Displaying items by tag: Nigeria

African Business Magazine –

Joining the African Continental Free Trade Area may be Nigeria’s first step towards realising the potential of its business sector as a force in Africa, argues Dianna Games.

When Nigeria failed to occupy a seat at the African Continental Free Trade Area (CFTA) launch in Kigali last year, many asked why a country that has long considered itself a leader in African affairs would not be grabbing the mantle of leadership in a project of this scope and importance.

After all, the country has some form when it comes to regional integration, having been a leader in the establishment of the Economic Community of West African States (Ecowas) in 1975.

But nearly 25 years later, Nigeria was one of the last countries to sign the CFTA, alongside its tiny neighbour Benin and ahead of Eritrea.

As Africa’s biggest economy stalled at the starting gates of the initiative, questions were asked about its reticence.

The country has been a key promoter of the initiative since its launch in 2012. Nigeria continued to be closely integrated with the process leading up to the May 2018 Kigali launch and the Federal Executive Council, presided over by the vice-president, Yemi Osinbajo, had agreed that Nigeria’s signature would be on the agreement at the event.

However, it fell at the final hurdle when lobbying by policymakers, trade unions and local companies led President Muhammadu Buhari and his team to cancel the flight to Kigali, in response to accusations that the government had failed to consult widely enough on the potential impact on the economy. After further consultations and on the advice of local experts, Buhari signed it in July.

Nigeria’s central concern is that its market will be flooded by goods from other African countries, which will undermine local manufacturing and agricultural enterprises, many of which are performing well below their potential and may not survive competition.

Countries such as South Africa and Kenya as well as North African states are specific challengers given their relatively high levels of industrialisation and efficient supply chains.

Not much to show for protectionism

The CFTA has highlighted the soft underbelly of Nigeria’s protectionist trade policy, which it has employed for decades – without much to show for it.

Although the economy has made significant strides in some areas, particularly in services, the successes are few compared to the opportunities the policy has provided.

The share of manufacturing as a percentage of GDP, for example, has lingered at around 10%, rising slightly to 13% in 2018.

Economists say that under the right conditions, Nigeria should be able to increase this to over 40% by 2030. It is not yet clear whether the free trade agreement will help or hinder Nigeria’s ability to reach this target.

Meanwhile, the services sector has overtaken agriculture and industry to become the biggest sector in the economy, representing nearly 58% in 2017.

Import restrictions have been a trade policy instrument since the 1970s, when they replaced tariffs as an enabler of growth and a counter to the competition posed by imports to local producers.

The restrictions included outright prohibitions and import licensing.

In 1978, there were already 76 broad groups of import items on a prohibition list. In the 1980s, about 40% of agricultural and industrial products by tariff lines were covered by these prohibitions.

The line items have come and gone over the years but when items were removed from the prohibition list, they often quickly attracted high duties and tariffs to serve the same end. Smugglers enjoyed significant benefits, quickly moving into market gaps created by the restrictions, as Nigerians’ tastes for imports refused to be quelled by government fiat.

There is no doubt there have been legitimate beneficiaries as well, including Africa’s richest man, Aliko Dangote, who built an empire on the back of import restrictions and bans.

However, once thriving sectors such as textiles and leather, which were intended to be key beneficiaries, have been crippled by not only the country’s shift in focus to the lucrative oil sector in the 1970s, but also by the high cost of doing business in Nigeria.

Unresolved problems

This highlights the key weakness in the trade policy – the fact that governments, in imposing protectionist policies, have failed simultaneously to address the embedded dysfunction in the operating environment that has left so many companies unable to compete with imports or even meet local demand.

Companies battle against a host of challenges in manufacturing including expensive power, the high cost of money, an onerous regulatory environment, poor infrastructure, a volatile currency and inefficient ports.

In acceding to the free trade agreement, there are bound to be many positive outcomes for resilient Nigerian companies.

But the country may also end up paying the price of years of relying on restrictive trade policies, rather than investing in productive capacity, to grow the economy.

History shows the damage that was done to many companies across Africa during the liberalisation of African markets in the 1980s and 90s after years of surviving behind high tariff walls.

Signing the free trade agreement may be painful for Nigeria for a while but it also may be the first step forward in realising the enormous potential of its business sector as a competitive force in Africa.

Nigeria’s best chance of building a consumer class is not by making it difficult to get imports but by enabling the growth of a critical mass of efficient and sustainable companies. 

Dianna Games is CEO of advisory company Africa @ Work

Business Day - 2 March 2018

Former president Jacob Zuma was seen by many in Africa as a great leveller. This was not because of any attempt to address inequality among his people but because he aligned SA to the broader African experience of governance. His behaviour, together with that of his ministers and friends, removed any sense that SA is exceptional in Africa, a perception that used to be held by many in the international community but also by South Africans themselves.

Zuma can take responsibility for finally putting that issue to rest.

As SA’s media uncovered the excesses and murky strategies of the Zuma administration, revealing new dirt almost daily, many Africans expressed concern about SA’s trajectory. This was not because their own governments were better, but because they weren’t. They have lived with the continued erosion of value in their institutions, lifestyles, governance and other key areas of life. African countries from west to east have shown at times in their history how easily the rot at the top eats its way down, undermining moral and ethical propriety at all levels of society.

Nigerians maintain that SA is a beginner in the corruption stakes – their leaders and military dictators have siphoned billions from the fiscus for decades. Their lesson has been that self-interested leadership breeds endemic corruption. The longer rotten government is in place, the more moral laxity pervades the social fabric of the nation. It is hard to turn this around.     

   THE inaugural flight by South African Airways (SAA) last week from Johannesburg to Abuja, the capital of Nigeria, was a milestone in the relationship between the two powerhouses of Africa, WRITES DIANNA GAMES.

The launch of the route is not just about moving people between two strategic cities; it is symbolic of a greater connectedness between Africa’s two biggest economies that is long overdue.

The launch of the route between Johannesburg and Abuja came 19 years after SAA began flights to the commercial hub of Nigeria, Lagos, in 1998 — a route that became one of the fastest growing in SAA’s history and is still among the top three busiest for the airline in Africa.

In 2011, the SA-Nigeria Binational Commission increased the number of flights from seven to 10 each for both countries.

SAA flies seven times a week to Lagos and the three remaining slots are being used for the Abuja flights. The new route forms part of SAA’s turnaround strategy, and there are early signs of success.

The first return flight from Abuja to Johannesburg last week had a load factor of 67%.

Airline executives believe the route will be profitable in a reasonably short time.

There are many reasons why. First, many people who do not live in Lagos prefer to avoid the city if they can. The airport experience can be trying, with antiquated infrastructure and systems struggling to keep up with growing passenger volumes. Travelling from Abuja is easier and may attract more people to SA.

Second, the Abuja flights will provide a link for trading centres in northern Nigeria, allowing flights not just to SA, but to Southern Africa and to other regions such as Brazil, which has strong commercial ties with Nigeria.

The route will also make it easier for South African investors to connect to Nigeria’s administrative and political centre. What is more, it will facilitate interaction between the two governments.

The political dimension is significant. The choice of Abuja as SAA’s newest destination signals the fact that Nigeria is still an important partner for SA.

This will be cemented by the state visit to Nigeria by President Jacob Zuma in a few weeks.

An airline is an important diplomatic tool and the timing of the new SAA flight is good, coming at a time when there is a real willingness to build stronger ties between two countries that have had a complicated past relationship.

But this is being undermined by a few issues.

Read more

- Published in Business Day SA, 1 February, 2016

   A QUESTION Nigerians often raise in discussions about SA and its West African counterpart is why there are not more Nigerian companies investing here, writes DIANNA GAMES. 

Where are the Nigerian banks, the food franchises, the supermarkets and IT companies? they ask. The diplomats are particularly exercised by the trade and investment imbalance. This, they say, reflects badly on the bilateral relationship.

It is true that there are few Nigerian investments here more than 20 years after SA opened its doors to the rest of the continent. Dangote Cement has acquired a cement operation, and oil and gas company Oando has a few, largely inactive, shares listed on the JSE. But there is little else if you don’t count the many small businesses owned by Nigerians resident in this country.

Compare this with the fact that the majority of SA’s top listed companies have a presence in Nigeria. Read more ... 

- Published in Business Day SA, 12 October 2015.

Toothpicks are on the list of more than 40 items for which the Central Bank of Nigeria has forbidden the sourcing of foreign currency through the formal banking system for spending on imports, writes DIANNA GAMES

Published in Business Day SA, 3 August 2015

THERE has been a lot of talk about toothpicks in Nigeria of late. The humble implement for removing elusive morsels of dinner is a culprit in Nigeria’s foreign exchange crisis. It is included in a list of more than 40 items for which the Central Bank of Nigeria has forbidden the sourcing of foreign currency through the formal banking system for spending on imports.

Other items on the list include private jets, tinned fish, vegetable oil, roofing sheets, cosmetics, soap, plastic and rubber products, Indian incense, steel pipes, plywood board, glassware and kitchen utensils.

Although the manufacturing sector’s contribution to Nigeria’s economy has grown from 1.9% in the early 1990s to 6.8%, the country has little to show for years of import bans designed to boost local manufacturing.

Read more ...  

WE CANNOT afford to disappoint Nigerians, President Muhammadu Buhari told his party leaders at the weekend, writes DIANNA GAMES.

Published in Business Day SA, 7 July 2015

Mr Buhari was responding to concerns from a nation impatient for signs that their new president has the will and capability to tackle corruption, fight insecurity and instill discipline into the polity.

Just a few weeks into the job, Mr Buhari is battling to get on top of an array of problems plaguing the country, despite bold promises made before the April election that he would move swiftly to build a better Nigeria. He has spent his early days in office fighting fires in his party and in the country.

Last week, it emerged that Mr Buhari may not announce his new cabinet before September — three months into his tenure and nearly six since his election as president.

Read more ...

Muhammadu Buhari may have ben handed a poisoned chalice, having to balance tackling a litany of economic and security problems while satisfying Nigerians' expectations of change, writes DIANNA GAMES

Published in Business Day SA, 25 May 2015

NIGERIA is facing a crisis of expectations as it heads for one of the most auspicious moments in its relatively short 16-year democracy.

The inauguration later this week of Muhammadu Buhari is expected to bring significant change to this large, complex nation.

Not only will Nigeria have a different head of state, it will have a new cabinet and two-thirds of the 36 states will be changing governors after the opposition All Progressives Congress won at the polls this year, displacing the Peoples’ Democratic Party, which had governed Nigeria since 1999.

While this presents an opportunity for a new broom to sweep away much of the rot that has dogged Nigeria’s progress, it’s a formidable task. Read more ...

Dysfunction is fuelled both by powerful vested interests which benefit from the status quo and by millions of people who earn incomes from 'parallel' economic acvities, writes DIANNA GAMES

Published in Business Day SA, March 16 2015

ONE of the biggest complaints about Nigeria from foreign companies is how unnecessarily difficult it is to do business there. The government is not short of grand plans to diversify its economy and politically expedient quick wins but it is less exercised with dealing with the underlying factors that undermine economic development and diversification.

Many of its policies have focused on stimulating local manufacturing to reduce the country’s huge import bills. Over the years it has imposed import bans, slapped high tariffs on a range of goods and tried to pick winners to boost industrial development. But it has failed to simultaneously address the dysfunction that makes it so challenging to operate businesses in Nigeria.

These include a range of illegal business practices that have developed over the years to the extent they have now become part of the fabric of the economy, despite their corrosive and costly effect on development.

Read more ...