ISSUES IN NIGERIA’S TRADE AND INDUSTRIAL POLICY: LIKELY AGENDA FOR THE NEW MINISTER OF COMMERCE AND INDUSTRY
At last the new Executive Council of the Federation has been inaugurated and the new Ministers assigned their respective portfolios. It is pertinent we begin to take stock of what needs to be done by the different Ministers in their respective Ministries to further move this country forward in the path of greatness. As always, about 38 Nigerians have been selected out of the over 140 million Nigerians to pilot the affairs of the different Ministries; these chosen few are by no means the repositories of wisdom in any given field of human endeavour. Moreover, political expediency does not always demand that nominees are assigned to the areas of their best competence in terms of academic qualification and work experience.
I have this urge to articulate some of my thoughts (and they are quite long as the length of this essay shows) on an aspect of our national economic development that is very close to my heart- trade policy. Having had the opportunity of working in this field and interacting closely with the Federal Ministry of Commerce and Industry (FMC&I) and other relevant public and private sector stakeholders in the last two to three years, I have had course to think critically about how trade/trade policy can spur industrialisation and deliver on poverty eradication in Nigeria. This essay, therefore, is intended to achieve some broad objectives which include: provoking better appreciation among the policy makers and the general public on the potentials of trade for national development; and highlighting the various challenges facing the country in actualising these potentials. Unfortunately, we talk so much about economic diversification but efforts and results on ground still suggest that we are far from getting off the ‘dutch disease’ syndrome. A very sad testimony of this state of affairs is the fact that the country has failed to take advantage of the AGOA initiative several years after it came into existence basically because we have little or nothing to export apart from crude oil. This is more appalling in the face of countries like Kenya and Ghana making giant strides on the initiative. This is just one of the sad stories!
The contents of this essay are basically my reflections on policies and processes. May I state beforehand that the positions, figure, institutions and even persons mentioned in this essay are as recollected to the best of my ability, hence anybody or institution who has a contrary opinion to what has been written here is free to so express. In the event that this gets to the new Minister (as I believe it would), it is hoped that it would provide alternative views on some of the issues he will be confronted with in the days ahead.
A note on the organisation of the essay; the essay starts with a brief comment on the imperative of sound policies generally, and trade and industrial policy particularly, for national development. I then move on to articulate some of the challenges facing the trade policy process and mechanism in Nigeria. I look at issues like the need to conclude the process of formulating the new trade and industrial policy; the challenge of industrialisation, where I propose the implementation of the cluster project; I then examine the imperative of policy consistency and coordination across the various MDAs involved in the trade and development policy process- the Ministry of Finance, National Planning, Agriculture, Foreign Affairs, etc. The next item explores issues in the country’s external trade engagements at the multilateral (WTO), bilateral (focus on the Economic Partnership Agreement, EPA) and regional (ECOWAS Trade Liberalisation Scheme, ETLS, and the Common External Tariff, CET) spheres, as well as the dynamics of development cooperation (official development assistance, aid for trade). The last item focuses on human and institutional capacity gaps; with a final note on the need to recognise the role of the Legislature in the trade policy process.
Policy Corruption and National Development
Before I proceed, permit me to relay some thoughts about policy and national development generally. It is true that the most important reason why Nigeria is still struggling to deliver on the demands of human development is due to policy failure. Policy failures can, and do, occur at two different levels- first, at the level of formulation; and secondly, at the level of implementation. This is a concept I have come to regard as ‘policy corruption’. Policy corruption is by far more important a factor in the national development matrix than the more common kind- financial corruption, which we are so used to and pay so much attention to. For the avoidance of doubt, the word ‘corrupt’ in ordinary dictionary usage can be used to mean: to taint; to debase; to spoil; to destroy the purity of; to pervert, etc. It therefore follows that corruption exists when the intention or the result of a policy is tainted, or debased, or spoilt, or destroys purity, or perverts, etc. These words and phrases all essentially carry the same sense, which is the sense of changing the form of a thing from what it is or ought to be to what it is not or ought not to be. They also carry the sense of wrongful use or abuse of a thing or process.
Now, how do these relate to policy and development? On the first level, policy corruption occurs when a policy by design (i.e., at the stage of formulation) fails to embody optimally, the correct statement of problems and their solutions. This can occur advertently or inadvertently. Policy failure at this level occurs inadvertently when the formulators of the policy are either incompetent or lack the necessary information to make a sound policy. On the other hand, policy failure at this level occurs advertently when policy makers are swayed by extraneous considerations such as vested interests of whatever kind, including personal interest for some material gain and pressure from external forces (countries, institutions, or businesses). Moreover, a fundamental flaw in any policy process is the failure to harvest inputs from the relevant stakeholders. This failure or omission can be advertent or inadvertent. However it occurs, the most important factor is that the output from this tainted policy making process will necessarily be tainted, impure, perverted, corrupt. The point must be made that a corrupt policy cannot be remedied by any stretch of ‘good’ implementation. The defect is terminal; perhaps, it could be saved by the surgeons’ knife in the form of radical reformulation.
The second level policy corruption occurs is at the level of implementation. Just like at the first level, the corruption may occur inadvertently or advertently. It is inadvertent if incompetence and/or improper information leads to poor implementation of policy. On the other hand, it is advertent when those saddled with the responsibility of implementing the policies as in the first case are swayed by extraneous considerations as indicated above. It is easy to relate with this propositions in real life. For example, a policy of rural electrification or urban road rehabilitation may be motivated by the overriding interest of political patronage instead of human development. Such policy is skewed (corrupt) ab initio. The initial motivation will determine the manner of implementation. On the other hand, a policy may have been well conceived but hijacked at the level of implementation so as to achieve goals which are contrary to the initial conceptualisation or which at best should be secondary.
So, we come to the conclusion that a policy must first be good as a correct statement of the problems and their solutions; and the policy must be properly implemented to achieve the set goals. It is here taken for granted that the end of every public policy is to advance the common good as articulated through the process of popular participation in political governance. When a policy meets the foregoing criteria, then we have ‘policy integrity’. Policy corruption, therefore, is a deviation from this norm and forms the super-structure upon which the more obvious kinds of corruption- embezzlement, bribery, etc thrive. Having said that, we take it for granted once again that the goal of any Minister (or any public servant for that matter) would be to advance the common good by ensuring the integrity of policies both at the level of formulation and implementation. In other to achieve this, therefore, he/she would need to get all the necessary assistance within and outside the Ministry to offer valuable inputs into the running of the affairs of the Ministry. It is on this premise that one calls on all Nigerians at home and in the diaspora to respond to the noble task of nation building, for ourselves and for posterity.
The Imperative of a Sound Trade and Industrial Policy
Now, to the ‘main course’ of this essay: issues on Nigeria’s trade and industrial policy. I personally consider the Federal Ministry of Commerce and Industry as one of the most important ministries in terms of potential for economic growth and national development. Truth is that we cannot talk about growth or development without productivity and exchange- the concerns at the core of the responsibility of this Ministry. It has been shown in theory and practice that industry and trade are the most potent instruments of development. Industry here is used to mean productive activities, and trade used to mean buying and selling of goods and services, including those occurring across borders.
The role of investment (especially, Foreign Direct Investment- FDI) in economic development is one that has been widely acknowledged and vigorously pursued. However, investment cannot flow in, or thrive, except within a sound trade and industrial policy framework which complements the investment policy. Trade and industrial policy are components of a nations overall economic development strategy. In Nigeria, the overall economic development policy is contained in the NEEDS II document. Though NEEDS II has components on trade, the country has a trade policy which came into existence in 2002. The Ministry has set in place machinery for the formulation of a new policy which will align trade and industrial policies and articulate both in a single document. This is obviously in keeping with the governments’ decision under the Obasanjo era to merge the Ministries of Commerce and Industry. We shall return to the process of formulating this policy shortly.
While some countries have separate policies for trade and industry, the emerging trend seems to be the articulation of both policies in a single document showing the linkages and complementarities between the two policy spheres. Indeed, this orientation is most welcome given the linkages between the two fields such that except they are jointly addressed, there is the grave danger of each working at cross-purpose with the other. A simple example would suffice to illustrate this. Tariffs is very important to trade and industry. A country that wishes to liberalise its trade (i.e, reducing or eliminating tariffs) while at the same time seeks to build local industries would run into some problems except the policies are properly aligned.
Proper alignment demands that the country only liberalises on those products which would make it easier to import critical inputs in form of raw materials and machineries where they are needed by the local industries. If the country for any reason liberalises its tariff rates on those products showing good prospects in terms of local production, then that may be a sure way to kill the emerging local industries. This can also be said about exports liberalisation. A country may also want to protect some of its products especially natural resources from export by the means of export taxes, quantitative restrictions, or outright ban of exports. There is indeed some merit in the logic that a country need some measure of safeguard against the tendency to be ‘crude’, that is exporting only primary goods (raw materials) and depending on importation for finished or processed products.
The above is a rather simplistic illustration as other factors can come to play in the given examples- such as the need to achieve optimal allocation of resources and avoiding rent seeking and waste; and promoting consumer welfare. Therefore, knowing where to draw the lines is the critical task of a good policy. Another scenario would be where the country goes ahead to negotiate a multilateral or bilateral trade agreement which gives it market access for goods and services which it does not produce competitively while denying it access for goods and services it produces more competitively. Of what positive impact would this be to local industries and investment? It has already become obvious from our illustrations that a number of dynamics come to play in the choice of right trade and industrial policy framework. The point, however, is that great care and expertise is needed to ensure that policies across these two fields are consistent and complementary. It would be shown in the course of this essay that the need for policy consistency and complementarily as it relates to a country’s trade and industrial policy runs beyond these two fields of trade and industry and includes other spheres as finance, agriculture, labour, research and education, etc. This brief analysis of policy imperatives leads us to the first challenge on the agenda.
- Finalising the New Trade and Industrial Policy for Nigeria
The FMC&I started the processing of formulating a new trade and industrial policy for Nigeria to replace the 2002 trade policy. A draft policy was produced sometime in 2008 and circulated to a limited number of stakeholders for comments. There was a plan to hold a stakeholders’ consultation on the draft with the view to finalising the document. To the best of my knowledge, the Ministry has not held the proposed consultation up until this moment. However, a concerned stakeholder, the National Association of Nigerian Traders (NANTS) hosted a stakeholders’ parley on the draft policy. The workshop was well attended by representatives of the private sector (MAN, NACCIMA, NASSI, etc), labour, academia, relevant government ministries, departments, and agencies, development partners, with international and local resource persons who dissected the draft policy. At the end of the workshop, the stakeholders came up with a report which was submitted to the Ministry.
Some of the issues highlighted in the report include the need to make the policy pro-poor; the need to properly align it to the overall economic development strategy; the need for consistency and proper coordination among MDAs; the need to involve the stakeholders in the formulation and implementation process; inclusion of monitoring and evaluation mechanism with benchmarks and indicators; the need to align the policy with Nigeria’s engagement at the multilateral, bilateral and regional levels; etc. These issues are reflected in the analysis contained in this essay.
It is imperative that the new Minister picks up what is left of this process and brings it to a conclusive end, incorporating the inputs harvested from the stakeholders. The Minister may also consider setting up an experts committee to finalise the document. The country cannot afford to remain without a comprehensive policy framework in this area. This is a tangible output the Minister should strive to deliver on.
- Tackling the Problem of Industrial Development
Nigeria operated an import substitution industrial policy in the 60s up to the early 80s. The coming of SAP was to change this in favour of liberalisation. Unfortunately, today, partly arising from the failure of SAP, the industrial policy environment seems to be in a state of flux. The government is trying out different approaches usually based on the fancy of those in the helm of affairs at any given time and those who advise them. The result in most cases is policy corruption, favouring rent seeking. The absence of a consistent and coherent strategy for industrialisation is telling on the country’s poor industrial output in the face of enormous capacity for industrialisation, given the abundance of natural resources, human capital, and a relatively large market both domestically and regionally, at least.
In as much as one recognises the role played by the lack of critical infrastructure in limiting the country’s industrial development potentials, one would rather suggest that there are other ways of getting through the challenge. In developing economies like ours, the idea is to adopt selective intervention measures. The logic of selective intervention lies in the fact that since we can not solve all the problems at once, we prioritise and give preference to sectors that are potential growth drivers, whose development would have a multiplier effect in terms of backward and forward linkages with the other areas of national economic development. The caveat, however, is that selective intervention must be accompanied by policy consistency across sectors for it to yield the required result. Following this logic, behind the background of poor infrastructure, the country can still pursue an industrialisation strategy that focuses on developing value chains on locally available cheap primary goods and this could be done very effectively using the cluster concept.
The cluster concept involves the setting up of firms operating in the same or related industries in a particular geographical location. This can be in form of ‘industrial estates’, or ‘parks’. Traditional economic theories show that industrial clusters benefit from external economics of scales. But beyond this benefit, the cluster approach becomes more compelling in a country like ours where availability of infrastructure is a major challenge. Industrial clusters, therefore, become attractive as a way of accomplishing in a ‘controlled environment’ what otherwise could not be accomplished on a general scale. The idea is to prioritise the provision of basic infrastructure in the area so that the firms located within the area have an edge which enhances their competitiveness. Another factor that usually comes to play is the need to locate production/manufacturing close to the source of all or some of the inputs needed in the process. This could be skilled labour, raw materials, technology, etc. Thus the most suitable way to solve the problem of value chain development especially in agriculture would be to locate processing plants close to the ‘farm gate’ or even within the farm. Firms within this cluster could operate at different or all levels of the value chain from primary processing to finished products and marketing/distributing services.
Clusters can develop spontaneously, i.e., without any policy or positive intervention by the government. In fact apart from the large industrial estates in the big commercial cities in Nigeria, the small clusters scattered in different parts of the country developed spontaneously. In most cases these clusters came into existence over a period of time as entrepreneurs got increasingly drawn together due to availability of space, or skill or market in a given location. Examples include the foot-wears, leatherworks and garment cluster in Aba, the computer village in Otigba, Lagos, the auto and industrial spare parts fabricators of Nnewi, the leather tannery in Kano, etc. We shall speak more about these clusters later in this work.
The need to utilise the cluster concept as the industrial development strategy for the country has been recognised at the highest policy level. The FMC&I under Engr. Charles Ugwu did a lot of work in this regard leading to the approval of the concept by the Executive Council of the Federation as the country’s industrial development strategy. The Ministry in developing the strategy borrowed extensively from the East Asian Tigers who have proved most successful in this area. The Ministry also commissioned feasibility/mapping studies for industrial clusters in different parts of the country. Unfortunately, the immediate past Minister, Chief Achike Udenwa, did not show much enthusiasm in the project, consequently, the project with all the reports and efforts/funds invested in it seem to have become another volume for the shelves. One must decry at this point the attitude of Ministers or even Presidents abandoning policies and projects initiated by their predecessors for no just reasons and re-inventing the wheel. No country can ever develop in this way. This has been one of the major challenges facing the FMC&I which the new Minister must avoid by every means.
Let us dwell more on the importance of clusters. I think that there has been this fixation when we talk about industrialisation in Nigeria. We think more of the large manufacturing plants and hardly seem to reckon with small and medium scale or household production. The sheer size and complexity of the machines in the factories along Oba Akran Road in Lagos and other such industrial estates dotting the landscape of the major cities in Nigeria seem to reflect our conception of industrialisation as a huge and complex issue. The problem is that we have a challenge with starting small forgetting that big things start small; and as the saying goes, “beware of small things that start big”. This conception of industrialisation was responsible for the policy of the 60s and up to the early 80s where government invested heavily in large manufacturing plants whose ends we need not recount here.
Contemporary global trends have shown a remarkable shift in the structure of manufacturing across the world. This shift has been appropriately captured in the 2009 Industrial Development Report of UNIDO titled Breaking In and Moving Up: New Industrial Challenges for the Bottom Billion and the Middle Income Countries. There is something exciting about the phrase- “breaking in and moving up”. It tells of possibilities that have been created by the shift in structure. What is this new trend, if one may ask? Permit me to present it to you in the words of the Director- General of UNIDO in his Preface to the Report. According to him,”[O]ne of the outstanding features of the process of globalization has been the rapid diffusion of industrial production from the developed to the developing countries, based on such developments as specialization in production by transnational corporations, the development of international supply chains and the liberalization of trade flows. This has allowed the production process to be disaggregated and the production of individual components and services to be outsourced, often to developing countries that enjoy competitive
advantages in their production. Where this process has been successful, the resulting so-called “trade in tasks” has had a dramatic impact in promoting industrial and economic growth, reducing poverty and generating social progress.”
What this is simply saying is that a country can take advantage of this internationalisation of the value chain by specialising in the production of those components in which the country has the greatest competitive edge. Hence we need not wait until we can have a wholly made-in-Nigeria car, we can start by specialising in producing simple components- this is breaking in. The story does not end there; we can build capacity over time to upgrade our place within the value chain until we get to such a place where we can produce wholly made-in-Nigerian cars, if we so desire- that is moving up! This is like ‘industrialisation by ambush’- taking the value chain at the point most advantageous to you. Most people are very familiar with the concept of outsourcing which has helped so much to advance the economies of the Asian Tigers. In our world today, if you pick a piece of electrical appliance, computer system, etc, you would observe that the different components were manufactured in different countries, even by different companies and then assembled by the ‘manufacturer’. A firm or a country can be reputed for just producing one component. Same applies to textiles and apparels, shoes, etc. There is the story one region in China producing more than half of the buttons used in the entire world. This strategy tallies with our earlier argument about starting small and promoting SMEs as catalysts of industrial development.
The closest we have come to this strategy in Nigeria is the establishment of assembly plants. However, because this initiative not based on any specific competitive advantage, coupled with poor policy environment and mismanagement, the plants are either moribund or struggling today. A more apposite competitive advantage would have been the availability of indigenous technical capacity but we rather relied on the expected ‘technology transfer’ which has proved very elusive. We also have the Export Processing Zones which are also not in the best of conditions. Contrast this with a situation where Nigeria had concentrated in the manufacture of say bolts or tires. There is every possibility that the country would have attained global acclaim on these components and would have moved up more easily to more complex components or even complete units -all based on the development of indigenous technical capacity. The point sought to be made is that it is easier to develop indigenous technical capacity when you start from things you can do more easily and then try to move up to more complex tasks over time. The approach proposed herein favours the development of SMEs rather than giant manufacturing plants. Ironically, Nigeria has an SME Policy whose administration is detached from the FMC&I! We shall revisit this when we look at cross sectoral/ inter-agency cooperation and coordination.
Implementing the cluster concept in Nigeria, to me would not be such a difficult task. The reason is because we have, scattered all over the country, ‘clusters’ at different stages of development as we have pointed out earlier. The logical thing to do is to build on these existing ‘clusters’. From the leather tannery in Kano, to the shoe and leather works in Aba, to the auto and industrial components fabricators in Nnewi, to the computer village in Lagos. What is needed in each of these clusters is appropriate policy intervention in form of restructuring and upgrading for which the country can get the requisite technical support from multilateral and bilateral agencies. UNIDO has a Project in this regard in the West African region and already countries like Senegal have taken advantage of it while Nigeria for some inexplicable reasons is yet to take advantage of the Project.
This writer was opportune to work in a team that conducted a rapid field survey on the foot-wears, leather works and garment manufacturers in Aba in 2008. The work was sponsored by the National Association of Nigerian Traders (NANTS) as one of the steps in finding solution to the problem of low industrial capacity which we always identify as a constraints within the context of multilateral and bilateral trade engagements. The team visited the different ‘zones’ and ‘lines’ in the ‘market’ where we met with the entrepreneurs and the market leaders and had fruitful discussions with them at that micro level. One of the findings is that apart from the usual story of poor infrastructure- roads, power, etc; the entrepreneurs were aware of the fact that they can improve tremendously in the quality and quantity of their products given the right machines and some sharpening of their skills. I would recommend that the incoming Minister pick up a copy of this report from NANTS and the accompanying documentary by an AIT crew titled “The Ariaria Revolution”. We also discovered that in spite of the general perception of made in Aba products as being of inferior quality, these entrepreneurs have markets extending as far as the Central Africa Region. On the quality of their products, they were able to show from samples that they produce based on what the market demands, given that the average Nigerian prefers cheap products for economic reasons; nevertheless, when the price is right, they are equally capable of producing high quality products. We were impressed to see ongoing production of oil resistant boots on order from contractors supplying big oil companies. It may also be of interest to learn that made in Aba suits can compete favourably in quality and finishing with the imported brands tha have flooded our markets; and in spite of the time and labour consuming manual process of production, the prices are still highly competitive. Then imagine what would be the outcome where these garment makers are provided with the right machines, improved skills and infrastructure.
Aba already has the reputation as an industrial hub for specific products like footwear and garment, the manpower is there even if not so refined. Same can be said of other such ‘clusters’ in different parts of the country, therefore, one wonders why the government cannot concentrate on developing what is already in existence. In Aba, we also discovered that there is already a pilot project aimed at refining the skills of these footwear and garments makers, and providing them with a common pool of modern facilities. This Project is under the auspices of UNIDO in collaboration with the FMC&I, NEPC and the Abia State Government. Apart from the fact that this Common Facility Centre is like a drop of water in the ocean, there are other reasons bordering on location and seeming lack of good relationship between the majority of the entrepreneurs and the Centre. These are foundations that can be built upon instead of trying to erect skyscrapers in the air.
I would therefore, urge the new Minister to look critically at the industrial cluster project started by Engr. Ugwu and get it rolling once again. This is more profitable than running a campaign for “Buy Made in Nigeria Products”. Truth is that the made in Nigeria products that have demonstrated good quality (mostly the food and beverage/pharmaceutical industries most of which are controlled by multinational corporation) receive and will continue to receive due patronage from Nigerians without any campaign by any Minister. Moreover, without any campaign, the government can adopt a deliberate internal policy of patronising Made-in-Nigeria goods in public procurements. What we need now is to tackle areas that have great potentials for economic revolution at the grassroots, and industrial clusters targeted at international (or even domestic) value chains seems to be the answer. Agriculture based industrialisation, light manufactures, etc should form the basis of this revolution. To this end, the new Minister should immediately put together an implementation committee, bringing together experts with different relevant backgrounds that would help drive this process.
There is also the possibility of adopting a private public partnership (PPP) approach which will see the private sector contributing to the design and management of the clusters with the provision for recouping investment with reasonable profit over a reasonable period of time. If the legal framework is in place, this would not be a difficult approach.
- The Imperative of Policy Consistency and Coordination across MDAs
Another issue the Minister may want to pay attention to is the need to ensure consistency and proper coordination between the core policy and operations of the Ministry and related policies and processes in other ministries, departments and agencies (MDAs). There are other Ministries who are important stakeholders in the trade and industrial policy of the country. These include the Federal Ministry of Finance (FMF), the National Planning Commission (NPC), the Ministry of Agriculture, the Ministry of Foreign Affairs (MFA) and the National Planning Commission (NPC). Apart from these ministries, there are also agencies some of which are under the FMC&I like the Consumer Protection Council (CPC), the Standard Organisation of Nigeria (SON), the Nigerian Export promotion Council (NEPC), etc; while others are located in other Ministries like the Raw Materials Research and Development Council, NAFDAC, and other numerous research institutes under the Federal Ministry of Science and Technology, the Nigerian Customs Service under the FMF; and a few under the Presidency like Small and Medium Enterprises development Agency of Nigeria (SMEDAN), Nigerian Export Processing Zones Authority (NEPZA), Nigerian Investment promotion Commission (NIPC), etc.
In as much as it is desirable to have some of these agencies, especially those under the Presidency, brought under the FMC&I, there are equally compelling reasons why this should not be done. What is needed, therefore, across these sectors and MDAs is to have a method of effective policy coordination. There are two ways of achieving this- the Ministry of Commerce can establish mechanism for regular consultations with these MDAs; or the Federal Government can set up a mechanism for coordination at the level of the Presidency, possibly under the office of the Chief Economic Adviser. The advantage in the second option is that it would serve to reduce turf fighting since no MDA would feel that the other is encroaching into its domain. But whichever option is chosen, the most important thing is for the Government generally to be able to identify issues that fall within the ambit of trade and industrial policy and insist that the Ministry of Commerce either leads or be carried along in the processes whether domestically or internationally. This writer has witnessed a situation where the Federal Ministry of Science and Technology was leading the process an international trade negotiation. In fact, the preliminary work that has been done so far in Nigeria on industrial restructuring and upgrading was done by the Raw Materials Research and Development Council, which again is under the Ministry of Science and Technology.
- Trade and Agriculture
The linkage between trade and agricultural policy is too obvious to need too much elaboration. In fact at the international scene, trade in agriculture forms one of the major pillars of the WTO regime with a separate agreement known as the Agreement on Agriculture (AoA). It is only logical that agricultural policy be aligned with trade/industrial policy as this would serve to ensure that agricultural production feed into trade and industrial development. One of the acclaimed banes of agricultural development in Nigeria is the lack of processing capacity to absorb surpluses at the time of harvest or to transform primary products to finished goods, thereby adding value. Poor integration of value chain in agriculture can therefore, be addressed with the instrument of trade/industrial policy. Apart from the local policy and infrastructural demands, another important role a country’s trade policy can play in agricultural development is by seeking high income markets, through multilateral and bilateral agreements, for the country’s agricultural produce whether at the primary or processed stages. An agricultural policy well aligned to the trade/industrial policy would ensure effective backward and forward integration within the economy and has great potentials for poverty alleviation at the grassroots.
- Trade and Fiscal Policy
The FMF is in charge of fiscal policy in Nigeria. Due to the close relationship between tariffs and fiscal policy, the responsibility for setting the country’s tariff policy lies with the FMF. One has noticed on several occasions where the FMF and the FMC&I are involved in the same or similar trade policy processes at the ECOWAS level with little or no coordination at home. One glaring example was the process leading to the finalisation of the ECOWAS common external tariff (CET). At a time when the Ministry of Commerce and other stakeholders were busy pushing for a fifth band of 50%, a really difficult demand on other countries of ECOWAs especially those on the UEMOA (French acronym for the West African Monetary Zone made up of 8 francophone West African Countries) bloc; the FMF was busy writing the 2008-2012 tariff book for Nigeria (which was supposed to reflect the CET to the extent it had been agreed upon at the moment) but obviously without the effective participation of the FMC&I.
The result of this lack of coordination was that the tariff book was released just before the stakeholders (this included organised private sector represented by MAN and NACIMA, the small scale industrialists represented by NASSI, traders represented by NANTS, farmers groups, labour, academia, MDAs like Customs, NEPC, NPC, and even the FMF, etc) had the final meeting to reach a decision to be forwarded to the Honourable Minister of Commerce for approval and transmission to the Committee of Ministers of ECOWAS member states. Even though the stakeholders were already tending towards a fifth band of 35% following studies that had been conducted, the FMF already had 35% in the tariff book. The implication was that had the stakeholders arrived at a different position or if the country had decided to use, say 40% as an initial negotiating position (which is usually the practice), the purpose would have been defeated because the other countries would just refer us to our current tariff book which already reflected 35%. This is just one example where lack of coordination in the home front causes the country embarrassment at the regional or international level. The most unfortunate thing sometimes is that there are existing frameworks for consultation and cooperation on these issues, like the inter-ministerial committees, but they are rarely effective for so many reasons ranging from lack of funds for regular meetings to disagreements among participating MDAs.
Indeed, the practice here in Nigeria where the FMF is in charge of tariff policy has been challenged by stakeholders in different fora. Tariffs play the double role of trade facilitation and revenue generation. Some countries place more emphasis on one than the other. Where the emphasis is on the revenue generating role as it is in Nigeria at the moment, the administering agency which is the Customs is usually under the Finance Ministry. On the other hand, in countries where the emphasis is on the trade facilitating role, the Customs is usually under the Ministry of trade/commerce. It has been argued by some experts that countries including Nigeria should move away from over reliance on tariffs as a source of government revenue but rather to tow the line of tariff liberalisation as a means of facilitating trade flows. Whether Nigeria is ripe for this is arguable but the point need to be made that global trend is in favour of the latter position and with the spate of bilateral and multilateral trade negotiations, it is only a matter of time before tariffs finally lose their importance as revenue source for the government.
- Trade and Foreign Policy
The role of trade as an instrument of foreign policy is one that dates back to antiquity. In principle, a nation is free to choose the kind of economic (trade) relationship it wishes to maintain with any particular country or group of countries. This includes the decisions as to where to sell the country’s products, where to buy the country’s needs and on what conditions (pecuniary and otherwise) the country is willing to enter into the transaction. Therefore, trade is an instrument a county can use in enforcing or reinforcing its positions in international arena. The ‘discovery’ of Africa by the Europeans, the scramble for raw materials and slaves and the subsequent partitioning of the Continent among the European countries, were all motivated by economic interests. Wars have been and are still fought today across the world for economic reasons. This only goes to reflect how powerful a tool of international diplomacy trade could be.
This connection has made it practically impossible for a country to detach its trade policy from its foreign policy. Perhaps, the economically advanced countries understand this more than the developing countries. In fact, under the recently restructured European Union following the coming into effect of the Lisbon Treaty, trade has been explicitly stated to be a component of the EU’s foreign policy. Though this has always been the practice, the difference now is that of manner of coordination. For example, EU’s economic relationship with her former colonies in Africa, Caribbean and Pacific (ACP) group of states has been within the framework of the successive Lome Conventions and currently the Cotonou Agreement. These instruments also provide a comprehensive framework for cooperation across political, socio-cultural, and economic spheres. Hence it is primarily a foreign policy instrument. The United States of America has been in the forefront of using trade to promote its political interests all over the world. From the North American Free Trade Agreement (NAFTA) to the U.S’s trade embargo on Cuba or Iran, the story is same- trade in the service of political interest. In fact, we can not possibly fully explore this linkage between trade and foreign policy in this write up but suffice it to say that whether at the a bilateral or multilateral level, countries that know their worth in international politics would always use their perceived economic advantage to make their voices heard in the comity of nations.
Unfortunately, Nigeria as a country does not seem to have drawn this linkage between our foreign policy and our trade policy. Nigeria is party to numerous bilateral cooperation agreements most of which have ‘enriched’ the shelves rather than the nation; that is, those agreements that their copies can still be found. Usually these processes are led by the Ministry of Foreign Affairs with the participation of the Ministry of Commerce to cover the trade and investment components. However, the more commercial oriented agreements are driven by the Ministry of Commerce. What seems obvious, however, is that there is no comprehensive strategy for determining the appropriateness or otherwise of entering into agreements with particular countries or group of countries, the agreements rarely reflect anything the country stands for or against. We need to ask ourselves as a country: what are the strategic national interests we promote by our trade engagements? There is therefore, need for the new Minister to have this broad perspective of trade policy which would enable him to form a synergy with the Ministry of Foreign Affairs, which is primarily responsible for the country’s foreign policy.
The challenge for Nigeria is in different fronts- one, is the country’s position within the West African and Africa region; two, is the country’s bilateral engagements with other countries or group of countries around the world; and three, is the country’s engagement at the multilateral level under the WTO. We shall consider these under the item on multilateral and bilateral engagements and development cooperation.
- Trade and National Development Planning
Another Ministry that plays an important role in the country’s trade policy arena is the National Planning Commission (NPC). The NPC is the government ministry in charge of development planning. We have highlighted above that trade policy is a part of the broader sphere of development policy. There is need, therefore, for inter-ministerial cooperation and coordination between these two ministries. For example, it is not advisable for the NPC to produce development plans like the NEEDS II, the vision 20:20:20, etc which have trade components without the active participation of the FMC&I. No matter the number and expertise of consultants used in such processes, the contribution of the FMC&I can not be dispensed with. Perhaps, where the operations of both ministries most need some fine-tuning is in the area of approving disbursements of funds from overseas development assistance. Statutorily, the NPC is in charge of coordinating all official development assistance coming into the country. There are some funds by foreign donors that can only be accessed with the approval of the NPC. The two ministries will need to work out modalities to ensure that such funds are made accessible and utilised on the right projects. To this end, it may be necessary to engage in joint development of projects as the need arises.
We can continue endlessly to explore the strategic alliances the new Minister would have to build or strengthen but we have selected these few to show that the trade policy process is a complex process that requires active multi-stakeholder participation. But before we leave this item, it is pertinent to point out a very important but largely neglected area of coordination/cooperation. That is between the FMC&I and the agencies that are not under it. It is high time we recognised and developed strategies for coordination and cooperation with such agencies like the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN), National Agency for Food and Drugs Administration and Control (NAFDAC), Bank of Industry (BOI), Nigerian Export Import Bank (NEXIM), etc. Equally important is the need to find a place for the research institutes in the trade policy process. These include bodies like the Raw Materials Research and Development Council, Federal Industrial Research Institute, the numerous agricultural research Institutes, etc.
- Multilateral, Bilateral and Regional Engagements and Development Cooperation
A country’s trade policy is not worth the name if it does not take into account the place and interests of the country among the comity of nations, either those geographically contiguous to it or those far away. The process of globalisation has changed significantly the way people and nations relate across borders. Whether one sees trade (that is, the search for new markets for finished goods and sources for raw materials) as one of the major drivers of globalisation, or sees globalisation as the major catalyst for international trade, the fact is that both phenomena are so closely tied that no country dares address one as if the other is not important.
Under this item, the objective is to highlight the challenges and prospects before the country as it relates to the country’s engagement in multilateral, regional and bilateral trade policy processes on the one hand, and in tackling the dynamics of development cooperation on the other hand.
- WTO and Multilateralism
At the multilateral level, Nigeria is a member of the World trade Organisation (WTO). What is needed at this point is a re-evaluation of Nigeria’s strategic interest at the WTO vis-à-vis the country’s domestic trade policy and commitment to regional integration in West Africa. Unfortunately, Nigeria’s otherwise imposing structure as a global player is seriously diminished at the WTO for the simple reason that the country’s share of international trade is minuscule. Nevertheless, Nigeria can still assert herself at the multilateral level if she can drive strategic alliances and serve as a rallying point for the rest of African countries.
The Doha Round was seen as having a lot to offer in terms of the development aspirations of developing countries but the Round has remained inconclusive, if not stalled. We may want to recall that from the inception of the multilateral trading system (first under the General Agreement on Trade and Tariffs (GATTS) of 1947- following the failure of the proposed International Trade Organisation (ITO), through the various negotiation rounds, up to the finalisation of Uruguay Round and the Makarresh Agreement setting up the WTO in 1995), there has always been a conflict between the developed countries on the one hand and developing countries on the other hand as to how to accommodate the interest and needs of the latter group within the multilateral trading system.
It is no news that that the policy of the multilateral system is based on mercantilism which encourages countries to export as much as they can and to import as little as they can. Behind this background, therefore, countries tend to guard their domestic markets jealously while aggressively seeking access to the market of other countries. The general perception is that the developed countries have used the platform of the WTO (with the connivance of other agencies of economic globalisation like the IMF and World Bank) to gain unrestrained access into the markets of most developing countries, especially those low income countries who still lack the capacity and economic independence to negotiate their positions in the WTO, or are unduly dependent on development assistance managed by these institutions. At the same time, these developed countries tend to shield their markets from competition in critical sectors where the developing countries have competitive advantage, like agriculture or even labour. This is the major criticism against the WTO regime; it has been described as “rigged rules and double standards”, by an Oxfam International report. A situation where free trade is stated as the goal but where all manner of polices, domestic and otherwise, is used to truncate the benefit accruing to some countries from the system can not be better described.
The perceived imbalance in the system has made the developing countries, from inception, to demand for regimes that grant preferential market access to them as well as exempting them from the strict application of certain disciplines of the WTO. The result is that the rules have evolved since 1947 to include such principles like the enabling clause, exemptions relating to regional agreements and customs unions, special and differential treatments, etc. It remains arguable whether these preferences accorded developing countries have had the necessary impact on their capacity to trade. In fact some analysts have argued that these preference work against the interest of developing countries in two ways- one, by reducing the moral binding force of other rules on the developed countries who would be tempted to view strict application of the disciplines as a favour rather than a legal obligation, in the absence of such reciprocation from the developing countries; two, by encouraging perpetual ‘spoon feeding’ of the developing countries who, therefore, may never see any incentives to move up the ladder, thereby continuing in sloppiness and indiscipline in domestic trade policy.
The last milestone in the process of balancing the perceived imbalance in the system was the Doha Declaration which stated its major focus as meeting the development aspirations of the developing countries within the system. This is to take the form of modification of certain rules especially on agriculture and the increase in development assistance in terms of Aid for Trade to enable developing countries take full advantage of the opportunities in international trade- alas, the Doha Declaration remains a project in the pipeline and, on a lighter note, we here in Nigeria understand well that ‘things’ in a pipeline are most times at the mercy of vandals, and therefore may never reach the desired destination!
There are so many issues on the table at the WTO that calls for critical engagement and on which Nigeria should play a proactive leadership role in articulating and championing the position of the developing countries especially the low income developing countries (where the country falls) and the least developed countries (LDCs)who form the bulk of ECOWAS members states. Fortunately, the profile of Nigeria at the WTO was raised recently with the appointment of the country’s Ambassador as the Chairman of the Dispute Settlement Body (DSM), a move seen by some analysts as a prelude to appointment as the Chair of the General Council. Some of the issues of interest to the country include the interpretation and possible modification of Article XXIV of the GATTS to determine the appropriate liberalisation threshold that constitutes “substantially all of the trade” in relation to customs unions and regional trade agreements. This move has become important in view of the current disagreement between West Africa and the European Union as to the acceptable liberalisation threshold within the context of the Economic Partnership Agreements negotiations between the two regions. We shall consider this in more details subsequently. Other issues that would demand the country’s attention include negotiations on trade facilitation, standards (sanitary and phytosanitory), subsidies and safeguard mechanisms, aid for trade, trade related intellectual property (especially on access to medicine and protection of indigenous knowledge)and the so called ‘Singapore issues’ of competition, investment and public procurement which will surely come up in one way or the other.
Even in the face of lack of progress in the Doha Round, the global financial crisis has thrown up more questions about the orientation of the WTO and the future of capitalism upon which the former is founded. But for our purpose, we highlight just three issues: one, the global economic crisis has revealed the weakness of the commitment of some key countries, especially the developed countries, to the ideals of the multilateral trading system. The immediate steps taken by some countries like the US sought to protect their domestic markets from import competition. Two, the collapse of the global financial system which precipitated the economic crisis in the first place has raised the need to re-examine the scope of financial liberalisation under the WTO. This is of particular concern to Nigeria because the country is one of the few signatories to the Financial Services Agreement (FSA) under the WTO/General Agreement on Trade in Services (GATS) and has made commitments on financial services liberalisation and is in fact likely to make additional commitments under the Doha Round.
Though Nigeria’s existing commitments do not cover trading in financial derivatives, regarded by many as the most toxic commitment, but that does not rule out the possibility of such commitments in the future. This concern is coming on the heels of the present posture of the CBN Governor who have variously expressed his non-aversion to (indeed, preference for) 100% takeover of any Nigerian bank by foreign banks. One must point out that such a policy has its downsides. For example, let us imagine that most of the Big banks in Nigeria were owned by the Lehman Brothers and Meryl Lynch of this world prior to the financial crisis that swallowed up these giants, the effect on the Nigerian economy would have been devastating as the banks may close shops like their parent companies or place undue burden on government revenue in the form of bail out. This is not to even talk of the effect of the ever present danger capital flight as a result of strategic divestment decisions or diplomatic mischief originating from the home country of these banks. The CBN governor needs to fully consider the implications of this policy. For the avoidance of doubt, there is nothing wrong with the establishment of wholly owned foreign banks in Nigeria but to allow foreign banks to acquire majority equity in existing Nigerian banks is a different kettle of fish. The global community is calling for better regulation of the financial services sector at the multilateral level but this should not dispense with the need for countries to adopt appropriate regulatory framework to safeguard their domestic economies from the ‘bubble and burst’ effects of unsustainable and reckless practices of global financial speculators.
Three, the current global crisis has raised questions of the sustainability of Aid for Trade (AfT) agenda under the WTO. Even though most of the developed countries fail to meet up with their commitments towards aid for trade under normal circumstances, the trend is expected to worsen as countries battle to recover from the recession. The message for Nigeria and other developing countries is that they should not expect too much in terms of development financing in form of aids from these countries but rather be ingenuous in tackling development challenges especially those that directly relate to countries ability to participate effectively in the global trading system. In the light of this, it is pertinent to emphasize that the practice of developing countries accepting developed countries proposals on the promise of more development assistance by the latter is a poor negotiating strategy because in most cases, the commitments by the developing countries are binding while the promise of development assistance are couched in ‘best endeavour’ language.
- Quality of Nigeria’s representation at the WTO and the question of stakeholders’ participation at home
The last issue that deserves attention on the multilateral arena is that of representation and stakeholders input into decision process. it is no news that most developing countries (and that includes Nigeria) are poorly represented at the WTO. The country’s Trade Mission in Geneva needs strengthening in terms of number and expertise of personnel. The parallel processes at the WTO make it impossible for a country that has very few personnel on ground to track and engage in all the processes. Also the technical capacity of the personnel at the Mission to engage the issues need to be taken seriously even before postings are made. This could be achieved by instituting a consistent strategy for capacity building within the Ministry here in Nigeria and ensuring that the best and brightest get the opportunity to serve in the Mission. There is also the need to build a seamless interface between the Mission and the Ministry here at home so that technical support, where available at home, can be accessed by the Mission without much physical movement of persons- this means the effective deployment of ICT. This leads to the next leg of the issue: stakeholders’ participation in decision process.
Anybody who has been closely following the trade policy processes in Nigeria for a reasonable period of time would agree that the participation of stakeholders at the domestic front in shaping the country’s position at the WTO has been minimal and uncoordinated. A number of reasons account for this: one, the process of stakeholders’ consultation is usually a tedious one taking much time and funds to drive. Secondly, the stakeholders, especially the private sector, has not been proactive in articulating their positions and advocating for same. Perhaps the last statement needs further emphasis. The private sector in Nigeria has not learnt to prepare well researched and empirically compelling policy positions. Most of the positions they adopt are based on ‘crude’ perception of certain government policies. This has succeeded in some cases so far in getting the government’s attention but definitely can not continue as the norm especially as it tends to project the private sector as rent seekers where they, in fact, have genuine demands. In other climes, the private sector invests money in policy research and comes up with policy positions that would stand the fireworks of any contrary opinion. It is admitted that this is resource consuming but our private sector should learn to put their money where their mouth is and see this as a part of their business investment. Nigerian Economic Summit Group (NESG), Manufacturers Association of Nigeria (MAN) and the National Association of Chamber of Commerce, Industry, Mines, and Agriculture (NACCIMA) can do this if they consider it necessary.
The third reason for this lack of participation by stakeholders is the relative ignorance of the average business person in Nigeria of how the processes at the multilateral level affect his/her business. A call for dialogue ends up being a workshop of sort to educate the participants who eventually go away without making much constructive contribution. It is admitted that trade policy with its jargons can sound technical and strange to the average business person or anybody for that matter who is not trained in their usage, but this should not altogether be a barrier to constructive engagement. Here once again, the private sector organisations have a huge role to play in educating their members.
The implication of this dysfunctional consultation process is that decisions are almost solely made on the discretion of the Ambassador and his personnel at the Mission and in some cases, the home officials of the ministry of commerce. This is certainly not good enough. In a bid to solve this problem, the Ministry set up a National Focal Point on Multilateral Trade some years back. This Focal Point was made up of stakeholders from the public and private sectors and, very importantly, experts drawn from the academia, then the civil society. The Focal Point was bedevilled with so many limitations chief of which was funding for its meetings and other activities.
The Focal Point, therefore, was moribund for some years but has been recently reconstituted last year under the chairmanship of an eminent Professor of economics and expectations are high that given the right working conditions, the Focal Point would cause a revolution in the country’s trade policy process not just in multilateral engagements but also in domestic policy making. This, it is believed would foster the needed coordination between our external commitments and our domestic policies. Let me therefore, suggest that as a way of ‘institutionalising’ the Focal Point, a Secretariat should be set up within the Ministry (directly under the office of the Minister) to coordinate the activities of the Focal Point. This initiative can be funded under a technical assistance project with one of the development partners. The Secretariat should have a programme officer who is an expert on trade with sufficient experience on the local scene, and one or two other officials seconded from the Trade Department. This is therefore, a call on the new Minister to recognise this Focal Point as a major force if he must achieve any meaningful legacies within the short time in the Ministry and take the necessary steps to make the Focal Point functional.
One must also observe here that one successful attempt at coordinating different stakeholders in the trade policy process in Nigeria was achieved under the Technical Committee on the Economic Partnership Agreement (EPA) which brought together wide range of stakeholders covering the public and private sectors as well as labour. This process was largely driven by the non-state actors, specifically NANTS, which provided the secretariat and even funded most of the meetings. The Committee also benefited immensely from the UK-DFID especially in funding technical analysis to help the stakeholders have empirical justifications for the national positions adopted. The outcome of this initiative is that Nigeria has been able to articulate the positions of local stakeholders which are presented to the ECOWAS Commission for harmonisation with positions from across the region before presentation to the European Union as negotiating position. Also in the harmonisation processes for the region, Nigeria’s representations usually cuts across the public sector to incorporate private sector members of the Technical Committee.
- Bilateralism as the new game- EPA in focus
Let us consider the position of the country’s bilateral engagements. Nigeria has entered into numerous bilateral trade and investment treaties with different countries. As we have pointed out in the early part of this article, most of these treaties are just forgotten on the shelves. This raises the question whether we should enter into these bilateral agreements just for the fun of it? Let us advert our minds to the fact that the current difficulties in moving the Doha round forward has necessitated a shift from multilateralism to bilateralism in international trade engagements. The consequence is that most countries today, especially the developed countries are aggressively pursuing bilateral agreements with the emerging developing country markets either as individual countries or as regional blocs. This is one trend the developing countries must be wary of. The reason is that in most cases the developed countries seek to get through these bilateral agreements what otherwise they could not get through multilateral negotiations at the WTO.
Of all the bilateral processes Nigeria is involved in, there are three, in my opinion, that we need to watch very closely because of their potential to make or mar our economic advancement. These three are the Economic Partnership Agreement (EPA) with the European Union, the Trade and Investment Framework Agreement (TIFA) with the United States of America, and the Nigeria-Chinese Trade and Investment Agreement. Of these three, the EPA is the most controversial, at least for now.
Nigeria is on the EPA negotiations under the umbrella of ECOWAS. The EPA is conceived as a comprehensive free trade agreement (FTA) which covers trade in goods, trade in services, with the possibility of including competition, investment and government procurement (the ‘Singapore issues’). The EPA which is designed to replace the non-reciprocal (preferential) market access enjoyed by the African Caribbean and Pacific (ACP) group of states who are former colonies of the EU countries. The old regime was a part of the overall development cooperation framework between the EU and her former colonies, which framework was contained in the successive Lome Conventions and subsequently in the Cotonou Partnership Agreement (CPA) of 2000. The framework for the EPA was provided under the CPA. The major reason advanced for the change in the trade regime between the two regions is the need to bring the regime into conformity with the WTO rules prohibiting discriminatory or preferential trade regimes between member states except within the context of a customs union or a free/regional trade agreement; or in the case of developed –developing countries, the preference must be extended to all developing countries meeting the specified criteria.
The major criticism against the EPA is that the conception of the Agreement under the CPA was a development oriented trade agreement to assist the ACP countries in their quest for poverty reduction, regional integration among themselves and integration into the global economy; however, these aims seem not to have been given adequate consideration by the EU in formulating the negotiating positions. While the EU has been accused of treating the agreement as basically an FTA- purely a commercial agreement; the ACP countries, and West Africa in particular, see the EPA as a trade and development agreement, not just a commercial agreement. This difference in orientation has been the major cause of conflict in the negotiation process. While the EU has been aggressive in pushing for market access in goods and services, the West African countries have been more interested in the positions that would safeguard and promote their development needs, including adequate funding for addressing supply side constraints occasioned by poor infrastructure and low level industrialisation. The negotiations are continuing on a more cordial note now after the frenzy caused by the approach of the European Commission under former Trade Commissioner Mandelson in managing the lapse of the initial deadline of December 31st, 2007.
As one who has been deeply involved in the EPA process at domestic and regional levels, one would admit that it is not very easy to take a stand on most of the issues raised in the negotiation process but one fact that is obvious is that it remains difficult to point at one country that is particularly enthusiastic about the EPA, even among the Caribbean bloc that has already signed a comprehensive agreement. What this suggests is that most of the countries are engaged in the process out of necessity rather than out of perceived advantages to be derived from it. No doubt, the EPA has very lofty objectives as enunciated in the CPA, which include fostering poverty eradication, regional integration and gradual integration of the markets of the ACP countries into the global market. However, the way the negotiations have proceeded has left serious doubts as to the likelihood of the agreement to achieve these. For example, the process of regional integration is already jeopardised in West Africa and elsewhere like Southern Africa by reason of the interim agreements which some countries have broken ranks to initial, and sign, in some cases. The introduction of the interim agreements in the wake of the brouhaha occasioned by the expiration of the 2007 deadline is generally seen by observers as a divide-and-rule strategy by the EU.
Even though the negotiation is nearing conclusion, let us still address our minds to the following questions: should Nigeria have engaged in the EPA negotiation in the first place? Should Nigeria continue in the process? What do we stand to gain from the EPA that we can not gain otherwise? What price are we paying for the EPA? Without going into details, let me observe that even the World Bank has shown in a series of studies that guided unilateral liberalisation by Nigeria would deliver more trade benefits than liberalisation under the EPA. The logic is simple- an FTA/RTA is a double edged sword leading to both trade creation and trade diversion.
What this means is that more trade is created among the parties to the agreement as a result of the elimination or reduction of tariffs; but a more competitive producer of an item who is not a party to the agreement is made worse off in trading with the parties to the FTA- this is trade diversion. For example, assuming countries A, B, C are parties to an FTA while country D is not. Assuming also that countries B and D are exporters of product X. Ordinarily, countries B and D would pay the same import duty to get into the market of Countries A or C where the price of product X in the local market would depend on the cost of production in either country B or D plus the import duty paid to enter countries A or C. If by virtue of the FTA to which country B is a party and country D is not, import duty in country A and C on goods originating from country B becomes zero, the following scenario would arise: one, if before the FTA both suppliers (B and D) had the same cost structure and therefore sell at the same price in the domestic market of A and C, this would change in favour of B because his cost has been reduced by the elimination of import duty on his own products. This may not really be a big deal since A and C equally enjoys the same treatment in country B. This is trade creation among the parties to the FTA. But it raises more concern where for example, ordinarily, country D is a more competitive producer and sells cheaper in country A and C after paying the same import duties with B but now the elimination of import duty on B’s product has made D’s product more expensive. The implication is that consumers in country A and C are now paying more than the normal competitive price for product X because of the FTA. This is trade diversion from country D to country B as a result of the FTA. If we pursue the analysis further, we discover that this diversion may also cause damage to local producers in countries A and C because the imported product X from country B is not competing on the ‘real’ market value.
Following this analysis, it goes to say that in the absence of compelling advantages that will offset the effects of trade diversion, countries should refrain from FTAs and rather pursue unilateral or multilateral liberalisation. In the case of the EPA, apart from the likely welfare diminishing effect in Nigeria, the trade diversion arising from the agreement is expected to work to the disadvantage of countries like China who are currently showing to be more competitive producers in different sectors. The application of discriminatory tariffs means that EU producers are at an advantage even if their products are ordinarily more expensive.
To my mind, the EPA is a child of necessity and the EU has acknowledged this much. It became necessary in the first place as a result of a tradition of economic dependence of the ACP countries on the EU which is one of the ‘relics’ of colonialism. Also, as a result of protracted culture of delinquent governance over the years, these ACP countries have failed to take their economic destinies into their own hands by shifting from primary commodity and single market suppliers to a more diversified economy in terms of products mix and market destinations. The consequence is that most of the countries in the region are at the mercy of the EU, their main export market. The story of Nigeria is perhaps more pathetic than that of any other country. It is unfortunate that the country has little to trade internationally apart from crude oil. The few primary products, like cocoa, that we are able to produce go mostly to the EU market. Even though Nigeria has all its takes to build a highly diversified economy, the ‘dutch disease’ syndrome has been the major bane of our national development.
Since we have come this far with the EPA process, my humble advice is that Nigeria plays a proactive leadership role in the negotiation process, taking advantage of the country’s renewed chairmanship of ECOWAS to ensure that the remaining thorny issues in the negotiation are resolved in the best interest of the region. Particularly, the new Minister must continue to insist that the region would not offer more than 65% (heard we have moved to 67.7%) market access to the EU under the EPA; the Minister must also insist that development funding under the EPA must be tied to market access so that liberalisation schedule is benchmarked against the pre-determined development indicators, especially relating to projects which the EU must be made to commit to their funding. A best endeavour agreement on development funding should never be considered by the region. The Minister should also ensure that the content of the most favoured nations (MFN) clause which the EU, for obvious justifiable reasons, is interested in does not become a gag on the country in future negotiations with other trading partners. If we must have an MFN clause, it must be couched in such a way that we do not extend to the EU whatever preferences we extend to other countries especially fellow developing countries in the event of future negotiations. Finally, the region must resist any attempt to introduce the ‘Singapore issues’ in any way beyond cooperation agreements.
I must confess that I struggle to identify any likely benefits of the EPA if it is eventually concluded. But let me try. In spite of the foregoing analysis weighing so heavily against the EPA, I must not fail to observe that given the Nigeria’s ad hoc and inconsistent approach to trade policy making and implementation, an agreement like the EPA would serve the purpose of providing the necessary discipline and elixir in the country’s trade policy mechanism and process. At least we see an advantage here, if this really is one. Secondly, the country stands to gain from the development funds to address market constraints in the domestic economy. But wait a minute, does Nigeria really need the funds? Unlike some countries that rely on development assistance for more than half of their budgetary expenditures, it is on record that the huge amount of development assistance received by Nigeria on a yearly basis from different sources put together is a little less than one per cent of the countries budgetary expenditure. This suggests that with a check on corruption and better alignment of priorities, the country would have enough to even set up a development fund for the West African region! So there seem no escaping the question, what exactly are we looking for in the EPA?
Is there an alternative to the EPA? At the wake of the rush to beat the deadline in 2007, not a few analyst both from the EU and ACP countries, and even beyond, were of the view that the EU could fashion out alternative arrangements consistent with the WTO requirements. The EU’s response to this was to put the interim EPAs (covering essentially trade in goods) on the table. Whether the interim EPAs constituted the kind of alternative needed is at best arguable. But let us consider the position of Nigeria. The country is one of the three (recently, four) non-least developed countries (non-LDCs) in West Africa, others being Ghana and Cote d’Ivoire and recently, Cape Verde. In the invent of an inconclusive EPA negotiations at the expiration of the WTO waiver on the non-preferential regime on December 31st, 2007, these non-LDCs would ordinarily fall back to the standard Generalised System of Preferences (GSP) which the EU offers to all developing countries. There is yet a more beneficial regime the EU offers to developing countries who met certain economic and political criteria. The regime is referred to the Special Incentive Arrangement for Sustainable Development and Good Governance , GSP+ for short. The GSP+ would have brought Nigeria as close as 94% of her position under the former Cotonou non-preferential regime so the country decided to apply for the GSP+ as a fallback position when it became obvious that the EPA negotiations were not nearing an end and the country was not ready to initial an interim agreement as the deadlines closed in in 2007. Unfortunately, this application was not even acknowledged by the European Commission. The most ostensible reason that can be adduced for this is that the application was made ‘out of time’, that is, at a time that the Commission was not ordinarily receiving applications for the regime.
In the meantime, the Cotonou preferences expired by the end of 2007. Before this time, Ghana and Cote d’Ivoire (who had more to lose in the immediate compared to Nigeria) had capitulated to initial an interim agreement hence securing their market access with the EU. This move left Nigeria alone in the cold but still the country decided it was not in her best interest to initial an interim agreement. The immediate implication of this was that the country automatically reverted to the standard GSP with average tariff escalation of about 6% on the country’s export to the EU. In practical terms, it was estimated at that time that Nigeria would lose about $400,000 per month in duties on cocoa beans in the EU member countries in comparison to cocoa beans from countries like Ghana and Cote d’Ivoire. Other sectors that felt the impact were shrimps and fisheries.
When the time eventually came in 2008 for receiving applications for the GSP+, Nigeria once again applied and this time around, the Commission responded, denying Nigeria of the status. We have pointed out earlier that there are certain conditions an aspiring country must fulfil before it can be granted the GSP+ status. The economic criterion is vulnerability which everyone, including the EU agrees that Nigeria meets. Where we had a challenge, however, was on the political criterion which requires that a country applying for this preferential regime must have ratified a list of 27 international conventions dealing with different aspect of human rights, anti-corruption, illicit drug trafficking and good governance. Out of these Conventions, Nigeria had ratified all but one- the convention on prevention of genocide. On the basis of this, the EU denied the country the GSP+ status. In contradicting the position of the European Commission, analysts were quick to point out that though Nigeria has not formally ratified this Convention but the country is not considered as having any problems on the issue and, in fact, is an active participant in international peace efforts; therefore, the non-ratification is merely a matter of clumsy domestic process. Precedents were found from EU’s practice to support the case that the non-ratification of the one Convention should not be a basis for denying Nigeria this regime.
The implication is that, at the moment, Nigeria is negotiating the EPA from the worst case scenario, thereby lending much credence to our earlier questions as to what we actually stand to gain from the EPA. But there is more to the EPA than just what Nigeria stands to gain as a nation; it is about what I would like to call the ‘unfortunate’ linkage between the EPA and the process of economic integration in West Africa. Let us examine this in more detail.
- Nigeria and Economic Integration in West Africa
The founding fathers of ECOWAS had a vision of a common economic (and possibly, political) space across the West African region. This vision was manifest in the first Treaty of 1975 and further amplified in the revised treaty of 1993. The processed of economic integration was designed to begin with the creation of a free trade area in the region, followed by a customs union and subsequently, a single monetary zone.
Unfortunately, over the years, the process made very little progress. Though a free trade area was created with the coming into effect of the ECOWAS Trade Liberalisation Scheme (ETLS) since 1990, the scheme was (and still is) bedevilled with a myriad of challenges bordering on the lack of political will on the part of most of the countries in creating enable administrative and policy environment for its full actualisation. A free trade area essentially eliminates tariffs among the members on goods produced within the territory of the member states thereby facilitating intra-regional trade- this is the purpose of the ETLS. Still struggling to get the ETLS fully on course, the region also commenced the move to transit to the next stage- the customs union. A customs union is created when a group of countries adopt a common external tariff (CET) on goods originating from non-member countries.
The ECOWAS member states introduced the CET in 2005 though after much negotiation among the member states, significant progress has been made in harmonising the tariff lines across the five bands, the CET is not yet fully implemented, at least in Nigeria where the 2008-2012 Tariff Book which came to force while the negotiations were in progress does not capture the current positions. In fact, the retention of prohibition list in the tariff book is a negation of the spirit and letter of a CET. Now, why has the CET become so important? Before we look at the CET, let us first highlight some issues on the ETLS.
There is no doubt that Nigeria has a lot of interest in promoting intra-regional trade within the ECOWAS region. The benefit of an expanded market for Nigerian products under the ETLS is already being felt by manufacturers in the country. However, there are certain challenges that come with liberalisation of intra-regional trade. In the case of the ETLS, apart from the normal administrative problems, there are two important related problems that demand consideration. The first is that even though there is a protocol on rules of origin which determines what qualifies as a good produced within the region; experience has shown that some dubious individuals can abuse this process. An example is that of a tomato manufacturer that was supposedly producing in Ghana and shipping to the Nigerian market under the ETLS (which meant no duties paid). It was however, discovered on investigation by the Nigerian Customs Service that the company was only packaging imported tomato puree in Ghana. The act of packaging does not qualify to confer origin on a product under the ECOWAS Protocol on Rules of Origin; hence the appropriate actions were taken against the company.
The second issue relates to concerns expressed by manufacturers in Nigeria to the effect that goods genuinely originating in some West African countries are more competitive in the Nigerian market than good manufactured in Nigeria. The reason is not far-fetched – the poor state of infrastructure, especially power, in the country makes it more expensive to operate in the country. In the days when import duty was an important factor, most companies would locate their plants in Nigeria to take advantage of the large market, but with the advent of the ETLS, most manufacturers seek to locate their plants in other countries within the region where they have access to better infrastructure and therefore, low production costs. This is so because under the ETLS, the products enter into the Nigerian market duty free from any of these West African countries. This trend is the singular factor accounting for the relocation of manufacturing plants from Nigeria to Ghana. The relative proximity of these countries, especially Ghana, to Nigeria eliminates the problem of high cost of transportation as it could be easier to transport goods produced in Ghana to Lagos than one produced in, say, Kano.
No doubt, this trend has negative implications in terms of job and revenue loss for the Nigerian economy but it remains to be determined whether the additional market opportunities manufacturers in Nigeria enjoy across the region has adequately compensated for this loss. In as much as the loss is real, to my mind, that is not enough reason to pull out of the ETLS, especially when we consider the fact that the factors responsible for the relocation are factors the country could solve with the enthronement of good governance. It does not require any kind of magic portion that is brewed only in Ghana; even if it does, we can as well import the magic portion under the ETLS!
Back to the CET. The CET process became an issue when it became obvious that the region could not enter into a free trade agreement (EPA in this case) with a third party in the absence of a common external tariff. The existence of a custom union (that is, a CET) is necessary for the reason that an FTA means that the countries negotiating as a bloc on both divides make uniform commitments and must adopt uniform trade regimes as against the other party. In practical terms, ECOWAS as a region can not enter into an FTA with another region if the different member states still operate different tariff structures. Under an FTA, it is assumed that goods (and services) entering one country in the regional bloc should be subject to a single tariff treatment at the point of entry and thereafter, such goods can move to any country in the region without further payment of duties. Usually, a customs union has a system of redistributing revenue arising from customs duties among themselves. So, in a region like West Africa, a product imported from the EU can land in say Togo, where the appropriate duty is paid. Thereafter, the product moves around the region without being subject to import duties at the border of any country within the region. any country within the region who is not a part of the FTA with the third party would have to ensure strict border controls and vigorous application of the rules of origin to make sure that products imported on the FTA does not infiltrate the non-member country’s market.
We have described the linkage between economic integration in West Africa and the EPA as ‘unfortunate’. This is exactly where it plays out. The CET, though a necessary initiative has been driven by the need to have a customs union in preparation for the EPA. It is unfortunate because, had the member states been proactive in driving regional integration, we would have either completed the process without pressure from external force even before the EPA negotiations took the centre stage; or we would have simply sought ways of putting the EPA on hold until we are able to finish the CET process. In fact, in the heated days of the EPA negotiation, one of the major arguments put forward by the antagonists of the process was that West Africa was not in the position to enter into an FTA with the EU, the former having not completed the process of becoming a customs union. The response to this was the acceleration of the CET process by the member states with the ‘support’ and influence of external forces. Hence, though we have a CET today, it remains to be known how much this CET reflects our interests as a region. In fact, it took the ‘dogged’ intervention of Nigeria and non-state actors within and outside the region for the region to concede to a fifth band of 35% as opposed to the initial proposal of four-bands terminating at 20%.
Why is the CET important to Nigeria? What does Nigeria stand to gain from the CET, that is could not gain otherwise by, say, unilateral liberalisation? The reason is the same as the reason why it is almost unthinkable for Nigeria to pull out of the EPA. On the face value, we say that the need not to truncate the process of regional integration is the overriding reason. But within this reason is other factors; for example, if Nigeria decides to either pull out of the ETLS, or the CET, or the EPA, does the country have what it takes to secure her borders against illegal importation of goods from the neighbouring West African countries? Truth remains that at the present capacity of the Customs Service, it is practically impossible, in fact, it is doubtful whether such capacity can be built in the Customs in the nearest future. If Nigeria pulls out of any of the regional processes, there is no doubt that it would have destabilising effect on the processes given that Nigeria has more than 60% of the region’s GDP and about 2/3 of the population, hence the prime market. For example, the EU may not have very strong motivations to negotiate the EPA with West Africa if Nigeria is not a part of the deal.
But this is not where the story ends for Nigeria; in the current state of governance and development in the country, the cost of withdrawal could be enormous. We have already highlighted the reason. Imagine two scenarios: one, No EPA- Ghana and Cote d’Ivoire go ahead with their individual EPAs granting market access to products from the EU at tariff rates lower than what Nigeria charges. Most importers would simply divert their imports to the ports of these countries and from there devise ways of smuggling the goods into the Nigerian market. This would certainly overwhelm the Customs and cause enormous damage to local industries and the countries revenue base. Two, EPA is signed by all the Countries of West Africa including Benin, Niger, and Togo, except Nigeria. It then becomes easier for smuggling to take place at a more suffocating rate. You can now appreciate how locked-in we are in these processes! It has now become an egg and chicken situation with respect to the EPA and regional integration – we can not tell for certainty now which is driving the other. We can not refuse either, nor can we refuse both without grave consequences.
Consequently, while we say that in principle, Nigeria can do without the EPA (and we are already surviving without it, though at a cost to some exporters but a kind of which we can address by added incentives to the affected exporters/sectors), we can not at the same time afford to pull of the process because it has been almost inextricably (but not inevitably) tied to other regional processes. The second option of getting the whole region out of the EPA process is already overtaken by event with the capitulation (for reasons of pragmatic national economic interest) of Ghana and Cote d’Ivoire. So we are left with no option but to negotiate an agreement not because we feel we have so much to gain, but because we have so much to lose if we chose otherwise. Now, you understand my prefacing my advice of what Nigeria must do on the EPA by the phrase: “since we have come this far”? Once again, let me summarise my advice to the incoming Minister thus- we can only engage constructively and tenaciously (where possible) and try to get out the best out of the negotiations, only hoping that we do not create a second colonisation that generations unborn would rise up to fight as another crop of nationalists- a gleam possibility, but a possibility all the same.
- Getting the Best out of Development Cooperation
Another important feature of international economic engagement is the issue of development cooperation otherwise known as official development assistance (ODA). Without going deeply into the debates on development assistance, it would suffice to say that ‘rich’ countries extend development aid to poorer countries not necessary (even though possibly) out of humanitarian purposes but for strategic reasons which in the final analysis relates to the strategic interest of the rich/donor country. As that saying goes: “poverty anywhere is poverty everywhere”. Development assistance is therefore, a vital tool of international diplomacy. We may also need to note that changing understanding of development assistance arising from years of ineffectiveness has led to changing conceptions of development assistance by both the giving and receiving countries. Though the depth of this change is not certain but one major outward reflection of such change is the change in the terminology and the process. On terminology, the giving and receiving countries have moved from being ‘donors’ and ‘recipient’ nations to being ‘development partners’. This reflects in the process by the new emphasis on local ownership of projects and processes by ensuring that such projects ad processes are generated from ‘bottom-up’; that is, that the receiving country (and where possible communities) generate or make considerable inputs into the project design and subsequent implementation. This is against the earlier practice where projects are designed in the ‘donor’ countries based on perceived needs of the recipient countries or communities. We shall explore this further when addressing aid effectiveness.
Recent trends in development cooperation seem to favour sectors of the economy with the greatest potential for economic growth. One of the major areas that command considerable attention is trade. The dominant thinking in development circles favours helping developing countries to expand their capacities to trade with the rest of the world since trade is seen as a driver of growth. This has given rise to the concept of aid for trade (AfT) at the multilateral level. Development assistance on trade are usually channelled towards institutional capacity building, human capital development, provision of physical infrastructures, etc all aimed at enhancing a country’s competitive advantage, thereby eliminating supply side constraints. Specific items on the list of a development cooperation agreement may include: policy formulation and implementation generally, negotiations, industrial standards, sanitary and phytosanitory measures (SPS), regulatory reforms, value chain development, customs rules and processes, transport sector and port reforms, industrial reforms and upgrading, etc.
We have earlier noted that that development assistance accounts for less than 1% of Nigeria’s budgetary expenditure but in the present circumstances we cannot undermine the importance of development assistance especially on trade where the government have failed to pay attention over the years. For example, it is on record that budgetary allocation to the FMC&I is one of the lowest hence the Ministry is not in the league of the ‘juicy ministries’, whatever that means. It is also on record that Nigeria’s participation in the EPA process and other regional processes has been funded largely by the DFID, including studies and analysis, stakeholders’ consultations and such simple matters as travels for meetings. Apart from enhancing a country’s competitive advantage in international trade, some analysts would argue that development assistance is channelled towards areas that would facilitate the continuous exploitation of the recipient country’s natural resources by the rich countries instead of areas that would promote industrial development. This has led some to conclude that development aids should be seen as Trojan gifts- to be accepted cautiously. There is indeed some element of truth in this assertion but with the increasing level of inputs in the process of project design and implementation, a recipient country has greater say and can in fact insist on areas of priority and manner of implementation.
This brings us to the issue of aid effectiveness. Aid effectiveness can be looked at from the perspective of the policy and practices of the donor country or agency on the one hand, and the policy and practice of the recipient country on the other hand. I have already pointed out that there has been a considerable change in understanding and attitude on the part of the donor countries and agencies, so I will leave the other issues (like procurement of goods and services, and poor coordination leading to duplication of projects among development partners, etc) and focus on the policy and attitude of the recipient countries for the obvious reason that a country that knows its onions should be able to manage optimally the flow and utilisation of development assistance in its territory.
In Nigeria today, the major support to trade and industrial development comes from multilateral agencies and bilateral co operations. The multilateral agencies include the World Bank, UNIDO, the Commonwealth Secretariat, UNCTAD, etc. The bulk of support comes from bilateral cooperation with countries like United Kingdom (DFID), the United States of America (USAID), Germany (GTZ), and the European Commission under the European Development Fund (EDF). The EU’s EDF is paying specific attention to trade and industrial development for the first time under the newly signed 10th EDF basically as a result of the ongoing EPA negotiations under which the EU is required to help develop the negotiating regions/country’s capacity to trade with the EU. Of all these bilateral co operations, the DFID is involved with more direct supports to the FMC&I in terms of institutional capacity especially through the Policy and Knowledge Programme which has been recently wound up; however, more support is anticipated under the new programme –Support for West African Trade and Regional Integration Project (SWARIP). For obvious reasons of close political and economic ties, the DFID, to me, seems to have been the most outstanding partner in terms of support to trade policy mechanisms and processes in Nigeria. The USAID is currently involved in trade facilitation projects covering different MDAs, especially the Nigerian Customs, under the USAID MARKETS project.
Although we have earlier pointed out that responsibility of managing development assistance lies with the National Planning Commission (NPC) but it is imperative that whoever is the Minister of commerce and industry has a dossier on all technical assistance projects of which the ministry or any of her agencies is a beneficiary directly or indirectly. It is advisable that the Ministry and all agencies under it come together and take stock of all technical assistance projects they are currently benefitting from and identify and prioritise further projects areas where technical assistance would be required as well as identifying under which of the multilateral or bilateral windows each of these projects would fit in. Also, the Ministry should liaise with the NPC to take stock of current projects in other MDAs that have direct impact on the activities of the FMC&I with a view to maintaining a record and keeping a tab on the projects. It is strongly recommended that the Minister should, either with the collaboration of the NPC or by means of a Federal Executive Council mandate, require that all such projects domicile in other MDAs be notified to the FMC&I. This can, in principle, be adopted as a general approach to managing development cooperation in the country by requiring that all relevant MDAs be carried along by the line MDA implementing such projects. This would allow for proper planning and coordination, thereby eliminating duplication of efforts, and wastes.
The Ministry also needs to address the problem of low absorptive capacity which arises from different factors including the lack of technical capacity to design and implement technical assistance projects, especially because of the rigorous technical and financial information and processes required to access such funds. The implication of this is that the Ministry is not able to access certain funds that are time bound before the expiration of the lifespan of such funds and in other cases where the fund is not time bound per se, the inability of the Ministry to access the fund means that further funds would not be made available by the donor government or agency until the existing fund is exhausted. Therefore, it would not be out of place for the Ministry to set up an in-house Committee whose primary responsibility would be to plan and oversee these projects with assistance from external consultants (where necessary) whose costs are usually provided for under the projects.
- Human Capacity and Trade Related Institutions
The next issue one would expect the new Minister to address is the paucity of the requisite expertise within the Ministry and the absence of some institutions critical to the full implementation of the country’s trade and industrial policy. Two kinds of infrastructure are critical for trade and industrial development- hard/physical and soft/intangible infrastructure. The latter category is what we are concerned with here. ‘Soft’ infrastructure is used to refer to the regulatory framework with the accompanying institutional capacity that helps to ensure the smooth functioning of the economy in general or any particular sector of the economy.
Two issues are highlighted in this section-the need for the Ministry to pay particular attention to developing existing capacity within the Ministry and agencies under the Ministry while identifying capacity gaps that need to be filled; and the need to set machineries in place towards strengthening existing institutions and establishing new ones.
- Addressing the Human Capacity Need in the Ministry
On developing existing human resources in the Ministry, the Minister needs to pay due attention to training programmes, especially short course which are organised by numerous institutions though mostly outside the country. The Ministry can, in fact, bring some of these trainings home under technical assistance project and this would benefit more participants from the Ministry and even other stakeholders at minimal cost instead of the high cost of travels associated with overseas trainings. As the Ministry works on the establishment of a trade institute, there is need in the meantime to utilise, for the purpose of capacity building, the existing expertise in some universities and research institutes in Nigeria like the Trade Policy Research and Training Programme (TPRTP) in the University of Ibadan, the African Institute of Applied Economics (AIAE) Enugu, and the new West African Institute for Trade and Development (WAITAD), Abuja.
In addition, incentives should be provided for personal development among officials. From a personal observation, the most effective and knowledgeable officials in the Ministry (Trade Dept specifically) are those who take time to develop themselves at personal costs. Since it is impossible to have a different scale of remuneration for the Ministry or the outstanding officials, it is suggested that strict application of merit rather than patronage in administrative matters will ensure that this crop of dedicated officials are given their dues above any other official who just occupies space and adds to the number of leaches on the national treasury. Also, it would not be out of place for the Ministry to institute annual service awards for outstanding performance.
Even though there is need to increase the staff strength of the Ministry, but one observes a situation where it is as if few persons do most of the work while others are just there. Why this is so and how it can be remedied should be identified before we start talking seriously of getting in more hands.
- Needed: Trade Remedies and Related Institutions
Another issue that deserves good attention is the area of institutions dealing with enforcement of trade remedies and standards as well as trade related regulations. We have a number of these institutions in existence such as the Consumer Protection Council (CPC), Standards Organisation of Nigeria (SON), etc. However, there are few other institutions that need to be set up if the country wants to be a serious player in global trade. These are basically institutions that enforce trade remedies and trade related rules in line with the country’s commitments under the WTO. The areas of concern include intellectual property, antidumping and safeguards, and competition.
Few years ago, there was a process set in motion to create an Intellectual Property Commission which would transform the existing Commercial Law Department in the Ministry into a full fledged Commission with remit over trade marks, patents, industrial designs, etc. Unfortunately this aspiration has not been realised. It is very doubtful whether the country currently possesses the capacity to apply intellectual property rules arising from the Trade Related Intellectual Property (TRIPS) Agreement under the WTO. This opens the door for abuses by both local firms and foreign multinationals. The latter can easily poach on indigenous knowledge and processes and ‘refine’ them into patentable scientific inventions. The absence of such an institution also means limited capacity to engage in the complex process of negotiating these rules at the multilateral and bilateral levels.
Similarly, the WTO rules on anti- dumping, subsidies and counter veiling measures, and safeguard measures require a country to establish legal and institutional framework for the enforcement of these rules. Usually the use of these instruments is subject to elaborate studies and investigations to determine the level and actual impact on the domestic market of alleged dumping, subsidies or import surges as the case may be. These issues are of very technical nature and require experts to manage. The absence of such an institution in Nigeria means that we are handicapped to take anti- dumping, countervailing, or safeguard measures to protect the domestic economy from unfair competition from exports when the need arises. Hence our local industries are helpless in the face of perceived unfair import competition, especially from China. Nigeria still uses unilateral import prohibition without recourse to the country’s obligations under the WTO in dealing with dumping and import surges that are harmful to local production. It is obvious that Nigeria cannot sustain this practice in the years ahead especially once the country starts making success as a major player in international trade, because this means that other countries can retaliate against the arbitrary prohibitions and cause much damage to the domestic economy. It is really sad that Nigeria is even busy negotiation more bilaterals like the EPA without seriously working towards the establishment of institutions and laws to enforce trade remedies which are necessary consequences of international trade. The EPA, for example, contains elaborate rules on trade remedies.
Perhaps the most important and urgently needed institution is the Competition Commission with the accompanying policy and Law. The urgency of this matter has been underscored by several analysts at local and international fora and has become a regular feature in the Annual Conference of the NBA Section on Business Law. Having followed the process of enactment of competition law in Nigeria for more than ten years now and having been involved in some of such processes aimed at promoting the value of this law in Nigeria , I can say that the need is obvious. It is an aberration of a laughable kind that a country would set out to liberalise its economy via privatisation and deregulation without first putting in place the policy, law and institutions that would promote a healthy competition culture among the enterprises operating in the economy. But to say that the need was lost on the architects of the economic reform programme for Nigeria would be far from the truth. There were two parallel processes, one initiated as far back as 1999 by the FMC&I and another by the Bureau of Public Enterprises (BPE) in 2001. Both processes produced two different draft bills. Attempts to harmonise the two processes at the Federal Executive Council has yielded the Federal Competition and Consumer Protection Bill (FCCB)which has been lying before the FEC for close to a year now awaiting approval before transmission to the national assembly as an Executive Bill.
Some background comment may be of help here. The FMC&I Bill has a different orientation from the BPE Bill. The former sought to bring under one Commission several trade and trade related legislations with different departments handling the different issues. The Bill is a compendium of six different bills on safeguards, anti-dumping, weights and measure, consumer protection, competition, and a ‘mother’ bill setting up the Commission to be known as the Nigerian Trade and Competition Commission (NTCC). The BPE bill initially only dealt with competition but when it failed to scale through the second reading at the Senate in the last session of the national Assembly due to concerns on the multiplicity of commissions, among other things, the BPE came back and tried to include consumer protection in the bill. The result is the FCCB. This attempt is not entirely successful as it left a lot of gaps in the new Bill. Presently, the NTCC Bill has gone up to the Committee stage in the Senate but the unfortunate thing is that what is in the Senate is just the ‘mother bill’ setting up the Commission while the substantive laws to be enforced by the Commission are yet to be enacted (except weights and measures and consumer protection which have existing old laws).
It may do well in driving home the importance of a competition law in Nigeria to consider the fact that it is only a competition law that can help to address issues of market abuse and distortions arising from either the conducts of one firm or from the concerted conducts of several firms aimed at inhibiting competition in any given market. A competition law frowns at situations where one or few firms become so powerful in the market that it/they can determine the output and price of products sold in theta market. Market abuse could also be in the form of an outright cartel agreement where existing firms adopt all manner of underhand tactics to make sure that new firm do not break into the market and that existing non-cooperating firms are forced out of the market. When we look at the markets for cement, sugar, fertiliser, telecoms, etc, we see tell tales of market distortions that ought to be addressed by a competition law. Another important area where the absence of a competition law may have cost the country a fortune is the area of public procurement. Contracts worth billion of naira are awarded regularly based on the tendering system. There is the possibility of firms bidding for a contract to collude among themselves and set an artificially high price for the job; or they may agree among themselves in such a way that they would take turns in ‘winning’ the contracts through the process of bid rigging or collusive tendering. Unfortunately this has not been appropriately captured even by the Public Procurement Act. When competition is suppressed in the market, it is the consumers that suffer the most from high prices and poor quality of goods and services. The economy generally also suffers as a result of what is misallocation of resources, that is, channelling resources to less productive activities to the disadvantage of more productive activities.
It may apt to recall that the FMC&I already has a mandate of the FEC under President Olusegun Obasanjo to transform the Consumer Protection Council to the Nigerian trade and Competition Commission. It is suggested therefore that the Ministry sets in motion the machinery to rally the stakeholders together (including the BPE) to forge a common front and ensure that this bill is enacted before the expiration of the tenure of this National Assembly. It is further recommended that the Ministry sets up a committee of experts in the field to serve as the arrow held in preparing the ground for the full implementation of the law when eventually enacted. The committee would be able to advice the Ministry and the Government generally on policies relating to competition before it is enacted, as well as help drive the process for the enactment.
I have deliberately refrained from mentioning before now the current debate about competition law at the global and even regional levels. Moves to include competition as an item for negotiation under the WTO (as one of the so called Singapore issues) was roundly rejected mostly by developing countries who saw the move as a way of adding another burden on the developing countries neck. The contentions against this move include the lack of necessary capacity to negotiate or enforce competition law in most of the developing countries who were yet to even establish domestic legislations and institutions in that respect. There is also the fear that multilateral rules on competition may end up protecting the interests of multinational companies without taking into consideration the development needs of their host countries. However, as we have observed in our discussion on the EPA, there has been considerable pressure to include competition as an item for negotiation under the EPA even though this has been formally rejected, especially by West Africa. Nevertheless, the process of introducing a regional competition policy and law for West Africa is almost complete, only awaiting the establishment of the Competition Authority. Just like most other processes aimed at harmonising trade and regulatory policies within the region, this process has benefited tremendously from external supports, notably from the EU. At the moment, it is almost certain that competition would eventually surface as one of the items for negotiation, at least under the comprehensive EPA. This scenario further places a responsibility on Nigeria to fast track the process of setting our house in order in this respect.
I avoided starting the argument for a competition law on the above premise simply because I have come to believe over the years that competition law is a thing of value to our national economy irrespective of what external consideration there may be. In fact, apart from the regional process, I am highly sceptical about the inclusion of competition rules in the EPA. The best approach for me is for a country to develop polices based on their felt needs and aspirations rather than on the need to discharge obligations owed to external bodies. Competition rules under the EPA certainly would seek to confer certain advantages for foreign companies.
May I also seize this opportunity to highlight the need for the Ministry to establish a good rapport with the relevant Committees of the National Assembly and to carry these committees along in policy processes. The value of this becomes clear when you consider that (1)the National Assembly has budgetary control over the Ministry; (2) in case of trade agreements with other nations, the National Assembly will still have to ratify such agreements; (3) the constitutional oversight function of the National Assembly requires that they be carried along; and (4) most importantly, most of the new legislations that would enhance the wok of the Ministry can only be enacted by the National Assembly.
In conclusion, what I have tried to do is to set forth as much as possible some of my salient observations as a keen follower of the trade and industrial policy environment in Nigeria. One fact that should not be lost to us is that if we are ever going to make good our national aspiration for economic diversification, growth and poverty eradication, then we must start taking trade seriously. I hope the new Minister catches the vision and is able to contribute his own quota towards making this aspiration a reality. He need not, and indeed cannot, solve all the problems highlighted here but he must not leave the place the way he meets it, or worse off. Good a thing he has experience in the private sector and also as a former Minister of Finance.
 Lawyer/Trade Policy Analyst. Formerly the Head of Legal and Legislative Affairs Dept., National Association of Nigerian Traders (NANTS). Currently works as a Consultant on Trade, Competition and Business Regulation. Comments are welcome and should be sent to email@example.com, or firstname.lastname@example.org.