Ndukwe: Signing AfCTA the Way to Go for Nigeria
The Head, Export and Agriculture Division, Fidelity Bank Plc, Mr. Isaiah Ndukwe, in this interview speaks on the opportunities in signing the African Continental Free Trade Agreement for Nigeria. He also advises the federal and state governments to addres
The federal government has a zero-oil policy. What are the likely impacts of this policy on the economy?
The zero-oil plan of the government is a direct response to the realities of the volatilities of the global oil market and a step in the right direction. As I explained earlier, our economy is heavily reliant on crude oil revenues, a commodity with pricing drivers and consumption levers outside our control.
Zero Oil doesn’t mean negating oil to the back burner, it only means priming and running your economy as if there were no revenues from oil. With the zero-oil initiative, technically what you are doing is planning and setting up your economy in a manner that immunes you from the sensitivities of oil price shocks. What it does is that it prepares you for a life after oil. It changes your psyche and helps you to channel more efforts towards growing the non-oil sector and whatever you make from oil now becomes a bonus. At best you have both revenues and at worst you have significant non-oil revenues to run your economy. The major oil producing economies are already planning and preparing for life after oil. A very good example is Saudi Arabia’s diversification drive into non-oil sectors like technology, mining, tourism and healthcare.
This is a pragmatic step and helps you imbibe fiscal prudence. It is quite a tall order for Nigeria considering our high production barriers, but it helps that we are thinking about it. We now need to back up this idea with deliberate and concrete steps. The first thing we need to do is bridge the critical infrastructure gaps and take conscious steps to break down those business growth limiting structural barriers. What does it mean for the economy? More non-oil driven balance of trade, stable exchange rate, more jobs, increased federal government revenues and overall development of the economy. This is definitely the way to go.
There has been so much debate around the African Continental Free Trade Agreement (AfCTA). What is your take on it and do you think Nigeria should sign the agreement?
I think signing it is the way to go. We are talking about a market size of 1.2 billion people by population and nominal GDP of US$2.2 Trillion. In my opinion, it is going to be the single biggest free trade zone in the world by consumer population size. I hear the argument about why Nigeria should not sign yet and that is also valid but my hunch is that we are going to sign eventually. The major concern is that because we have a large population and we don’t produce and export much, the belief is that Nigeria is going to become a dumping ground of sorts and that is a real threat. If you look at the Agro Commodity business space for example, we are supposed to be one of the leading exporters of food by virtue of our natural endowments, but we are not because our low level of competitiveness has eroded that comparative advantage. However, there are ways to fix some of these things. We just need to prime our economy to be more competitive. We can start with the quick wins in the area of improvements in ease of doing business and then work our way up the competition ladder by bridging some of the trade critical infrastructure gaps like the Apapa Port Road and our port infrastructure. Just by working out the structural kinks inherent in our business processes and the pesky intra continental trade limiting issues like payment settlement and logistics problems, we can significantly enhance our competitiveness whilst we work on the bigger infrastructure problems. Unfortunately, we don’t have the luxury of time as Gambia’s signature which is expected in the coming days will ratify the agreement. In the interim, what you want to do is to be in the negotiation room with the other countries to ensure that terms are favourable to Nigeria.
The size of the market that you are trying to protect is about 16 per cent of the global AfCTA market size of 1.2 billion people by population and 18 per cent share of the continental GDP. The size of the continental business pie sans Nigeria is one that you want to take a crack at. At the end of the day, we have to trade with other countries with or without AfCTA. How to do that competitively is the question we need to begin to find answers to. Now, back to the benefits of AfCTA for the continent, if you look at the complexion of the universe of trade that happens in Africa, you will clearly see why Africa is the backwater of the global economy. Out of the entire universe of trade that happens within Africa, only about 15 per cent is intra continental. In Europe that number is 59 per cent and in Asia it’s 51 per cent. If we are not trading that much with ourselves, it means that we are trading more with someone else. And that is the tragedy and the very bane of African economies. The numbers are just indicators of the problems and if you focused on them alone, you’d miss the big picture. Our low intercontinental trade numbers are symptoms of a bigger problem. Underlying the symptoms are the real issues which are hinged on the loss of incremental value-add upsides across the production value chain like loss of employment opportunities, loss of revenues for businesses and loss of value-added tax revenues for the government. Every incremental level of value addition creates a new vista of employment opportunities, higher returns for businesses and incremental value added tax revenues. For Africa to leap frog to the league of highly developed and self-sufficient markets, we need to trade more with ourselves. And that comes with a plethora of multiplier effects which include enhanced GDP of the constituent states, enhanced human development index and increased employment generation across the continent. To achieve these, we need to systematically break down the inherent high production barriers in Africa to become more competitive globally. Infrastructure is the big elephant in the room but there are other issues. Access to financing and the pricing of credits for small and medium enterprises is imperative but that can only move the needle marginally sans the enabling ease of doing business ecosystem and structures. Access to trade and market information is also key to hacking Africa’s low intra continental trade and increasing market penetration. The role of central payment and settlement systems is also critical in facilitating intra-African trade. Africa’s fragmented payment system has remained a key impediment to intra-continental trade integration and a barrier to the achievement of the continent’s targeted single market status. While, for instance, it takes just a few minutes to wire money from one corner of the world to another, to transact business payment across borders in Africa may take days or weeks to close out. This has proved very costly for businesses transacting across borders in Africa both in terms of financial resources and time to close deals. These are fixes required to put the continent on the path of becoming a highly developed and self-sufficient market. On the specifics of the intra continental trade agreement, one area that I want tightened is the definition of rules of product origin and controls around it. You don’t want a situation where goods are imported from outside the continent and re-packaged as if they were produced in Africa, that will defeat the entire purpose of AfCTA. I believe that this will be hashed out in the substantive agreement.
Some of the arguments we have had with regards to the AfCTA, is about wanting to take up expansion on a big scale. The belief is that a regional approach would have been the best….?
That’s a modular approach to the problem and by that, I mean starting from a regional level and scaling to a continental level. I am not sure that’s the most effective way to tackle the problem because market size is imperative in this kind of deals. We have always had ECOWAS since 1975 but I don’t think it has actually achieved the desired economic integration levels and expected levels of development of the constituent local economies. The major consideration for multilateral trade deals like this is market size and clout and that’s the value that AfCTA brings to the table. Beyond the benefits of the wider African market integration, the size of AfCTA provides leverage to negotiate favourable cross continental deals for the benefit of the constituent member countries. As the global economy evolves, borders and trade barriers will become less visible. The competition will come to you one way or the other. Eventually market forces will defeat the case for market protection and the best way to be ahead of the curve is to prime your economy to be competitive. One of the merits of AfCTA is that it will force us to look inward to learn how to swim against the oncoming storm.
But since Nigerian SMEs didn’t take advantage of African Growth and Opportunity Act (AGOA), considering what SMEs in Kenya, South Africa and Ghana did with AGOA, do you think they would fare better with AfCTA?
In business, competition is the name of the game and you are competing with everyone else. The question is how are you competing? Again, our sub-par performance under the AGOA scheme is the symptom of a bigger problem. It is not that Nigerian SMEs are not taking advantage of the AGOA window, the problem is that our high production barriers make us uncompetitive in the global marketplace. To export from Nigeria into the USA under the AGOA programme, you are competing with SMEs from the other AGOA eligible countries who are also exporting into the USA. When you don’t land your exports cheaper or at a higher quality than competition, you are automatically priced out of the market. The global marketplace is brutal and will punish you if you are not on your A-game. With or without AfCTA, you still have to be competitive to hack the global export market. But, like I mentioned earlier, I think the threat posed by an integrated African market under the continental free trade agreement will force us to raise our competitiveness level. If we can compete within the African continent, surely we can compete globally.