Nigeria exists in the international economic scene through membership in important economic communities: Economic Community of West African States (ECOWAS), Organization of Petroleum exporting states (OPEC), World Trade Organization (WTO) and the African Union (AU). Asides having her main trade partners as China, the United States of America, Netherlands and India, Nigeria has signed trade agreements with a number of countries in the Caribbean, the Pacific, Europe and Africa.
International trade policy has the major objective of promoting competitiveness of products and services through liberalization. As regards the interaction between international trade policy and economy, it is safe to say that the economic activity of the government at any time determines the policies. Foreign trade policy refers to policies enacted by a government that guides a country’s international trade. Main foreign trade policies are tariffs, import quotas and export subsidies. These policies can be amended to discourage consumption of certain items, through high tariffs on tobacco and alcohol for instance, as well as boost growth of prioritized sectors of the economy.
The fall of oil prices in 2016 was a much needed awakening that an objective to be reinforced would be the diversification of exports. The Nigerian government reacted by placing a ban on some agricultural produce and subsidizing food production as an attempt to boost the agricultural sector of the economy.
The impact of the foreign exchange ban was hampered by smuggling which was facilitated by the inability of the agricultural sector to meet domestic food and export requirements at quality levels for market success. Local demand quantity for some of these items surpass the supply capacity of the sector, eventually leading to high prices.
An assessment of the effectiveness of policies on import substitution and export promotion can be seen in the growth of agricultural sector’s share of GDP from 23% in 2016, reaching an all-time high of 30.77% in the 3rd quarter of 2020 before falling to 26.95% in December 2020. Much more progress can be made with the priority given to the improvement of processing standards, training of farmers on modern techniques, access to farming equipment and agribusiness development.
Foreign trade policy undoubtedly impacts economic growth and development. The recorded development of the agricultural sector since the import ban is evidence that foreign trade policies hold great potential to spur the long-desired and recently necessitated self-sufficiency that the Nigerian economy needs. Since the necessity of diversification was recognized, emphasis and activities have been on the agricultural and manufacturing sectors to diversify exports. One sector, however, with great potential for advancement of the economy through exports is the exportation of service. The highly global digitalized economy makes this sector worth considering for development through subsidies and tax reliefs.
According to Michael Porter’s Diamond model, the forces that drive a nation’s competitive advantage in the international market are: Factor/input conditions, firms’ structure and strategy, demand conditions and the presence of related/supporting industries. Each of these forces can be driven in by national policies. Input conditions are natural, human and infrastructural resources. A good number of input resources have been neglected and traded for convenience of expending on imports. A policy on imports ban will direct the focus of economic entities back toward existing resources and necessitate the development of any resource necessary. Reliance on locally produced goods to satisfy consumers’ demand is enough to drive competition in the focus industry, ultimately affecting strategy of firms in that industry. Recognition of a growing industry creates an opportunity for investment in supporting industries.
Applying this model to the Agricultural sector, we have seen government initiatives encouraging agricultural research, development of farming methods and skills. The demand for food globally increases as world population grows. The quality demand of food produce has resulted in increase in quality between 2016 and now, showing the impact of competition. Government initiatives are also directed towards fertilizers and farming equipment manufacture and sales.
Generally speaking, development of industries to meet daily consumption demands will reduce the need to import. This will have a positive impact on the Balance of Payment as well as strengthen the naira currency. Despite the strength of policies in enhancing economic development, the success of policies is highly dependent on capacity development, infrastructural development and standards enforcement to enable local sector industries to meet local and international demands. There is also a need for more incentives to attract investors to prioritized industries and their supporting industries. Tax concessions, sponsored trainings and subsidy of equipment and materials needed in prioritized industries are initiatives that can drive investment for growth of target industries.
Further reading:
- https://import-export.societegenerale.fr/en/country/nigeria/trade-country-risk
- https://www.intracen.org/country/nigeria/
- https://www.statista.com/statistics/1193493/main-import-trading-partners-of-nigeria/
- Federal Ministry of Agriculture and Rural Development (FMARD): The Agriculture Promotion Policy (2016-2020)-Building on the Successes of the ATA program, Closing Key Gaps. June 15, 2016
- https://www.statista.com/statistics/1193506/contribution-of-agriculture-to-gdp-in-nigeria/
This article was written by Priscilla Adai