Sunday, November 10, 2019

Border Closure: About $1Billion Loss Of Exporters Should Be Compensated

The decision of the federal government to close the land borders will be 3months old in a few days from now and the loss resulting from this exercise on the exporters that ship goods by roads to buyers in Western and Central African regions has been estimated to be about $1billion. This humongous loss is a compelling reason why the federal government must modify the way this exercise is currently being executed. In as much as the decision of the government is highly imperative to curb the excesses and nonchalant attitudes of our neighbours, it must also be done with discretion and wisdom so as to minimize the collateral damages that could result from the border closure.

This has been a very challenging moment for all those that will usually export to various countries within the ECOWAS region. This is because, a good number of them have inventories sitting in their warehouses while their bank loans and interests are running in various financial institutions. At the end of each month they will need to pay salaries and their obligations to their various banks. This is definitely an unsustainable business model and the further extension of the border closure will mean that the exporters will have to lay off some members of staff to avoid the payment of salaries and this will further aggravate the already bad unemployment situation in the country.

In as much as the government meant well in his decision to close the border because of our neighbour's inability to abide by  the ECOWAS treaty (which they signed), it is also important for the government to take a wholistic approach in addressing the issues. This is because, it will be very unwise to create another problem while trying to solve a particular one. It is like going three steps forward and five steps backward. This is because as the government is gaining from the border closure one hand (through increased revenue and increased demand for locally consumed goods), it is on the other hand, causing unemployment and foreign exchanges losses from the inability of the Nigerian exporters to ship their goods to their buyers in Western and Central African regions..

In order to ensure that government efforts to grow local industries and increase income through border closure does not create another problem among manufacturers that ship to buyers in Western and Central African regions, I will like to recommend that the federal government of Nigeria consider the compensation of the affected non-oil exporters. This should be done in a systematic manner that is devoid of corruption through the payment of extra charges incurred via the use of alternative forms of logistics and the extra cost of unfulfilled orders and keeping inventory for an unnecessarily long time. 

According the foreign trade data released by the National Bureau of Statistics (NBS) for the 4th quarter of 2018, the total export of Nigeria stood at about $62billion (calculated based on about N19trillion export divided by N305). According to the NBS, total export of Nigeria to ECOWAS region in 2018 is about 6% and this comes to about $3.72billion in monetary terms. Since the closure of the borders is mainly affecting the shipment to West Africa (due to the fact that shipment to West Africa is majorly via land) and this has been for about 3months this means that the shipment that would have been done via these land borders to the ECOWAS would be about $930million. This means that Nigeria, a country that is in desperate need of foreign exchange has lost about $1billion in the last three months due to the closure of the land borders.

This seemingly good decision might become a very bad decision for the Nigerian economy in the long run if the government does not quickly put in place a compensation programme that will cover the extra logistics of exporters in order to encourage exporters to still ship via alternative routes at a higher cost and thereby enabling them to pay their staff, service their loans and bring in the much needed export proceeds required to pay the growing import bills of the country. Individual companies with verifiable orders that could not be fulfilled due to this border closure should also be compensated. This I think is the logical thing to do considering the fact that there has been some increase in the revenue generated by the federal government via the collection of import duties and tariffs by the Nigerian Customs Service. 

Finally, It will be very great for the federal government of Nigeria not only to compensate the affected Nigerian exporters but to also reach out to other affected neighbours in West Africa like Ghana and Cote D’Ivore and workout a modality that will enable them ship their goods to Nigeria (since they are not the ones being targeted with the closure) while the border closure persist. 

For the love of Nigeria, Africa and Mankind.
Bamidele Ayemibo (bayemibo@3timpex.com)
Lead Consultant at 3T Impex Trade Academy

Monday, October 21, 2019

A SWOT Analysis of AFCFTA For The Nigerian Economy

The President of Nigeria finally signed the African Continental Free Trade Agreement (AfCFTA) at the last summit of the African Union in Niger. This was an historic event for Nigeria because of the much-awaited desire for Nigeria to sign the AfCFTA. President Buhari initially planned to sign this free trade agreement during the launching at Kigali, Rwanda in March 21, 2018 but he later changed his mind because of some concerns raised by Manufacturers Association of Nigeria (MAN) and other organised private sector on the likely negative impact of this agreement on Nigeria.

For a long time, the countries in Africa has not been able to leverage on its population to get generate wealth for its people. This has largely been enjoyed by the other countries in Asia, Europe and America. Also, the European Union (EU) with a population of about 500million people is controlling about 33% of world trade with about 70% of this being traded among the EU countries. Africa on the other hand with a population of about 1.2 billion people is only contributing just 2.5% to the world trade with just about 18% of this being traded among the African countries. The African Continental Free Trade Agreement (AfCFTA) affords the African countries the opportunity to increase the trading activities among themselves and thereby increasing the African contribution to world trade and consequently creating more jobs and wealth as a result of the demand on the companies to grow their capacity to meet the new market demands.

AfCFTA and the Strength of Nigerian Economy
The strength of Nigeria under AfCFTA is not in doubt. The performance of manufactured products export as a percentage of non-oil in Nigeria has been growing. The data from the National Bureau of Statistics (NBS) showed a continuous upward trend in the volume manufactured goods exported out of Nigeria from 2016 to 2018. According to the NBS, the trade report of the first quarter of 2019 revealed that the manufacturing sector contributed 10.19% to the total export done during this period and this 76.6% of the total non-oil export done during the same period. From 2018 till date, there has been a continuous upward trend in the exportation of Nigerian goods to both the ECOWAS countries and also other African countries. The NBS data also showed that the non-export items of Nigeria to African countries is mainly manufactured goods while Agricultural products are mainly shipped to Europe and Asia. If there has been an upward trend in the non-export of Nigeria to ECOWAS and other African countries and the major export of Nigerians to Africa is manufactured goods, then we can safely conclude that there has been consistent growth in the export of manufactured goods from Nigeria to ECOWAS and other African countries 

AfCFTA and the Weakness of Nigerian Economy
According to the global competitiveness report of world economic forum for the year 2018 which ranked 140 countries in the world, Nigeria scored 47.5% and ranked 115. The ranking has 12 pillars which include: Institutions, ICT, Skills, Infrastructure, Macroeconomic stability, Health, Product market, Labour market, Financial ecosystem, Market size, Business dynamism and Innovation capability. Nigeria ranked the least out of the top five economies (Nigeria, Algeria, South Africa, Morocco and Egypt). Some other African Nations that scored above Nigeria besides the top economies include- Tunisia, Botswana, Kenya, Senegal, Cote D’Ivoire, Namibia, Ghana, Rwanda and Cape Verde.

AfCFTA and the Opportunities for the Nigerian Economy
There is a huge potential for Nigerian manufactured products on the African continents. This is because quite several the items being procured by other African countries from around the world are either already being manufactured in Nigeria or can be produced in Nigeria. A recent research showed that about 90 different products most of which are manufactured, processed Agro and commodities (Agro & Minerals) are in this category. The challenge that Nigerian companies might have had in the past (which might have prevented entry into these markets) is likely going to include pricing and this will most likely be reduced by the implementation of AfCFTA. The fact that African countries currently import these products is a sign that they will most likely leave them on the 90% non-sensitive list when submitting their tariff schedule to the AU secretariat. These products are strategically positioned low hanging fruits that MAN should consider first in its implementation of the AfCFTA.

AfCFTA and the Threat to the Nigerian Economy 
The fact that Nigeria is not very competitive when compared to other top economies in Africa is a cause for concern. The implication of this low competitiveness of Nigerian businesses is that most top economies in Africa will most likely be manufacturing their products at a cheaper rate than Nigeria. That means that they might be flooding the Nigerian markets and thereby killing the local competitors. However, the major item of export of these top economies in Africa are not the items that can kill the local manufacturers at least in the short run because the major items of export of these countries in the last few years are Crude oil, solid minerals and machineries.

The Committee
Now that Nigeria has signed, the question we need to ask is how does Nigeria enjoy the benefit of this agreement? What does the country need to do to ensure that it is well implemented for the benefit of Nigerian populace? How do we ensure that it does not become one of those agreements that Nigeria has signed in the past which are of no value to the citizen?

In other to ensure that the Nigerian businesses enjoy in full the benefits of the AfCFTA and also that the prediction of those that are against the signing AfCFTA does  not come to pass, there is a need to begin to actively and intentionally put in place programs and policies that will ensure proper implementation of the agreement.

I will like to recommend that the proposed implementation committee should include people from both public and private sector. Public sector should include but not limited to the likes of Nigeria Export promotion Council (NEPC), Nigeria Custom Service (NCS), Standards Organization of Nigeria (SON), National Agency for Food and Drug Administration and Control (NAFDAC), Ministry of Foreign Affairs, Ministry of Trade and Investment, Presidential Enabling Business Environment Council (PEBEC), Small and Medium Scale Enterprise Development Agency of Nigeria (SMEDAN) and the Nigeria Office of Trade Negotiation (NOTN). On the other hand, the private sector should include but not limited to the representatives from National Association of Chamber of Commerce Industry Mines and Agriculture (NACCIMA), Bankers Committee, National Association of Small and Medium Scale Enterprise (NASME), Nigerian Association of Small Scale Industrialist (NASSI) and Manufacturer Association of Nigeria (MAN). 

Recommendations 
We will like to recommend that this committee should execute either directly or indirectly the task of communicating the details of the AfCFTA to the business community, Capacity building to empower businesses with skill to benefit from the agreement, getting the Commitment of the government to support the manufacturers with necessary incentive that will reduce their cost of production and make them more competitive, cooperation with various government agencies to enable them support all the initiatives of the committee to drive the AfCFTA implementation and finally Collaboration with the private sector in order to understand what they need from the government especially with respect to monitoring shipments into the country to prevent free entrance of goods from third countries and marketing their goods at exhibitions in various African countries.

In conclusion, I am very optimistic that the AfCFTA is well implemented in Nigeria, it has a very high tendency to create the necessary jobs that will lift out of penury, the tens of millions of Nigeria that are currently living below the poverty line.

Bamidele Ayemibo
bayemibo@3timpex.com

Thursday, September 19, 2019

AfCFTA Implementation Strategies-Part-10: The Coordination

I am glad to announce that this is the tenth and therefore the last in the series of this ten part article on the AfCFTA implementation Strategies. This edition of the article will be focused on Coordination. The implementation committee must develop a strategic vision and goal that they want to achieve using the AfCFTA. This should be divided into objectives which are small goals that lead to the ultimate goal when combined. They should also come up with the strategies for the achievement of each of the goals. Based on these various strategies, a well thought out plan for implementation should be put in place and finally, the committee should then break the plans down into step by step daily activities that will lead to the fulfilment of its goals. These are the tools to be used by the implementation committee to coordinate the successful and sustainable implementation of the AfCFTA 

I strongly believe that the implementation committee must coordinate the development of a vision and a set goal. The goal will give the committee a direction so it can measure its progress. For example, according to the world top export, Nigeria exported goods worth $52.9 out of the total African export of $476.6 in the year 2018. This constitutes 11.01% of the total exportation out of Africa. The committee can then use this to develop a vision to contribute 25% of export volume of Africa in the next ten years and set a goal that will drive all its programmes and activities in the implementation of AfCFTA. This Vision and its implication on business expansion, production capacity, job creation, poverty eradication, impact on the Gross Domestic Products and per capita income should be made clear to the business communities. 

Secondly, the AfCFTA implementation committee should also define the objectives that will be used to coordinate and properly direct the focus of the AfCFTA implementation for the maximum impact. These objectives are smaller goals set for each of the sub-sector of exportation and these should be done in such a way that they add up to culminate in the ultimate goal that was set in the first place. To define the objectives, the ultimate goal or target should be shared across export of Manufactured goods, Agricultural commodities, Minerals and Services. This sharing formula should be based on the current annual export volume and contribution of these sub-sectors vis a vis the expected impact of what the government is planning to do. The committee might need to set up a subcommittee among its members to enable them work closely with the stakeholders in the various sub-sectors, identify their challenges and collate all their feedbacks and then use this to formulate policies that will be recommended to the implementation committee for their necessary action. 

The third thing to be coordinated by the implementation committee are the strategies to be deployed to achieve each of the set objectives. This should be done by the subcommittee created within the AfCFTA implementation in conjunction with the private sectors representative outside the AfCFTA committee. The strategies might vary from one sub-sector to the order based on the peculiarity of the challenges that are currently being faced in each of the sub-sector. One strategy that must cut across all the sub-sector is the strategies that will enhance competitiveness. The last competitive index report showed that Nigeria is least competitive among all the top five economies in Africa. This will mean that the probability that products manufactured in Nigeria, Agricultural commodities cultivated in Nigeria and Minerals mined in Nigeria, will be more expensive than those from other African countries will be very high. The strategies must also include how to effectively communicate AfCFTA to all the stakeholders especially exporters and the boosting of production capacity of the various export sub-sectors in order to be able to meet likely increase in demand from the African countries under the AfCFTA.

Having mapped out the strategies tailored towards the achievement of the objectives in each of the export sub-sectors, the next thing is to put together the implementation plan. This should also be done by the subcommittee created within the AfCFTA implementation in conjunction with the private sectors representative outside the AfCFTA committee. The plan should include the action steps for the implementation of the various strategies with timelines. The planning should answer all the necessary questions that must be answered in the implementation of the strategies and this should include the what, the who, the where, the which, the why, the when and the how to implement the strategies. A monitoring and evaluation mechanism should also be put in place so as to regularly get feedback and make necessary adjustments and interventions in a timely manner. 

Finally, I am very glad to have come to the end of this ten-part series of articles on the AfCFTA implementation strategies. I will like to remind my readers that if we do not do the work, the AfCFTA will not work for us. Some countries have already started considering the establishment of a whole agency of government that will be in charge of the AfCFTA and others are setting up different structures to make it a success. I hope that it will be a success also in Nigeria if we can increase and sustain the tempo. It is my hope that the implementation committee of the government will adopt some of the recommendations that are been prescribed in this article in order to make the implementation of the AfCFTA create the necessary jobs that will lift out of penury, the tens of millions of Nigeria that are currently living below the poverty line. 

For the love of Nigeria, Africa and Mankind.
Bamidele Ayemibo (bayemibo@3timpex.com)
Lead Consultant at 3T Impex Trade Academy