ECONOMY - 11 NOV 2015

Regional Trade: The Nigerian Opportunity

Regional Trade: The Nigerian Opportunity
TradeMark East Africa

Whichever way you look at it, global trade is falling. A rise in mercantilist policies in response to the Great Recession, structural changes in the Chinese economy and slower European Union (EU) growth have all been significant contributory factors. This is problematic for Nigeria as conventional economic wisdom still considers a combination of industrialisation and trade as one of the more reliable vehicles of economic development.

But within this picture of declining global trade, regional trade remains resilient, even growing. For example, trade within the EU alone accounts for a third of global trade and countries are increasingly seeking regional trade agreements to supplement bilateral ones. Thus, trade with other African countries could be Nigeria’s solution to the challenge of declining global trade.

Barclays, the United Kingdom investment bank, estimates that intra-regional trade still only represents 17% of total trade flows in sub-Saharan Africa, below the levels in regions such as Latin America (20%), North America (32%), Asia (48%) and Europe (66%). Intriguingly, estimates of informal intra-regional trade in sub-Saharan Africa can be as high as 40%, demonstrating both the natural economic potential of regional trade and the structural difficulties created by economic policy. Today, most of Nigeria’s trading partners are outside the continent, a reality that starkly contrasts the situation in many Latin American and Asian developing countries.

Outside Africa, regional trade is enjoying a renaissance through a number of regional trade agreements. The most recent is the Trans-Pacific Partnership (TPP), a coalition of 12 countries from the Asia Pacific and the Americas. The TPP is expected to boost trade in member countries, for example, the Mexican government expects it to boost exports by 40% or $150bn. The primary ambition of the deal is to reduce import tariffs and implement common rules on intellectual property, labour market and environmental standards. The corollary effect of such deals is that countries on the outside, like Nigeria, are likely to lose out, thus putting more emphasis on the need to look closer to home.

Despite Nigeria’s position as the leading economy in Africa, it fares quite badly on intra-African inclusiveness. And although we rank second in the inaugural Barclays Africa Trade Index, Nigeria scores disappointingly in the intra-connectivity and openness categories. This is a missed opportunity for Nigeria. Its population, size and location grant it a natural strategic advantage as a trade hub for West Africa and regional trade would provide many benefits to Nigeria. For example, reduced transport costs would improve the feasibility of many exporting businesses, aided of course by the opportunity to target a wider West African middle class.

Furthermore, regional trade would help facilitate Nigeria’s diversification efforts. Like many sub-Saharan countries, most of Nigeria’s exports are commodities and this is one reason intra-African trade is so low. The opportunity exists for Nigeria to expand its non-commodity exports to other African countries and in doing so, tackle commodity dependence and also better insulate itself from external shocks. As Nigeria industrialises, the vast sub-Saharan population acts as a ready-made market for the goods and services it produces.

Regional trade also provides a number of soft benefits. Trading with each other could strengthen social ties and act as another propagator of democracy within the continent. Conflicts and incidents in African countries are more likely to draw a response when countries have stronger trading links. Meanwhile, it could also help create a more coherent African voice on the international stage, with Nigeria right at the front. Despite the obvious diversity of the continent, there is a growing need for an “African consensus” on many issues related to development.

These are the benefits to Nigeria of expanding trade with other African countries. What we are left with is the question of how to boost Nigeria’s African trade. In response to this, the idea of an economic African Union similar to the EU has sometimes been mooted but such a concept goes beyond trade. Moreover, the recent debt and migrant crises that have recently plagued the EU demonstrate the complicated web of issues that such a union creates.

East Africa provides a more compelling approach. Here, implementation of one-stop border posts (OSBPs) where a single customs check is run jointly by neighbouring countries has boosted trade within the region. Going further, tariffs are an easy target here as Nigeria’s trade policy is an assortment of the enactments of different political regimes and economic environments. Updating and synthesising trade policy to reduce trade restrictions would be a start.

Nigeria can also take a cue from the new regional agreements that focus more on intellectual property, the labour market and environmental standards. For example, less strict visa requirements within Africa is one common sense policy that can help here. And the role of infrastructure cannot be understated. Intra-African transport connectivity is still in its infancy and Nigeria remains too distant from many countries on the continent. Finally, the oft-discussed revamped trade agreement with other African countries could give Nigeria’s African trade relations a needed shot in the arm and entrench some of these policies.

International trade is not a zero-sum game. Nigeria’s approach has often been too narrow and that has resulted in today’s economic malaise. Expanding its trade relations with other African countries should not be done at the expense of trade relations with others such as India. Yet as Nigeria diversifies its economy and subsequently, its trading partners, there is a clear economic case for boosting regional trade.

 

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Kitan Williams

Kitan Williams

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