Nigeria is Janus-faced on trade, but can’t have it both ways

It is unconscionable that Nigeria, where nearly 70% of the people live on below $1.25 a day, does not embrace free trade as a tool to alleviate poverty and deliver better standards of living through lower prices and greater choice

There is a paradox at the heart of Nigeria’s approach to trade negotiations. Here is a country that established a standing trade negotiating body, the Nigeria Office for Trade Negotiations (NOTN), and recruited one of the world’s leading trade experts as its chief trade negotiator, yet it’s very hesitant about entering trade negotiations and instinctively defensive when it does. The creation of such institutions would usually suggest that a country embraces trade openness and seeks greater integration with other economies through market access bargaining. But while Nigeria would like to export to other countries, its priority is to shield its industries from international competition.

The Janus-faced, incoherent nature of Nigeria’s trade policy is misguided. You can’t pretend to be open to trade, but reluctant to negotiate trade deals or seek mainly to protect your market. Such mercantilist attitude doesn’t work in a world of reciprocity, where, as one scholar put it, “market access is the currency of trade negotiations”. If a country is not a value-creator, bringing something to the table, it can’t be a value-claimer, taking something away!

There is, of course, the political economy of trade policies: the interplay of interests and ideas. Protectionist interests and ideas and in power struggle with liberal interests and ideas. This struggle is intense because free trade creates winners and losers. Although the losers, such as import-competing companies, are fewer that the winners, the losses are concentrated while the gains are dispersed. Thus, those who fear losing from trade openness have greater incentives to mobilise and lobby against it. Sadly, the forces of protectionism are often more powerful and more effective than the forces of liberalism.

But this is where the state and institutions come in. Given that the economy and the wider society benefit from trade openness, in terms of economic growth and the maximisation of social welfare, the state should support free trade and resist protectionist interests. However, public choice theory tells us that government officials often pander to protectionist interests, and even harbour protectionist sentiments. Thus, while the interests and ideas of economic actors and thinkers can shape trade policies, the interests and    intuition of state actors matter even more, as the state ultimately decide!

Which brings me back to Nigeria. And, here, the truth is that the forces of protectionism – protectionist interests, ideas and institutions – are strong in this country. Indeed, as the Economist magazine rightly puts it, “Free trade runs counter to political currents in Nigeria”. Even technocratic public officials who would normally hold liberal views have succumbed to protectionist pressures. You know that protectionist forces have won or are winning when otherwise technocratic ministers or government officials start to pooh-pooh the views of economic liberals as just “the theory”.

Recently, the Trade Minister, Dr Okechukwu Enelamah, took a dig at me in an interview in BusinessDay of Monday, 11 June. Responding to a question on when Nigeria would sign the AfCFTA agreement, he said: “Many a times there are people in academia who just write these things, maybe from London Business School or School of Economics, LSE (an apparent reference to me) and all that”, adding, “and you know that is the theory”. The implication is that my writings on trade issues in this column are just “the theory” and should not be taken seriously! Well, allow me to digress a little and address the minister’s jab with two points.

The first is that I do not just write from a theoretical basis, I write based on experience and evidence. I was a senior trade adviser with the UK Government. I represented the UK at the weekly meeting of the EU Trade Policy Committee in Brussel. I sat every week at the table with representatives from other 27 EU member states to discuss and shape EU trade policies and negotiations. I remember attending a meeting of the like-minded states in Copenhagen to help lay the foundation for the launch of negotiations on the EU-US Transatlantic Trade and Investment Partnership (TTIP). I provided legal and policy inputs, from a UK standpoint, into EU free trade agreement (FTA) negotiations with India, Japan, Mexico and many other countries. I advised and prepared UK trade ministers for EU council meetings on trade.

So, my views are not just “the theory”, they are also based on my experience of seeing how trade policies and negotiations work in practice; of seeing many countries, including the former communist states of Eastern Europe, aggressively pursuing free trade policies and negotiating free trade agreements because they believe that trade openness and deeper integration into regional and global markets would help their economy grow faster and generate greater prosperity for their people.

Now, my second point: what’s even wrong with theory? As John Maynard Keynes famously said, “Ideas are more powerful than is commonly understood. Indeed, the world is ruled by little else”. No serious country ever develops its trade policy without intellectual influences, without inputs from academic experts. Anyone interested in the intellectual history of free trade knows that ideas about the static and dynamic efficiency gains of trade have hardly changed since Adam Smith and David Ricardo propounded them centuries ago. Of course, as I said earlier, free trade creates winners and losers. But this, too, was recognised centuries ago, and led to John Stuart Mill’s “compensation principle”, advocating support for the losers.

What’s more, these ideas or theories have been empirically tested repeatedly and found to be valid. Trade openness, the evidence shows, boosts GDP growth through efficient allocation of resources; promotes economic dynamism through access to advanced technologies and innovative ideas, which enhance productivity and competitiveness; and, of course, provides better access to external markets. Above all, as a joint World Bank/World Trade Organisation report shows, free trade is a powerful tool for poverty reduction. It is unconscionable that Nigeria, where nearly 70% of the people live on below $1.25 a day, does not embrace free trade as a tool to alleviate poverty and deliver better standards of living through lower prices and greater choice.

Recently, Nigeria’s chief trade negotiator and DG of NOTN, Dr Chiedu Osakwe, tweeted some positive comments on trade. One said: “Countries that are open to trade grow faster and generate more jobs than countries that are closed up”. That’s not theory, it’s an evidence-based fact. Unfortunately, that view doesn’t reflect the policy reality in Nigeria. Every flagship economic policy document in Nigeria, such as the Nigeria Industrial Revolution Plan and the Economic Growth and Recovery Plan, describes import substitution as the main goal of Nigeria’s trade and industrial policies. What this means, of course, is more trade protection – import prohibitions, high tariffs and other restrictive measures, all of which contribute to the complexity and opaqueness of Nigeria’s trade regime.

In her book, Reforming the Unreformable, two-time finance minister and coordinating minister for the economy, Dr Ngozi Okonjo-Iweala, said: “In Nigeria, the trade regime is politicised, with different business groups and their political backers interfering in the setting of tariffs and even asking for the implementation of non-tariff barriers to benefit their businesses”. Of course, that protectionist environment has hardly changed.

Now, international agreements are usually the means of locking in domestic reforms and shaping the constraints and opportunities that economic actors face. But Nigeria was viscerally defensive in the negotiations on the ECOWAS Common External Tariff (ECOWAS CET), the EU-West Africa Economic Partnership Agreement (EPA) and the African Continental Free Trade Area (AfCFTA). So far, the government, captured by protectionist forces, has not ratified or implemented these agreements. It argues that they would lead to more imports and expose Nigeria’s “fragile” industries to fierce international competition.

Of course, no country ever abandons its industries, but import substitution and infant industry arguments for protection are misguided. Since Nigeria has been protecting its “infant” industries, how many of them have grown out of infancy? None. Supply-side constraints, not international competition, are the bane of Nigerian industries. Address that, and there would be significant progress. Unfair trade, such as dumped imports, must, of course, also be tackled through normal trade remedies routes.

But, let’s face it, Nigeria can never develop or industrialise by avoiding free trade agreements or shielding its industries behind protectionist walls. It would simply create inefficient, zombie industries. That would harm the economy and reduce general welfare. If “that’s the theory”, well, I am in good company!