Recent free trade negotiations in Nigeria have generated much debate

The global trend towards more open trade has in recent years faced a number of setbacks, ranging from stalled World Trade Organisation talks to rising protectionism and the UK’s vote to leave the EU. Nigeria is no exception, where a push to increase import substitution, which is intended to reverse a decline in foreign exchange and reduce the non-oil trade deficit, is being rolled out at the same time as the 184m-person, $520bn economy is engaged in negotiations on new trade agreements.

Successive administrations in Nigeria have pushed for more open trade relationships with bilateral partners, as articulated in the 2014 Nigeria Industrial Revolution Plan, which states: “Increased openness in the global economy is inevitable, and well industrialised countries are better positioned to take advantage of increased access to new markets.” Nigeria has been a part of the discussions on a trade pact with the EU, and already has committed to gradual tariff reduction as part of its membership in the regional integration organisation ECOWAS. However, these reciprocal deals for market access run counter to Nigeria’s hope to replace imports with domestic manufacturing, if those local products are not able to compete on cost and quality with imported options.

EU 

The potential agreement with the EU would be an economic partnership agreement (EPA). The EU is seeking to sign these with African, Caribbean and Pacific countries. If ratified, these deals would offer non-EU signatories immediate tariff-free access to EU countries, and in return they would be required to gradually open up 75% of their markets to European importers in a 20-year process. With Nigeria’s manufacturing sector currently focused on domestic markets, exports seem like a far-off goal, and Nigerian products may not be able to compete, according to those who oppose the deal. Speaking to local daily Vanguard in January 2016, Frank Jacobs, president of the Manufacturers Association of Nigeria (MAN), said, “Nigeria does not need the EPA now, [not] until it has been adequately industrialised and is able to trade industrial goods competitively.” The MAN has a membership of over 2800 firms and has been pushing for the government to reject the proposal.

The country’s reliance on imports is also seen as a factor in the currency’s slide, and monetary policy currently may offer clues regarding the government’s approach to trade. One of the ways the central bank has supported the naira is through a policy of limited support for imports: the central bank will not supply foreign currency to importers for 41 specific types of goods. That makes producers reliant on the parallel currency market, where naira have been made available at prices more than 50% of the formal rate in 2016. The current approach broadly agrees with the MAN’s position in that it seeks to limit imports, although many manufacturers rely on imported inputs for their finished goods. Boulos Boulos, group CEO of three subsidiaries of Nigeria-based tissue paper manufacturer Boulos Group, told OBG, “A full and proper industrialisation process can easily take a decade or more for any country, which means that even under the best circumstance in the short term Nigeria will likely continue to rely on imports.”

West Africa 

At the regional level integration initiatives may help the country to prepare for an eventual EPA with the EU. For example, the ECOWAS common external tariff controls taxation for goods in four categories. Essential social goods can move between countries untaxed, while those of primary necessity, raw materials and specific inputs have under a 5% rate. Intermediate goods are taxed at 10%, and those for final consumption at 20%. Meanwhile, through the African Growth and Opportunity Act (AGOA) Nigeria has access to the US market. Initially passed in 2000, it provides tariff- and quota-free access to the US market for 7000 types of exports. In June 2015 the programme was extended a further 10 years to 2025.