August 6, 2019 / 7:05 AM / 14 days ago

On cusp of pan-African trade deal, giant Nigeria clings to protection

    * Nigeria signed Africa free trade deal in July
    * Many businesses there fear a flood of cheap goods
    * Analysts say Nigerian protectionism could undermine pact

    By Libby George and Alexis Akwagyiram
    LAGOS, Aug 6 (Reuters) - Adeleke Adeleye stands in front of
a bank of whirring printers spinning out dozens of envelopes a
minute in Nigeria's commercial capital of Lagos. 
    His stationery company, FAE Ltd, is thriving and will move
into a larger factory nearby by the end of next year. 
    But he sees trouble on the horizon in the form of a new
African free trade agreement aiming to unlock a market of 1.3
billion consumers - but which many in Nigeria, the continent's
largest economy, view as a threat. 
    "It's definitely not a level playing field," he says.
    Africa is forging ahead with the African Continental Free
Trade Area (AfCFTA) - a project to create a $3.4 trillion
economic bloc - even as world powers such as the United States
and Britain back away from multilateral trade pacts. 

    Its champions - South Africa and Kenya among them - say the
deal will provide a shot in the arm to trade between African
nations, which accounted for just 17% of exports in 2017, and
give their companies access to millions of new customers.
    But Nigeria is worried it could be flooded with cheap goods
from more competitive neighbours, undermining its efforts to
revive local manufacturing and expand farming to reduce
dependence on crude oil exports.  
    It was one of the last of 54 nations to back the agreement,
only signing on last month. Just Eritrea, which did not
participate in the negotiations, has not approved the deal.

    Now that Nigeria is in, however, some trade experts fear its
long history of economic protectionism and tepid support for the
AfCFTA will undermine the bloc. 
    "If Nigeria, after signing, decides not to implement, there
will be a problem. There are so many administrative ways in
which Nigeria can frustrate this agreement," said Bismarck
Rewane, CEO of Lagos-based consultancy Financial Derivatives
Company (FDC).
    
    GIANT UNDERDOG?
    The size of Nigeria's economy - a gross domestic product of
nearly $400 billion and a population of some 190 million -
belies major weaknesses. 
    Reliance on crude oil sales for around 90% of foreign
exchange earnings led to neglect of other sectors. Once thriving
automobile, textile and agricultural industries atrophied.
    While nations including Ethiopia and Kenya are investing
heavily in railways, highways and power projects with a view to
becoming manufacturing hubs, Nigeria's infrastructure remains
antiquated.  
    With a population less than a third its size, South Africa,
the continent's second largest economy, produces roughly 10
times more electricity than Nigeria. South African brands,
including supermarkets and telecommunication firms, are already
conquering Africa. 
    Nigeria garnered just 23 points out of 100 in the World
Bank's "trading across borders" scoring due to its jam-packed
ports and pot-holed roads, which add significant costs and
delays to trade. Kenya, by comparison, scored 68. 
    President Muhammadu Buhari's government is working to catch
up. But those efforts in many cases run counter to the spirit of
free trade the AfCFTA embodies. 
    Nigeria has placed import controls on a broad range of
items, from rice, cocoa and tomatoes to furniture and footwear.
Total duties - tariffs, fees and other taxes - on some imports
can top 70%. 
    The central bank has also restricted access to foreign
exchange for imports of more than 40 items it says Nigeria
should produce itself. 
    
 PROHIBITED IMPORTS   EFFECTIVE        BAN ON CENBANK
 (25 in total)        TARIFFS AT OR    FOREX FOR IMPORTS
                      ABOVE 70%*       (more than 40 in
                                       total)
 CANE SUGAR           WHEAT FLOUR      RICE
 BAGGED CEMENT        SUGAR            POULTRY
 SPAGHETTI NOODLES    TOBACCO          VEGETABLE OIL/PALM
                      PRODUCTS         OIL
 BIRDS EGGS           CARS AND SUVs    TEXTILES
 ALL TYPE OF          SALT             CEMENT
 FOOTWEAR                              
 FERTILIZER           YACHTS/MOTORBOA  FURNITURE
                      TS               
 SOAP AND DETERGENT   ALCOHOL          TABLEWARE
 COCOA BUTTER,        RICE             TOMATOES
 POWDER AND CAKES                      
 TOMATO PASTE         TOMATO PASTE     MILK
                      (at 50%)         
 * Tariff plus levy
    SOURCING: Nigerian Customs Service, Nigerian Central Bank,
U.S. International Trade Administration
    
    Some of these policies have backfired. 
    A cap on gasoline prices requires heavy subsidies on refined
petroleum imports, and the artificially low prices mean 10% to
20% of Nigerian fuel is smuggled to neighbouring Benin,
according to estimates by the Major Oil Marketers Association of
Nigeria (MOMAN). 
    Import controls on rice, imposed even as local farmers fail
to meet demand, have kept prices artificially high and led to
smuggling from Benin into Nigeria. 
    Still, the measures are largely supported in Nigeria,
particularly among manufacturers such as Adeleye, who says
fellow stationers have benefited from a ban on imports made from
a type of paper that would compete with their products. 
    He fears joining the African free trade area could sweep
away such advantages. 
    "They have to stay in place," he said.
    
    "SOMETHING'S GOT TO GIVE"
    Having now signed onto the AfCFTA, Nigeria's presidency said
last month it will set up a committee of government agencies and
private sector groups to chart the way forward. But it made
clear that requesting carve-outs for specific economic sectors
would be a part of the process.
    "We viewed this as both an opportunity and a threat," Buhari
told a group of business leaders in July.
    Analysts worry Nigeria's attempts to reconcile its strategy
of ring-fencing domestic industries with its membership in a
free trade zone could pose a major obstacle to implementing the
agreement.
    "Something has to give," said John Ashbourne, senior
emerging markets economist at London-based consultancy Capital
Economics. "Will other African countries allow in Nigerian goods
if the (central bank) is actively trying to discourage trade
going the other way?"    
    Nigeria's protectionism has scuppered similar multinational
initiatives in the past. 
    Five years after negotiations wrapped up for an economic
partnership between the European Union and 16 West African
nations, Nigeria's failure to sign the deal has effectively
blocked it for the entire region. 
    Its adherence to the West African bloc ECOWAS' common
external tariff regime has also been patchy.  
    Any attempts by Nigeria to slow-pedal implementation of the
new African free trade deal until it is satisfied it can compete
with its neighbours could be similarly undermining. 
    Overhauling Nigeria's infrastructure could take decades. 
    FDC estimates its power and transportation networks alone
need 4.57 trillion naira ($15 billion) annually, an amount
equivalent to 6.7% of GDP. 
    However, the consultancy said Nigeria's total infrastructure
spending was just over 2 trillion naira over the past two years.
  
    At his factory, surrounded by stacks of brown and white
envelopes, Adeleye said Nigeria wasn't prepared for the
challenges the AfCFTA would present. But he said the country had
made a commitment. 
    "We signed," he said, smiling. "We have to be ready. There
is no going back." 

($1 = 306.8500 naira)

    
 (Additional reporting by Felix Onuah in Abuja
Editing by Joe Bavier, Alexandra Zavis and Andrew Heavens)
  
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