Loomnie

Off to Basel tomorrow for an African Borderlands Research Network conference. As part of a panel on a comparative study of cross-border trade networks in Africa, I will be presenting a paper titled “Benin-Nigeria secondhand clothing cross-border trade in historical perspective”. The abstract:

Today, Benin Republic is the main supplier of secondhand clothing to Nigeria, a country in which the importation of secondhand clothing is banned. Igbo traders, who form a transnational trade network that spans the eastern part of the West African coast and that extends to Europe and North America, dominate the import and retail trade in the commodity in Benin Republic. This is a network that could be described – depending on the side from which one chooses to look at it – either as an agent of development or as a predator on the state’s resources. The exercise here is to move beyond those arguments and to show the current configurations of the trade network as it has responded to a changing global political and economic landscape, and as it has been modified by the changes in the political economy of the West African countries that it spans.

For more on the conference [pdf].

Examining data from China – the biggest internal migration experience in human history – this column finds that migrants from the same village tend to cluster at the same destination for the same occupation. This pattern is driven by social networks within villages that reduce the moving costs for future migrants, such as the risk of not finding a job.

The whole column.

One of my colleagues, Anja Peleikis, found out the same thing about Lebanese migrants in West Africa. See this article [pdf]. It is also somewhat similar to the case of the Igbo traders that I work with. One finds that the trade in a particular product is dominated by people from the same village, either within or outside the country.

This article was originally written for www.tradeinvestnigeria.com.

In May, an Indian trade mission, led by Mr. Ravi Bangar, the deputy permanent representative of India to the World Trade Organisation (WTO), paid a visit to Mr. Jubril Martins-Kuye, Nigeria’s Minister for Commerce and Industry. One of the major issues they discussed was the possibility of India helping Nigeria to revitalise its textile industry. Shortly after the meeting, the minister directed both the National Cotton Association of Nigeria and the Nigeria Textile Manufacturers’ Association to put a paper together, giving specific details on how the government could help the textile industry.

This paper, it is presumed, will form the basis of what the involvement of India in the sector would be. This has not yet been done, but it seems like a good time to pause and examine what led to a situation in which an industry that was the largest employer in the manufacturing sector of the country became one that desperately needs help. It is by doing this exercise that one might begin to think of what could be done to bring it back from the brink.

The not-so-rosy past
The first modern textile mill in Nigeria, Kaduna Textile Mill, was started in 1956 in Kaduna, northern Nigeria. The primary reason for setting up the mill was to process the cotton that was being produced in the northern part of the country. By the 1970s and the 1980s, the Nigerian textile industry had grown to become the third largest in Africa.

A report by the United Nations University (UNU) states that in 1987, there were 37 textile firms in the country, operating 716,000 spindles and 17,541 looms. This was the golden period of Nigeria’s textile industry. Between 1985 and 1991, it recorded an annual growth of 67%, and as at 1991, it employed about 25% of workers in the manufacturing sector. Although all this is good news, it needs to be viewed with the structure of the global textile trade in mind: it was the period of the Multi Fibre Agreement (MFA).

The MFA was a system of quota that could be imposed by developed countries on the amount of textile products developing countries could export to them. This was interpreted largely as a protection of the United States’ textile industry from China. The MFA was replaced by the WTO’s Agreement on Textiles and Clothing (ATC) in 1995. Under these agreements, the textile industry was brought into full compliance with the General Agreement on Tariffs and Trade (GATT) rules, and all quota restrictions were rolled back by January 1, 2005. The quota restrictions were not applicable to some countries, one of which was Nigeria.

In the 1980s and early 1990s, Nigeria’s textile industry received a lot of foreign investment. The UNU report for instance notes that in 1991, two companies that its report focused on were either directly owned by Indian investors or were subsidiaries of Indian-owned companies: Aflon Nigeria PLC was owned by Afprint Nigeria Plc, which was in turn part of the Indian Kewalram/Chenrai group. Spintex Mills (Nigeria) Limited was also an Indian company. During the same period, United Nigeria Textile Plc (UNTPLC), a Kaduna-based company that was established in 1964, was bought by CHA Textiles, a Chinese company. It has been suggested that the reason the number of textile companies in Nigeria grew during this period was because Nigeria was not under the MFA quota restrictions.

Decline of the industry
In an interview with Nigeria’s Daily Independent newspaper, the first Nigerian Group Managing Director of Kewalram/Chanrai, Mr. Victor Eburajolo, blamed the decline of the textile industry on the hasty accession of Nigeria to the WTO in 1995. According to him, in accordance with WTO rules, Nigeria had to remove any protection of the local textile industry. He argued that it would have been better for the country to secure special arrangements with the WTO, such that the local textile industry would be protected until it was surer on its feet.

While there is certainly some truth to this, there were other factors that contributed to the decline of the industry. One of these was the ending of the MFA and the accession of China to the WTO, both of which happened within four years of each other.

Until 2005, when the MFA ended, there was a quota on the amount of textile that China could export. A report on a Chinese website, written in November of 2001, a month before China joined the WTO, discussed the benefits of membership for China. It says that Chinese textile manufacturers believed that China’s accession to the WTO would come with opportunities for the industry. One of this would be that China’s membership would encourage foreign companies to set-up shop in China. Through that Chinese companies would be able to learn ‘advanced designing, marketing and management’. This, it was suggested, would be part of the preparation for the removal of the import quota on Chinese textile products, under the MFA.

As we now know, this has proved to be quite an astute observation. Looking back, it would seem that between 2001 (when China became a member of the WTO) and 2005 (when the quota system was removed) Chinese companies were able to hone their skills in textile production and international marketing.

Before the MFA expired, the United States introduced the African Growth and Opportunity Act (AGOA), an initiative that opened up the American market to African countries. While there are many things to complain about concerning AGOA, one could observe that before the expiration of the MFA, textile products were one of the fastest growing African exports to the US. However, by the time the quotas were lifted, Chinese exports increased rapidly and proved to be stronger competition than African companies could handle.

According to a presentation made to the US-China Commission by Mr. Princeton Lyman, a former United States ambassador to Nigeria, African countries suffered from the increase in exports from the Chinese textile industry on two fronts. Cheap exports from China were undermining local textile industries. At the same time, the growth of Chinese exports to the United States was making it almost impossible for African countries to compete with China for the US market.

The Nigerian textile industry was one of those that suffered especially because of the first point. When I spoke to traders in the popular Dantokpa Market in Cotonou, they said that Nigeria used to supply them with good quality wax-resist textile, popularly called ankara in Nigeria. However, in the early 2000s, cheap imitations of these products were being produced and exported from China to West Africa. Some would even be slapped with Made-in-Nigeria or Made-as-Nigeria labels and then sold in Nigeria.

These days, although there is a ban on the importation of textile products into Nigeria the products still manage to find their way into the country. They are first imported into Benin or Togo, from where they would either be taken to Niger before being smuggled into Nigeria through its northern borders, or they would simply be smuggled directly into the country through its borders with Benin. Some of the people I talked to in Cotonou say that several containers of Chinese products are regularly smuggled into Nigeria through Benin.

This should not in any way be seen as an indictment of China, but as a failure of policies on the part of the Nigerian government. For instance, part of what this has shown is that a country that cannot police its borders should not rely, almost exclusively, on import prohibition as a trade policy instrument. Apart from this, even in the early 1990s, it had become apparent that there were some problems with the Nigerian textile industry.

The UNU report pointed to the difficulty of access to finance. Many of the companies could not afford to take loans at the very high lending rates (sometimes more than 45%) in the country. It was also difficult to get foreign exchange and deal with inflation problems, in a situation where a lot of the cotton and other raw materials used were imported. There was also the poor state of transportation, power and other infrastructure that were needed by the industry. All these factors contributed to the death of the industry.

Resuscitative measures
Shortly before the end of the term of Nigeria’s former president, Olusegun Obasanjo, there was an initiative by the federal government to raise 70-billion naira through bonds of five-year duration. The money was named the Textile Development Fund, and it was to be lent to cotton growers and textile manufacturers through the Nigerian Export Import Bank (NEXIM). However, in July last year, it was reported that the United Bank of Africa, which was to help the federal government to market the bonds, was unable to do so.

This has been the state of affairs until the flurry of activities and the long list of commentaries that have followed the visit of the Indian trade delegation. First of all, I think it is a good thing that we are now talking about the textile industry again, and with some seriousness. Although nobody yet knows what the involvement of the Indians would be, or the form that it would take, it is clear that the problems that led to the decline of the industry have not suddenly disappeared.

The financing of the industry would clearly have to be taken seriously, if not through the issuance of the kinds of bonds that the government tried to issue through the United Bank for Africa, then through other means. Many industry insiders also complain about the lack of Low Pour Fuel Oil (LPFO or black oil), which is required by the industry. This, to say the least, is scandalous in an oil-producing country. I would imagine that this is one thing that could be taken care of, given some will to do so. It is almost redundant these days to mention power, transportation and other basic infrastructure. But yes, these are going to be crucial to any resuscitative attempts.

I think there is the potential to grow the textile industry, with some government determination and a push by actors in the textile industry. It should not be forgotten that under AGOA, the United States market is open to Nigeria. Therefore, anyone who invests in production for export can take advantage of that. Nigeria is also a large market, and if one is to take any lesson from the patronage of smuggled products, it is that there is a demand for textile products. This would indicate that production for local consumption could be a profitable venture.

All this optimism is hinged on the belief that the Nigerian government and the textile industry in general are willing to work together to produce an environment in which this is possible. The involvement of the Indians might just be the catalyst that is needed.

… here.

From a BusinessDay Nigeria column:

[O]ur trade policy has remained very inconsistent many years after independence. Recent reforms – particularly the NEEDS – have however tried to considerably minimize the unpredictability of the trade policy regime by establishing a schedule to fully adopt the Economic Community of West African States (ECOWAS) common external tariff (CET) by 1 January 2008, and respect obligations under multilateral trading systems. However, according to Afeikhena Jerome in a 2005 paper titled” Institutional Framework and the Process of Trade Policy Making in Africa: The Case of Nigeria”, “trade policy formulation and implementation in Nigeria, even though conditioned by the global context, is dominated by governmental and inter-governmental agencies whose responsibilities overlap and between which coordination is deficient. There is no identifiable source or structure of research and analytical support for trade policy making in Nigeria”.

Reminds me of a meeting I had in 2008 with a high-ranking official at the Nigerian ministry of trade. I asked whether I could get a copy of the country’s trade policy document. He said there was no document like that, and there hadn’t been one in a while.

Image via Wikipedia

Ms Ngozi Okonjo-Iweala, Nigeria’s former minister for finance, and currently a managing director of the World Bank:

intra regional trade in Africa remains low and accounts for less than 10% of total trade . Between 1999 and 2006, for example, intra-African trade increased by an average of just 14 per cent per year, while trade with the United States and China expanded by 26 per cent and 61 per cent respectively. Despite the low level of intra-African trade at the regional level, in some African countries intraregional trade is significant. Five countries export more than half of their goods within Africa, while another 14 export more than a quarter.

She goes on to write about how it works in East Asia.

Intra-regional trade in East Asia has increased rapidly and now represents most of the region’s total trade. The most prominent manifestation of the intensification of Asian intra-regional trade is “production fragmentation” enabling producers and countries to specialize in particular products along an integrated supply chain. As a result, products and components travel repeatedly across borders before becoming final goods. In East Asia, Japan made a conscious decision to outsource production of component electronic parts to Thailand and Malaysia as part of its overall industrial strategy.

Her recommendations include political commitment to regional trade in particular and regional integration in general. And:

A policy framework for intra-regional coordination must be developed and countries must be willing to commit to this framework. This means the leader must handle issues of multiplicity of membership for example which weakens member-state’s commitment to coordinate policies to promote intra-regional trade.

(Know the difference between ECOWAS and WAEMU?)

I would add transport infrastructure. Basic stuffs that make it very difficult, practically, to move things around.

Read the full article here.

The president of Rice Importers and Distributors Association of Nigeria (RIDAN), Gbadamosi Mufutau,

urged the federal government to harmonize the duty on rice with the neighbouring countries to discourage smuggling. “You observed that any increase in duty, tariff, levies and benchmark always cause increase of importation of such products to Republic Benin and Togo ports with the intention of smuggling such products into Nigeria markets,” he said.

The main reason for his policy advice? He said:

Smugglers have almost driven the importers into extinction because they evade duty and taxes and sell at cheaper prices. You know that the margin on a bag of rice is quite small, a maximum of N150 per bag. For those of us that import into the country through sea ports pay duties, levies and pay wages, one would see that the smugglers are sabotaging the economy.

Read the full article here.

In a group interview in September, 18 disgruntled truck drivers in Cotonou, Benin, vented their frustrations to two Trade Hub consultants: driving freely from Cotonou to Ouagadougou was impossible without harassment, they said. They sometimes spend three days at borders where customs officials hold up paper work when they refuse to pay bribes; meanwhile, their clients in importing countries wait impatiently to receive the goods.
At the borders and checkpoints where unofficial fees were demanded, they do not receive receipts to prove payment later to their clients. Like many other transport companies in the region, they bear costs and lose income due to unpredictable expenses on West African roads and borders.

“Even when you have all the paperwork, it is not always taken into account,” one said. “There is not a lot of documentation required really, but there are too many unnecessary delays.

“Laws are different from country to country and the fees are exceptionally high. There is really no free movement across West Africa.”

But in the agreements made between ECOWAS countries, that is not supposed to be so.

What is described in the article is the official side – which means that it concerns goods that would normally be allowed to enter into countries, either because they originate 100% from a country within the Community (mostly agricultural produce, livestock, etc) or because some form of value (officially, it should be at least 30% of the value of the product) is added in one of the countries.

Then there is the informal type. Nigeria, for instance, imposes bans on, well, almost everything that is of interest to someone of power in Nigeria. But that does not stop the importation of those things. Importers simply divert the trade to Benin and then smuggle them from Benin to Nigeria. Rice is a particular case in point. In 2007, for instance, a Nigerian newspaper reports that the total import duty on rice in Nigeria came to about 100%, while in Benin it was 38%. In the same year, it was estimated that about 2,000 tonnes of rice was re-exported (smuggled) from Benin into Nigeria per day. If you are a smart importer you simply divert your rice to Benin, pay the import duty – and those guys are pretty well organised so you WILL pay the duty - and then smuggle it into Nigeria. While I was researching these issues in Cotonou in 2008, someone mentioned that she could almost believe that the Beninese government bribes Nigeria to prohibit the importation of some goods into the country so that Benin can make some money off it.

The long and short of the story is: as long as there are these kinds of trade policy disparities within the region, regional integration is going to be something they periodically pay lip service to.

Back to the West Africa Trade Hub article:

“Making regional integration a reality requires harmonization of trade policies and practices to eliminate uncertainty for traders and customs officials at borders,” said Trade Hub Business Environment Advisor Lori Brock. “There is a price to pay when a region fails to come together following agreements, regardless of language or currency barriers.”

H/T to Osize

Ban the use of foreign products at official functions and in government offices:

Nigeria’s Daily Champion -The Federal Government on Tuesday imposed a ban on the use of foreign beverages at official functions and in government offices.

The ban covers tea, coffee, biscuits, fruit juices, water and soft drinks. President Umaru Yar’Adua gave the directive at the official launch of the Made-in-Nigeria products camapign in Abuja. Yar’Adua, who was represented by Vice-President Goodluck Jonathan, also directed that Nigeria’s foreign aid to other countries must utilize Nigerian products like “Nigerian assembled vehicles and Nigerian made blankets.

“Henceforth, all government contractors must give priority to the use of Nigerian products whose quality is certified by relevant regulatory agencies of government like Standards Organisation of Nigeria (SON) and NAFDAC.

“All uniforms and boots of the armed forces; Army, Navy, Air Force, Police as well as para-military, Customs, Immigration, Prisons and Civil Defence Corps, Road Safety etc must be sourced from Nigerian manufacturers certified by SON,’’ Yar’Adua added.

The president noted that the policy measures were to boost industrial production, check imports and revive the nation’s ailing industrial sector.

He said that the campaign to buy Made-in-Nigeria products was one of the measures meant to counter the negative effects of the global economic crisis on the manufacturing sector.

Yar’Adua reiterated the government’s commitment to the revival of the industrial sector, particularly the textile industry that used to be the most vibrant of the economy.

“With a population of over 140 million people, Nigeria’s market is big enough to sustain a bubbling domestic industrial sector if only Nigerians look inwards at their local products.

“Unfortunately many industries had to close shop due to lack of patronage of their products by Nigerians.

“We mus, therefore, re-orientate ourselves to value what we produce in order to develop a strong and virile industrial base,’’ he said.

The president appealed to the organised private sector to demonstrate a high sense of consumer patriotism by following the footsteps of the government in their procurement programmes.

In his comments, Chief Achike Udenwa, the Minister of Commerce and Industry, called on the government to patronise Made-in-Nigeria products.

“For this campaign to succeed, a strong political will is needed to back it up by patronising Made-in-Nigeria products in government’s procurement programmes.

“This way, the general public will be sensitised to embracing the campaign,’’ he said.

Udenwa said that the nation’s leadership, including both the executive and the legislature, should buy and be seen to be using Made-in-Nigeria products.

He said the target of the campaign was to see that Nigerians valued and took pride in Nigerian products.

He said this could only be achieved if Nigerian textiles as well as other manufactured goods were used by Nigerians in their day-to-day lives.

The minister, however, stressed that the campaign was not about buying poor quality and sub-standard products simply because they are Nigerian.

He, therefore, called on the manufacturing sector to avail itself of the services of the regulatory agencies to produce quality products comparable with foreign ones.

Udenwa noted that the challenges faced by local manufacturers, especially high energy cost and dumping of foreign goods in the Nigerian

market had contributed greatly to the sorry state of the sector.

He said the government was working hard to address the critical infrastructure constraints, adding that it was important to confront smuggling and counterfeit goods that were destroying the economy.

He called on all the Standards Organisation of Nigeria (SON), National Agency for Food and Drugs Administration and Control (NAFDAC), Federal Produce Inspection Services (FPIS) to continue with their good works on standards.

In his remarks, Alhaji Bashir Borodo, President, Manufacturers Association of Nigeria (MAN), said the success of the campaign would be “victory’’ for the country.

“Nigeria is a great country and God has endowed us with highly resourceful citizens and abundant natural resources.

“The products that emerge from the combination of these two assets should therefore command our pride and our patronage,’’ he said.

Borodo recalled that MAN had started this campaign more than 30 years ago and had since then continued to carry out the campaign through various media and corporate representations.

He also noted that the association was facing challenges that hampers its success.

Such challenges, he said, included inadequate infrastructure, especially power, lack of patronage of Made-in-Nigeria products by Nigerians and a dearth of business friendly funding windows.

Others are bureaucratic bottleneck and failure of government services and utilities, especially at the ports and the huge influx of foreign goods.

And there are even talks of becoming net exporters of rice. Story is here.