeria to reverse the declining trend in Gross Domestic Product (GDP) and emerge competitive in global trade, she must sustain the momentum in the implementation of the ease of doing business.
Nigeria’s recently rose by 24 places on the World Bank’s 2018 Ease of Doing Business Index. It was her highest jump in the history of the rankings, which provide a global snapshot of a country’s business environment in comparison to its peers.
The country’s jump on the rankings, The Nation learnt, followed the signing of an Executive Order on Ease of Doing Business by Vice President Yemi Osinbajo last year. This was to specifically address some of the identified challenges to the ease of doing business in Nigeria.
The aim was to create an enabling environment for business and entrench measures and strategies aimed at promoting transparency and efficiency. The executive order also sought to promote domestic and foreign investments, create employments and stimulate the economy.
It was also expected to promote made in Nigeria products and services by supporting local contents in public procurement by the Federal Government, and also fast-track Nigeria’s transition to a non-oil economy.
Before the order came into force, the Federal Government had inaugurated the Presidential Enabling Business Environment Council (PEBEC) in July 2016. The Council, which is being chaired by Osinbajo, was the administration’s flagship initiative to reform the business environment, attract investment and diversify the economy.
The Council’s principal goal was to make it easier for Medium, Small and Micro Enterprises (MSMEs) to do business, grow and contribute to sustainable economic activity and create jobs.
The Council’s reforms, as well as the signing of the executive order in 2017 paid off by forcing Nigeria’s rise by 24 places from 169 to 145 in the World Bank’s 2018 Ease of Doing Business Index.
Now, Yusuf and indeed, other real sector operators are pushing for the government to sustain the tempo to force down the operational cost of investors.
According to them, sustaining the implementation of the initiative was necessary in view of the fact that their operations are still hurting from multiple taxes and levies by government at all levels.
Yusuf argued, for instance, that without doing so, while also leveraging areas where Nigeria has comparative advantage to boost her trade power, the country may end up holding the short end of the stick in what is supposed to be a mutually beneficial trade/business relationship.
The LCCI chief, who cited latest report of the National Bureau of Statistics (NBS), which showed decline in the economy’s performance in the second quarter (Q2) of this year, said the economy was still in the doldrums.
He specifically lamented the poor performance of the manufacturing and agric sectors, despite the attention given to them by both the monetary and fiscal authorities.
Yusuf said the decline in the performance of the agric sector from three per cent in Q1 2018 to 1.19 per cent in Q2 was as a result of recent security challenges, which affected many farming communities across the country.
With regards to manufacturing, the LCCI DG said the real sector was still grappling with serious productivity challenges caused by infrastructure constraint, particularly power and logistics.
According to him, poor infrastructure has continued to take a toll on investment across all sectors, noting that the impact was more pronounced on manufacturing and the agric sector.
Yusuf said, for instance, that the manufacturing sector slowed from 3.39 per cent in Q1 to 0.68 per cent in Q2 because of infrastructure deficit, logistic challenges, including the Apapa gridlock, access and cost of credit, weak purchasing power and multiple taxation.
He, therefore, called on government at all levels to double their efforts to improve the state of infrastructure.
Indeed, operators in various sectors have been screaming blue murder over the lack of supportive infrastructure particularly power supply, which, according to them, push up cost of production and also erode their competitiveness at the global market.
Worst hit are operators in the Small and Medium Enterprise (SME) sector, where the export capacities of most Nigerian SMEs are said to have been seriously undermined by the high cost of production.
Apart from infrastructure, the competitiveness of most SMEs has been affected by lack of adherence to contractual terms, ignorance of local and other countries’ customs regulations as well as poor packaging, labelling and insufficient information on nutritional content of export products.
Some of these issues are believed to have combined to put the economy on a fragile state, despite exiting recession. They have also exacerbated fears that Nigeria may not be able to negotiate or go into any bilateral trade partnership from a position of strength.