Q & A on Free Trade Zones in Africa.

The U.S. Department of Commerce just released a report titled the U.S.-African Trade Profile [pdf]. One particular paragraph jumped at me (note the italicised lines):

Of the top five African destinations for U.S. products, exports to South Africa rose by 17.6 percent, to Nigeria by 47.7 percent, to Angola by 62.6 percent, to Benin by 192.4 percent (due to a large increase in the export of non-crude oil and vehicles and parts), and to Ghana by 46.1 percent.

An increase of 192.4 percent? Of course, almost all of the vehicles and parts end up in Nigeria. To understand the consumption of certain goods in Nigeria one only has to look at the rate of importation of those goods into Benin. Especially those goods that are banned in Nigeria.

So, it seems that smuggling is being discussed in Nigeria these days (my research is partly on the informal trade in second-hand clothing between Benin and Nigeria so I am really interested in this). Really, when a country has this list [pdf] of prohibited items what is to be expected? The Comptroller of Customs in-charge of Import and Export:

“Wives of influential people travel to Dubai to import suit cases and on arrival, their husbands call the customs officers informing them of the arrival of their wives who had traveled. We are all guilty.”

And

“Customs has the mandate to curb smuggling but the required tools are not available. And there is no political will to combat the smuggling. Smuggling is capital intensive and is undertaken by only those with the ways and means.

“Customs officers at the borders are tenants of big time smugglers. The borders are porous and cannot be effectively covered. But we can’t give up the fight. Government should empower Customs with tools and give us the needed support.”

I think it is high time the government reviewed the list of prohibited items and looked at other ways of protecting the local industry. That is the reason for the prohibition, right? Wait, it couldn’t be because of patronage, could it? Or the creation of ‘overnight’ millionaires by prohibiting the importation of certain products and then granting  exclusive import license to certain individuals?

Emerging Economies and the WTO
Ms. Mariarosaria Iorio of the International Gender and Trade Network (IGTN) thinks, among other things, that the fact that the insistence of emerging economies on keeping the Special Safeguard Mechanism (SSM) during the last Doha Round, an insistence that led to the breakdown of the round, shows that the world of trade policies is experiencing a geopolitical shift. This, she says, is certainly different from what happened during the Uruguay round that led to the formation of the WTO. I agree with her. Here is the paper (.doc)

SSM and South-South Trade
An ActionAid publication, supporting SSM, debunks the argument that SSM would discourage south-south trade. It addresses what it describes as false premises:

1. the South – South trade in agriculture comprises the bulk of world trade in agriculture

2. the countries of the south are either agricultural exporters or agricultural importers

3. SSM will be used frequently and indiscriminately by many developing countries

4. the inclusion of an effective SSM in the final Doha Round outcome will negatively affect the expected gains from agricultural trade liberalisation

5. South-South trade is an absolute good that must be pursued at all costs

The publication is here (.pdf)

I have just added a roll of the allafrica.com feed on trade news to the blog. It is directly below Recent Comments, at the right hand side. I am also currently reading the book The Least Developed Countries and World Trade, a Swedish International Development Agency (Sida) publication. The study was prepared by Stefan de Vylder. I will let you know what I think of it.

I just read that the federal government of Nigeria has just decided that buses and trucks imported into Nigeria must not be older than 10 and 15 years respectively. The age limit for imported cars had already been set at 8 years some years ago. In the report – at least the part I read in the newspaper – there was no mention of air pollution. The minister of trade and commerce, Charles Ugwu, said that it was to stop the ‘importation of vehicles that would require excessive maintainance’. Well, the real reason is not really that far-fetched: the announcement was made at a meeting with the local automotive manufacturers/assemblers and major importers/distributors. Remember, Nigeria has a history of import prohibition as a trade policy instrument.

The first thing that came to mind: Tell those importers in Cotonou that business just got better.

In the closing lines of a post on the Zambian copper industry I wondered whether anyone knew the details of the deals between oil companies and the Nigerian government. A news story I read in BusinessDay rekindled that interest, and a post I read at NigerianCuriosity made me decide to actually blog about it. The news story says that the Nigerian House of Representative found out, during a visit of the House committee on the upstream oil industry to the Department of Petroleum Resources, that the Memorandum of Understanding between Nigeria and major oil companies elapsed in 2003. Shell Petroleum Development Corporation (SPDC) Chevron, Total, Exxon Mobil and Nigeria Agip Oil Company were on the list of companies said to be affected by this. The committee chair, Mr Tam Brisibe, was also quoted to have said that Nigeria signed the MoU with its joint partners in 1986 when it had problems marketing its crude oil. The concern of the committee was that Nigeria might have been cheated of revenues due to it. But I think that the more serious concern should be about how it so happened that the MoU elapsed and nobody noticed.

But then…
…when I googled the only information I got about any MoU was from the Oil and Gas Insights website. The report said that the Nigerian government sought to terminate the MoU that governs the production of onshore oil in Nigeria. The MoU ensured that a minimum profit of $2.50 per barrel was paid to the government, no matter how low the prices of oil get. There was no maximum cap, but future explorations were assured of a tax rate of 65.75%, lower than the 85% for projects that were already in production. Under the Petroleum Profits Tax Act, the tax rate is 85% on all chargeable income; the MoU was supposed to serve as a tax incentive. A letter was written to Shell about this, telling the company that the MoU was going to be replaced with a standard tax plan.

The website also reported that the NNPC said, in January, that it was going to renegotiate the details of its joint ventures, ventures like SPDC in which the NNPC owns 55% and Shell 30%.

So?
So I still don’t understand the structure of the Nigerian oil industry, and it doesn’t seem like the chair of the House committee on the upstream oil industry, Mr Tam Brisibe, does. The fact that these two reports – one from a Nigerian newspaper quoting Mr Brisibe, and another from an industry magazine/website – are conflicting makes it even more confusing. I hope that the investigation of the House committee will help throw some light on the issues, and make the most volatile, but yet most lucrative, industry in the country a little bit more accessible to curious members of the public. I will try to follow the story.

Ref:
Oilandgasinsight
BusinessDay

I read in BusinessDay yesterday that the investment bank arm of the United Bank of Africa Group has been asked by the federal government to source 70 billion naira through bonds of five year duration (didn’t say exactly which type of bond in the news article). The money is the Textile Development Fund that was first approved by President Obasanjo close to the end of his tenure. It will be given to the Nigerian Export Import Bank (NEXIM) for further lending to the people in the industry.

Mr Jaiyeola Olanrewaju, the Director-General of the Nigerian Textile Manufacturers Association told the Punch Newspapers that the original amount was 50 billion naira, but that the government was convinced that the textile industry needed raw materials so 20 billion naira was added for the cotton industry

What does this mean, really?
Well, we have a history of the use of import prohibition as a trade policy instrument. Just take a look at the list of prohibited items and you will understand what I mean. However, the main complaint made by textile manufacturers is that cheap Chinese products are pricing them out of the market. Most people don’t really know, but the importation of textile products is banned in Nigeria, but most of the textile materials you find in Nigeria are foreign products- the DG of the Nigerian Textile Manufacturers Association says it is 80%; he even goes on to say that 90% of that 80% are Chinese products. It is due to the socio-economic practice formally known as smuggling. I really don’t know what to make of this as yet, but my impression is that there is no way to stop the smuggling of textile products into Nigeria. And this is not because Nigerians love foreign made products – a lot of the cheap Chinese-made textile are of really poor quality so I don’t think it would count in the ‘good foreign products’ book – but because they are cheap and affordable. If the local industry can match the prices of the Chinese made products I am sure that Nigerians will buy them. The other thing is that people want to have the right to choose what they wear, and the imposition of ban on the importation of what would constitute a choice for them would simply not be welcome.

Getting realistic
I understand the point of import prohibition for the protection of the local industry, but at the same time it is apparent that the local industry is so small that it is unable to cater to the needs of the populace. I think that the way to go is to actually accept the fact that the cheap Chinese products are in the market, and that they will remain a viable competition for the local textile industry. This acceptance should be factored into the ongoing restructuring of the textile industry.

I officially declare my interest in the trade policies of Nigeria and ECOWAS, especially as they concern trade within ECOWAS. This means that I will be having posts on trade on the blog pretty soon. To celebrate my declaration I am drawing attention to a product just newly introduced by Ecobank. The bank has introduced a multi-currency account that can be operated from any of Nigeria, Ghana, Sierra Leone, Liberia, Guinea Bissau, Guinea, Cote d’Ivoire, Cameroun, Burkina Faso, Senegal, Togo, Mali, Niger and Benin. What this means is that one can withdraw money from an Ecobank Nigeria account from say a Liberia Ecobank, in the local currency. Yesterday I drew the attention of one of my friends here in Cotonou to it. When I saw him today he told me that he had gone to reactivate his Ecobank account.