Nigeria and AfCFTA: Time to stop hiding and embrace competition

Nigeria and AfCFTA: Time to stop hiding and embrace competition

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One night in September 2016 during my brief sojourn as an Uber driver, I got a request from a popular drive-through restaurant along Admiralty Way in Lekki Phase One. The rider’s name, “Denola” caught my eye. It was an unusual name, and I knew of only one person – a classmate from school – who had that name. The last thing I wanted was to run into someone I knew in that state. Nothing screamed “failure” louder than using the car that was my graduation present as a nighttime Uber while struggling to get my startup on its feet during the day, but hopefully he wouldn’t be the one.

Sure enough when I pulled up, there was no mistaking the well-coiffed features and olive skin tone. He was the one. I was faced with a decision – either proceed with the trip and take the revenue (which I obviously needed), or choose my pride and lose the money. I canceled the trip and melted into the Lekki night, hoping he didn’t get a good look at the driver’s photo on his app.

Keeping up appearances is deadly macroeconomics

I could think of no better anecdote to illustrate Nigeria’s national reaction whenever the idea of competition and free trade comes up, especially in the context of the much-debated African Continental Free Trade Agreement (AfCFTA). Prior to President Muhammadu Buhari’s accession to the agreement, a constant feature of the conversation around it was the idea that opening Nigeria’s economy up will lead to an Armageddon of “dumping” as cheap imports “flood our markets” and “drive local manufacturers out of business.”

Like my reaction to Denola three years ago, this is an idea with very little basis in fact, but heavy on emotion and rhetoric. First of all, this idea is yet again another manifestation of our misguided sense of national importance. We imagine that there is a world of manufacturers outside just waiting for the gates of Tin Can Island Port to be thrown open, so they can pour billions of dollars worth of cheap imports into the retail cash cow that is Nigeria. After all, we have x hundred million people, so everyone wants a piece of this market.

This is similar to how I imagined that the encounter with my old friend would go – I would become gist on Facebook and WhatsApp alumni groups because the fact of my situation would be so incredible to him. In reality, he might never even have taken note of who was driving and even if he did, he would probably not have reacted in the way I imagined. Who knows that trials he himself was going through at the time? Wrapped up in my self-immersion however, I chose to let the revenue get away instead.

Replace him and me with Africa and Nigeria respectively, and you can start to see the picture. Agreed, Nigeria does have a large market on paper, but how much of this market has any money for anything other than food, soap, phone airtime and other basics? These things are already present here plentifully and at dirt cheap prices.

Even if some crazy foreign manufacturer decides to undercut a Nigerian soap manufacturer, how much can you undercut something available in N10 sachets? Will people start buying more detergent and instant noodles if these already bargain basement items become cheaper? Will a South African auto manufacturer attempt to undercut Nigerian auto manufacturers, when Nigeria recorded just 10,000 sales of brand new vehicles in 2017 versus just under 50,000 in South Africa? Again, we severely overestimate ourselves and our desirability to the outside world.

In reality, as has been examined several times, Nigeria has a woefully poor population and a large market of people who spend pennies and cents – a retailer’s paradise we are not! Moreover, the items that have long been presented as the mainstay of local manufacturing are already finding their way into Nigeria anyway.

We have a large and mostly unmonitored stretch of border with Benin Republic, Chad, Niger and Cameroon, where smuggling is a fact of life – even with official cooperation at times. Whatever tariffs and bans we impose inside brightly lit, air conditioned offices in Three Arms Zone and Ikeja have little impact on what happens in real life. Whoever is worried about being undercut by imports is probably not paying attention because it is happening anyway – paper restriction or not.

“Dumping” can be good for Nigeria

In the event that there does turn out to be a category of products that find a market here after trade liberalization, on account of being cheaper than local substitutes, this can be to our benefit in the long term. Local manufacturers will be forced to compete on quality instead of hiding behind the “Made in Nigeria” emotional appeal. They will be forced to find ingenious ways of cutting their production costs while remaining competitive on quality and when that is no longer possible, it will become a political issue for the government to handle.

Rather than use the typical Nigerian government solution to an economic problem, which lies somewhere in between ‘subsidy,’ and ‘ban,’ the government will have to make real, long-lasting and sustainable economic reforms. One of such things is the complete deregulation and eventual privatization of the power sector. Currently, power remains one of the biggest production costs in Nigeria because its generation, transmission and pricing is still government controlled.

When there is no longer any get-out-of-jail-free subsidy or tariff card with which to pacify local producers, the government may then finally acknowledge that it does not have any business controlling Nigeria’s power sector. Similar loss of government control over railways and critical infrastructure like roads and airports can only lead to Nigeria as a whole being better off.

In a nutshell, when Nigeria is confronted with real competition from the outside world and it has no wall of bans, tariffs, subsidies and import restrictions to hide behind, maybe the country will have absolutely no option than to do the things that have been left undone for decades. Currently, Nigeria lacks the political will to make these reforms, but maybe when we confront real competition from the outside world for the first time, things will finally get done.

Of course knowing Nigeria, rather than go along with this, we are more likely to stage a “Nexit” so we can hide behind tariffs and oil-financed subsidies for a few years.

As I said last week though, it is not yet illegal to dream.

 

David Hundeyin 



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