‘AfCFTA might end up as another treaty that does not favour Nigeria’
Last Sunday, President Muhammadu Buhari signed the African Continental Free Trade Agreement (AfCFTA) on behalf of Nigeria at the 12th Extra-Ordinary Summit of the African Union in Niamey, Niger Republic. The signing ended months of anxiety by stakeholders in the Nigerian economy on whether or not Nigeria would be part of the treaty, which is reputed to be the world’s largest free trade zone since the formation of the World Trade Organization in 1995. In this interview with ONYEDIKA AGBEDO, renowned economist and Managing Director of Cocosheen Nigeria Limited, Mr. Henry Boyo, interrogates the opportunities and threats in the AfCFTA, saying it might not favour Nigeria. He, however, proffers steps the government could take to forestall any backlash that could come from the trade pact.
What is your take on the signing of the African Continental Free Trade Agreement (AfCFTA) by President Muhammadu Buhari last week in Niamey?
I don’t want to say that Mr. President unnecessarily delayed the endorsement of the African Continental Free Trade Agreement (AfCFTA). Should we say that he decided to consider the virtues of endorsing the AfCFTA? If I recall correctly, the president’s media adviser, I think in March last year, reiterated that Buhari will not agree to anything that will impede local entrepreneurs. As a result of that, he gathered together some stakeholders to discuss and make a recommendation.
But we are aware that the manufacturers particularly, and indeed farmers, are the two components that drive Nigeria’s productivity index. These are the two that drive progress within the productivity sector. I am not trying to say that others don’t but those are the significant groups.
The media have not approached them to get their opinions but I suspect that their opinions will not be much different from what they had expressed before, which is that they are still not ready. That’s why I wonder whether the President’s current endorsement is in recognition of the concerns raised by those people who are scared of the AfCFTA initiative, whether their fears have been allayed. We are not certain about that.
For example, I noticed that since the endorsement, the manufacturers have not said anything. The chambers of commerce made some noises, but don’t forget that the chambers of commerce are predominantly traders. But the manufacturers constitute the motivating force in the real sector. So, I think the guiding comment should be what the manufacturers have to say for themselves in the context of a pan-African continental free trade agreement.
In spite of the reservations earlier expressed by the manufacturers, farmers and other stakeholders about Nigeria’s membership of the treaty, what does the country stand to benefit from the endorsed AfCFTA?
Well, you would naturally expect that if we had a big population and if we had such significant output that our productivity is in the range of the first five in the African continent, the critical stakeholders like manufacturers, agriculturists, and all others would be happy to have a bigger market. That would be the natural expectation. In reality, however, you probably agree that it makes sense that before you extend your trading or commercial activities outside the boundaries of your own country, which you know very well, you must already be satisfying the demand of the people within the territory within which you live.
In other words, can we say that the manufacturers, agriculturists and other commercial people have satisfactorily met the consumer demands of the people of Nigeria? If they have not adequately done so, and if they have not been tutored in the management of export activities such that they don’t take goods out which are rejected and for which Nigeria has to incur a cost, you must be very careful that you are not extending yourself beyond your capacity.
For example, I don’t know which area you would want to mention in terms of manufactured products that you would say the local manufacturers have already fully met local demand. If they have fully met local demand, surely there won’t be any concern about wholesale smuggling that still takes place for imported goods and agricultural products into Nigeria. That surely means that the local manufacturers have not been able to satisfy the market and you are hoping that with the AfCFTA, they would be able to extend their trading or commercial activities outside the boundaries of Nigeria. They have not satisfactorily fed the people in their country and you are hoping that they will also be able to feed the people in other countries. I think we should be a little bit more circumspect as to the possible success of our local manufacturers and business people if we expect that the larger market would be in their interest. After all, the larger market we are talking about, Nigeria still constitutes about 20 percent of the total market in Africa.
Consequently, we are the target. Unfortunately, we as the target have not been able to meet our own consumption. So, what will literally happen is that if our industrial and agricultural sectors are unable to continue to fill the gap in our country, other countries in Africa will feel the gap for us. And that will mean that we will become net importers from other countries in Africa.
You might say that other countries in Africa don’t have the capacity to do so in terms of capital investments like that. But don’t forget that if you are an international investor, you will be primarily looking for an environment where there are peace and security. Even if the chances of making huge profit in a country are there and insecurity exists, you will find that it makes certain sense for these international investors to go to neighbouring countries to Nigeria where there is more peace and start producing from there and be exporting their products into the Nigerian market.
In other words, if for example investors set up in various countries around Nigeria where there is peace and where possible they are able to bring in capital without constraints, you will find that the so-called African countries, our neighbours, will become entry points for goods which are in reality probably fully manufactured elsewhere and assembled across our borders.
By the same token, even agricultural products like rice can still come in all kinds of forms and be re-bagged in Togo, Benin Republic or anywhere like that and end up in Nigeria.
The President did say that he was reluctant to sign the AfCFTA because other treaties that Nigeria signed in the past had been significantly abused. Given your submission here, do you foresee a possible abuse of this treaty?
Well, put it this way. I don’t know how pervasive the abuse of treaties in the past had been but I recall categorically the Vice President, Yemi Osinbajo, had about two years ago decried the fact that most of the treaties that Nigeria may have signed in the past would make a concerned Nigerian weep or something to that effect. He wondered what kind of Nigerians signed these types of treaties.
In other words, this is an indication that there is a huge lacuna first in terms of expectations on the part of the Nigerian people for treaties, which had been signed. But what worries me is the fact that the vice president did not indicate whether or not the government is making a thorough review of all the treaties we have signed in the past in order to expose those areas or those ones that do not favour the Nigerian people. So, he did make that comment and I dare say that in the long run, this may also be another treaty, which does not favour Nigeria.
Nigerian manufacturers and agriculturists are likely to explore the export opportunities presented by the AfCFTA despite their inability to meet local demands. Do you see this resulting in a shortage of essential goods and commodities in Nigeria?
It shouldn’t because as I said the borders will be open for everybody to bring in goods. Take a good look at Shoprite for instance. When you go into Shoprite, 90 percent of the goods there are imported. Don’t we have manufacturers in Nigeria? We have manufacturers here but possibly, water is the only thing they don’t import in Shoprite. So, you will find that this observation I have made about Shoprite would be amplified all over the country because goods from other countries where there is adequate security, adequate power infrastructure such that people don’t have to set up their own power stations and adequate protection against exploitation by government officials would end up in Nigeria; while the absence of these amenities would drive away the expected investors who we think would come and produce here. So, in other words, the chances are, and there is no reason to believe it would be otherwise, that are productive sector will be worse off than before.
Let me tell you something — what drives the productive industry everywhere are critical monetary indices. If for example these countries outside Nigeria where there is security, if their interest rates remain lower or are cheaper than Nigeria’s for the so-called investors, you might find that even Nigerian investors might migrate to these countries and set up their businesses.
The question will be is it easier for me to go and produce in Ghana or elsewhere than to produce in this country because in the end I would still be able to send my goods to Nigeria free of duty. And you have heard even before the AfCFTA was introduced that quite a few companies have moved to Ghana from Nigeria even though I doubt it. I travel to Ghana fairly regularly and I haven’t really seen the so-called industrial expansion. There is commercial expansion but there isn’t much industrial expansion possibly because the Nigerian and Ghanaian economies present the same aberrations of very high interest rates, which is always a stumbling block for entrepreneurs anywhere in the world.
So, my take clearly is that I suspect that the President may have been stampeded into this in order to conform, burnish his image and in order to possibly be in the good books of the imperial economies that have continued to eat African economies for lunch and dinner that came up with this concept of African free trade.
The Nigerian economy is import dependent. What must the government do in order to protect this economy from becoming a dumping ground for goods produced in neighbouring countries as a result of the AfCFTA?
I have said it a thousand times and some people still don’t understand. What drives an economy anywhere are critical monetary factors. They are not fiscal factors because even the 2019 budget is just about $20 to $24 billion maximum.
Out of that, over 70 percent will be put into consumption expenditure. So, the part that should be the creative component of the budget is the capital expenditure, which we have seen over the years, is usually the same 30, 40 or 50 percent, then it disappears and they will say they will carry it forward to the next year and then somehow they make a new budget and you don’t hear of the balance carried forward anymore.
So, you find that at the end of the day it is not your fiscal expenditure that actually drives an economy. What drives an economy is monetary policies; and critically, the rate of inflation. If the rate of inflation remains low, let’s say for instance about two per cent, it means the value of all income earners will depreciate to about two percent annually. If it depreciates to about two percent annually, you may still be able to contain it without really noticing, especially if the government also provides other palliatives like social health insurance and the likes. But in a situation where inflation has remained in double-digit and got to 18 per cent in the last two years or so, the real implication is that every Nigerian income earner would lose over 50 per cent of his purchasing power every five years or so if his income does not increase.
So, if you are losing so much value of the income you earn, the implication is that you cannot buy as much as before with the same income. What that means is that if you used to buy five loaves of bread before, you will buy one or two loaves with the same income. And this will be repeated in all households in the country.
In that event, you will find that bakers, who had been able to produce so many loaves before and sell them will not be able to sell as much anymore because the purchasing power of the incomes of people cannot allow them to buy as much bread as before. So, what would they do? They will reduce their production and put more people into the employment market. This is how it works everywhere.
And if you have a situation where the consumer demand is sustained by a relatively stable rate of inflation below two or three percent at the maximum, you will now find that people would always have money to spend and industries, manufacturers and business people will rise up to meet that challenge. But again they would never rise up to meet that challenge locally if they have to borrow from the bank at anything from 15 percent to 20 per cent and above. If they have to continue to do that, it is impossible for them to be competitive. So, you have a situation where first, the consumer demand has depleted, and consequently, citizens of the country are looking for cheaper products to buy.
At the same time, you find that the manufacturers in the country are still complaining that because of high-interest rate, they cannot compete against manufacturers from countries where the rate of interest is two or three per cent.
This is the reality we have to face. We can’t run away from it because it’s incontrovertible. It’s what happens in those places we call developed economies. If you take a look at their monetary indices, you will find that inflation hardly goes beyond three percent. You will also find that because inflation does not go above three per cent, the cost of funds is also relatively low, below five, six or seven per cent. So, we still have to bring down the cost of funds.
The power sector is critical to the success of the real sector everywhere in the world. What kind of reforms do you want to see in Nigeria’s power sector that will help the country leverage the opportunities in AfCFTA?
As you rightly know, energy performs a critical function in the area of economic development and growth.
Let me, therefore, say that investors will go to those places where there is ample and adequate energy supply. So, we have already failed on that count because there are several African countries that have a better energy management system than our own. So, if you are expecting that foreign investors will consider coming to Nigeria rather than going to a country where they don’t have a power problem, then of course that will be self-deception. So, until we totally deregulate the power sector, we would never be able to provide adequate power for our industries.
Power is critical to development, no doubt about that. So, you cannot say that because you are a big population, investors will come when investors have the opportunity of operating outside your boundaries in environments that are cozy and conducive.
I earlier used the example of Shoprite, which imports virtually everything it sells. Why do you think that the South African president, Matamela Ramaphosa, was so concerned about Nigeria being a member of the AfCFTA? It’s because he has a figure in front of him that shows how much his country will benefit from the free trade agreement. If you go to South African supermarkets, how many Nigerian products do you see on the shelves there? Is it that people don’t know that they can take them there? But they are not competitive either in terms of quality packaging or particularly in terms of price because the power situation there is steady and interest rates are much cheaper than Nigeria’s.
So, you cannot expect that this would change overnight or even forever so long as this status of poor electricity supply, high-interest rates, high rate of inflation and a Central Bank that is deliberately and consciously working against the economy by auctioning a foreign currency against its own currency, which the CBN itself does not deny creates a challenge for management of excess liquidity, persists. This is the reality; you can’t run away from it. The CBN has never denied that this is the problem they have.
The AfCFTA is reputed to be the largest in the world since the creation of the World Trade Organisation (WTO) in 1995. How would the development impact on the African continent?
You know that each country still has relative autonomy in terms of the individual internal policies. And these policies, for example, may involve the facilitation of power infrastructure, health infrastructure, security infrastructure and things like that.
This will definitely increase the chances of investors coming into countries that already have those indices in place. But in our own case, those indices don’t exist; we have poor infrastructure, poor health facilities and poor security. In fact, it will be a very courageous investor who will see alternative locations in Africa for setting up a business and decide to come and set up in Nigeria.
Once the market has been opened, the investor does not have to locate his plant in Nigeria; it could be anywhere. And if these people can make a profit by sending goods from China, Europe and wherever, won’t it be cheaper for them to just establish next door and bring in their goods here. We are in big trouble; there is no doubt about that. I suspect that Mr. President has been stampeded to taking this decision without fully understanding the implications of what he has done.