On cusp of pan-African trade deal, giant Nigeria clings to protection
By Libby George and Alexis Akwagyiram
LAGOS (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).
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%.
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)