Can trade help lift 87 mil­lion Nige­ri­ans out of ex­treme poverty?

Financial Nigeria Magazine - - Contents -

One of the high­lights of Theresa May's Brexit visit to Africa last month was the Bri­tish Prime Min­is­ter's widely-re­ported re­marks about the ap­palling level of poverty in Nige­ria. May vis­ited South Africa, Nige­ria and Kenya as part of a grand strat­egy to re­po­si­tion the United King­dom for postBrexit trade as the UK econ­omy has be­come more re­liant on trade, record­ing a trade-toGDP ra­tio of 62.7 in 2017.

May's procla­ma­tion on Nige­ria's dilemma of be­ing "the ex­treme poverty cap­i­tal of the world" was not news to the world. But some­thing has to be done to sal­vage the grow­ing poverty sit­u­a­tion in the coun­try and re­move this ig­no­min­ious la­bel Nige­ria has earned gra­tu­itously. Hav­ing ex­plored a num­ber of anti-poverty poli­cies over the past decades with­out suc­cess, one should ask if trade can help lift 87 mil­lion Nige­ri­ans out of ex­treme poverty.

The short an­swer is yes, it can. But there is a long an­swer that re­quires closer scru­tiny and pol­icy con­sid­er­a­tion. Look­ing to China's ex­pe­ri­ence with trade lib­er­al­i­sa­tion pro­vides ar­guably one of the most re­mark­able sto­ries in poverty re­duc­tion the world has seen. More than 870 mil­lion peo­ple have es­caped poverty in China within the last three decades. The poverty rate in the coun­try fell from 88.3% in 1981 to 1.9% in 2013, and has fur­ther dropped below 1% in 2018.

No­tably, agri­cul­ture de­vel­op­ment-led in­dus­tri­al­i­sa­tion is the pol­icy that paved the way for this re­mark­able feat. Much of China's poor were in ru­ral ar­eas where lo­cal and for­eign com­pa­nies came to set up pro­cess­ing and assem­bly op­er­a­tions for ex­ports. This cre­ated job op­por­tu­ni­ties for mil­lions of Chi­nese work­ers.

Other Asian economies such as South Korea and Viet­nam have repli­cated China's suc­cess in poverty re­duc­tion through trade lib­er­al­i­sa­tion. 64% of the Viet­namese pop­u­la­tion were below the poverty line in 1993. This dropped to 9.8% in 2016. The coun­try's trade-to-GDP ra­tio in 2017 was over 200%.

Var­i­ous anti-poverty mea­sures have been pro­posed and im­ple­mented in many coun­tries. Some of these mea­sures in­clude di­rect cash trans­fers, skills de­vel­op­ment, em­ploy­ment cre­ation, and em­pow­er­ing girls and women. But a num­ber of re­search show that trade may be the most sus­tain­able ap­proach to end­ing poverty. "Trade-led growth is the most suc­cess­ful de­vel­op­ment strat­egy the world has seen." Aran­cha González, ex­ec­u­tive di­rec­tor of the In­ter­na­tional Trade Cen­tre, the joint agency of the United Na­tions and the World Trade Or­gan­i­sa­tion (WTO), wrote in The Guardian UK on Jan­uary 20, 2015.

A WTO re­port pub­lished in 1999, ti­tled "Trade, In­come Dis­par­ity and Poverty," con­cludes that "trade lib­er­al­i­sa­tion is gen­er­ally a strongly pos­i­tive con­trib­u­tor to poverty al­le­vi­a­tion – it al­lows peo­ple to ex­ploit their pro­duc­tive po­ten­tial, as­sists eco­nomic growth, cur­tails ar­bi­trary pol­icy in­ter­ven­tions and helps to in­su­late against shocks." The de­vel­op­ing coun­tries that have ex­pe­ri­enced con­ver­gence with the rich coun­tries in terms of in­come per capita are those that are open to trade. The re­search sug­gests that the more open they are, the faster the con­ver­gence.

Nige­ria's trade-to-GDP ra­tio peaked at 81.81% in 2001. The ra­tio had de­clined to 64.97% in 2008 and ear­lier this year, the Min­is­ter of In­dus­try, Trade and In­vest­ment, Okechukwu Enelamah, said the trade sub­sec­tor ac­counts for 18% of the coun­try's GDP. De­spite this low thresh­old, Pres­i­dent Muham­madu Buhari made an about-face in sign­ing the African Con­ti­nen­tal Free Trade Area (CFTA) Agree­ment, stat­ing that, "there is a need to en­sure our na­tional in­ter­ests as well as our re­gional and in­ter­na­tional obli­ga­tions are bal­anced." But why did the govern­ment em­bark on ne­go­ti­a­tions with other African na­tions to es­tab­lish the CFTA with­out the due process the pres­i­dent now claims needs to be fol­lowed?

The Nige­rian Of­fice for Trade Ne­go­ti­a­tions (NOTN), es­tab­lished last year as a trade ne­go­ti­a­tions agency of the govern­ment, par­tic­i­pated in the CFTA ne­go­ti­a­tions for the same rea­son Nige­ria is part of ECOWAS. In a re­port pub­lished in March 2018, NOTN says the coun­try's "am­bi­tions for ECOWAS are cen­tered on deeper in­te­gra­tion in ECOWAS, re­duc­ing bar­ri­ers be­tween and amongst ECOWAS coun­tries, so as to link man­u­fac­tur­ing struc­tures, ex­pand op­por­tu­ni­ties for ser­vice providers, which will in turn lead to ac­cel­er­ated eco­nomic growth and job op­por­tu­ni­ties in the ECOWAS sub-re­gion."

The CFTA will pro­vide Nige­ria's en­ter­prises a con­ti­nen­tal mar­ket ac­cess to fur­ther ac­cel­er­ate eco­nomic growth and job cre­ation. It makes in­tu­itive sense for Nige­ria to have been at the front­lines of the ne­go­ti­a­tions. While the strate­gic im­por­tance of ECOWAS is un­der­stood, Nige­ria ac­counts for 71.9% of the bloc's GDP. Hence a big­ger mar­ket ac­cess is re­quired for Nige­ria's trade and de­vel­op­ment am­bi­tions.

Trade lib­er­al­i­sa­tion is cer­tainly not a magic wand that will ad­dress Nige­ria's de­vel­op­ment chal­lenges. There are also un­in­tended con­se­quences of trade poli­cies that a lot of crit­ics have de­cried. But the ben­e­fits of trade lib­er­al­i­sa­tion are greater than the costs. For in­stance, one anal­y­sis of the stalled Doha Round of trade ne­go­ti­a­tions shows that the pro­posed trade sys­tem would lift 160 mil­lion out of poverty and gen­er­ate more than 3,000 times the value in ben­e­fits for de­vel­op­ing coun­tries than what it would cost in im­ple­ment­ing it.

A strate­gic trade pol­icy is es­sen­tial in di­ver­si­fy­ing the econ­omy, espe­cially since Nige­ria has lost the lus­tre of its pre­vi­ous high eco­nomic growth rates due to low oil prices. An ef­fec­tive trade pol­icy will en­tail im­prov­ing the busi­ness en­vi­ron­ment to re­move many of the chal­lenges of do­ing busi­ness in Nige­ria. Part of trade fa­cil­i­ta­tion will in­volve ad­dress­ing some of the no­to­ri­ous non-tar­iff bar­ri­ers to trade such as lack of power and bad roads, and re­vamp­ing the sea­ports and air­ports. These ef­forts will help in re­duc­ing trade-re­lated costs and optimising the lo­gis­tics of trade.

Well-ex­e­cuted trade pol­icy ini­tia­tives can at­tract for­eign cap­i­tal in strate­gic sec­tors, in­crease their pro­duc­tiv­ity, ex­pand job op­por­tu­ni­ties and im­prove liv­ing stan­dards. There is cer­tainly ev­i­dence that sug­gests im­ple­ment­ing a co­her­ent trade pol­icy will pro­vide a sus­tain­able path to in­clu­sive eco­nomic growth and lift mil­lions of Nige­ri­ans out of eco­nomic de­pri­va­tion.

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