Nigeria has been one of the major hurdles to economic integration across West Africa, this author argues. It is one of the most inward-looking developing countries in the world, but will the next president be able to reverse this trend?
Editor’s note: This essay is available in our print issue, A Nation Divided. Buy the issue here.
Too many economists and commentators have approached the topic of Nigeria’s frequent anti-liberal foreign economic policy without understanding the full regional political geography and context that fosters it. Nigeria’s hesitancy in entering into the African Continental Free Trade Agreement (AfCFTA) until 2019, the frequent border closures, and the persistently high levels of tariff and non-tariff trade barriers need to be placed in a historical-structural perspective. One approach is to place Nigeria’s problems within the context of West Africa’s malformation. I have explained this notion in a previous article albeit with a focus on coastal-interior relations.
Malformation, however, is not limited to coastal-interior relations but also applies to trans-coastal relations (relations among the West African countries that border the Atlantic Ocean, from Senegal in the west to Nigeria in the east). One particularly important manifestation of this coastal malformation is the significance of parallel trade in West Africa. This trade is the result of coastal West Africa’s distribution of states and regulatory regimes, the region’s political geography.
WEST AFRICA’S COASTAL POLITICAL GEOGRAPHY
Observant inquirers must wonder why coastal West Africa (the Gulf of Guinea) is made up of eleven states, while there are only four Sahel countries. The Gulf of Guinea fragmentation emerged as a result of the greater economic lustre of coastal territories in the eyes of colonial powers, which scrambled for territories in the nineteenth to early twentieth centuries. There was therefore greater competition for coastal territories during the intense scramble for West Africa among France, Britain, Germany and Portugal (which produced non-contiguous coastal territories) than there was for Sahel and Saharan territories.
An additional contributing factor was the greater pre-colonial political, cultural and ethnolinguistic fragmentation of the forest and coastal zones of West Africa than the Sudano-Sahel. For instance, there were no Atlantic coastal empires that were as expansive as the Ghana, Mali, Songhai and Sokoto empires in the Sudanic interior.
Following colonial consolidation, physical infrastructure and investments in education were concentrated in coastal territories; this was heavily uneven. Conakry (Guinea) and Monrovia (Liberia), for instance, remained peripheral ports despite their excellent natural harbours because there was no large-scale development of commercial crops in their hinterlands. The growth of Porto Novo (Benin), Lomé (Togo), and Bathurst (Gambia) was limited by the relatively small size of their hinterlands compared with those of Dakar (Senegal), Accra (Ghana), and Lagos (Nigeria). This pattern of large coastal territories interspersed with small coastal territories had consequences for trans-coastal economic relations.
THE PROBLEM OF PARALLEL TRADE
This Gulf of Guinea political geography of uneven territorial sizes and opposing colonial powers (and therefore disparate currencies, monetary systems and rival trade regimes) has had important implications for West African trade since the period of colonial rule. This is not only evident in the low level of official cross-border trade between different currency zones, but also in the high level of parallel trade in the region.
Parallel trade refers to the movement of legal goods through illegal or unofficial channels. For example, the CFA franc zone (of which eight West African countries are part of) provides access to foreign exchange, and one country with a traditionally liberal import policy provides the main entry point for imports. Traders import goods cheaply from the ports of a country with low import duties and taxes in order to smuggle them for sale at a higher price due to the destination country’s higher import duties on the same goods coming through its own ports.
Traders could smuggle grain and subsidized agricultural inputs or subsidized petrol from Nigeria or import cement, rice and other finished consumer goods upon which the Nigerian government has placed import duties or import bans. Approximately 75 per cent of West African intra-regional trade is informal, and parallel trade is a significant form of this informal intra-regional trade.
Kate Meagher, a professor in Development Studies at the London School of Economics, identifies three main West African subsystems of parallel activity emerging from the ‘intermingling of zones of convertible and nonconvertible currency’. These are centred on Nigeria (with Benin and Niger being transit zones), Ghana–Côte d’Ivoire (with Togo being the key transit zone), and Senegambia. These small countries (Gambia, Togo and Benin) traditionally maintain liberal import policies to foster re-exports/parallel trade with their larger neighbours.
The largest subsystem, centred on Nigeria, is mainly fostered by neighbouring Benin, which has the largest informal sector of the 27 African and Latin American countries for which comparable data exist. Benin’s cross‐border trade and micro-enterprises are central to its informal economy, with one estimate suggesting that as much as 75 per cent of Benin’s Gross Domestic Product is accounted for by informal cross-border trade.
Dantokpa Market (Benin’s largest workplace) and the port of Cotonou have historically been points of entry for huge quantities of commodities designated for informal trade. Dantokpa Market is therefore one of the state’s most important sources of revenue and the most politically important site in the country. The resources gained from the state-regulated import and informal re-exportation/smuggling of industrial goods mainly to Nigeria were important for sustaining the power of Benin’s longest-serving head of state, Mathieu Kérékou (1972–1991, 1996–2006).
Ironically, Ousmane Badiane, the Africa director for the International Food Policy Research Institute, argues that ‘regional integration as conventionally applied in West Africa has gone hand in hand with inward-looking economic strategies based on import-substituting industrialization.’ He makes reference to research that reveals that out of 16 West African countries, the four biggest trading partners in West Africa (Côte d’Ivoire, Ghana, Nigeria, and Senegal) were in the top or second most inward-looking group (countries with high trade barriers).
Indeed, Nigeria, the largest economy of the region and the West African country with the largest share of intra-regional imports, is the country that is primarily responsible for a proliferation of non-tariff barriers (such as difficult customs procedures) in West Africa. The country heavily protects several industries which face high levels of import competition (such as rice, cars and textiles), while others are subsidized, most prominently petrol.
There is thus a paradoxical situation whereby the large coastal states, possessing larger domestic markets, protect their industries with high import barriers, while at the same time the smaller coastal states undermine such protectionism by fostering parallel cross-border trade. Professor Meagher observes that these smaller states do this because they are ‘too small or poorly endowed to industrialize or prosper on their own.’ They have therefore ‘undermined the development of industry and agriculture throughout the region.’ In fact, Ogunsola Igue and Bio Soulé, authors of The Warehouse State in Benin, define État-Entrepôts (warehouse states) like Gambia, Togo and Benin as ‘living nearly exclusively off the income from trade based on re-exportation.’
Lastly, Nigeria is not only the country that is primarily responsible for the proliferation of non-tariff barriers in West Africa. It is also one of the most inward-looking developing countries in the world. When compared to the three other large Gulf of Guinea countries (Senegal, Ghana and Côte d’Ivoire), it has historically been the one with the least capabilities for industrial policy success. This situation puts Nigeria in constant fear that trade liberalization will undermine its weak manufacturing sector, which never graduates from ‘infant industry’ protection.
As a result of the continuity of these political, geographical and industrial policy difficulties, as well as various economic shocks, parallel trade has only increased over time. From its colonial origins, it entered new phases of increase following decolonization, following the 1973 oil shock, and most recently, the structural adjustment programmes of the 1980s and 1990s.
PRE-EXISTING SITUATION FOR THE PRESIDENT
Nigerian policymakers who study Nigeria’s industrial policy in isolation from its regional context and who study its trade relations and African foreign economic policy from a purely formal-trade viewpoint will always miss Nigeria’s complexities.
In the first place, the share of intra-regional and intra-continental official trade in Nigeria is low, particularly due to the country’s high share of oil exports destined for non-African trade partners. In 2021, only 5.9 and 3.4 per cent of Nigeria’s exports and imports, respectively, came from the ECOWAS region, and only 15 per cent of its global trade was with Africa. This alone is a serious obstacle to commitment towards the AfCFTA. When combined with being at the centre of the largest subsystem of parallel trade in West Africa, Nigeria’s African foreign economic policy tendencies become unsurprising.
The Abidjan-Lagos Corridor handles more than two-thirds of West African trade ,and the African Development Bank president Akinwumi Adesina regards it as the most important infrastructure project in West Africa. If this corridor faces high levels of apathy among Nigerian policymakers, it is hardly shocking that the AfCFTA would also face the same.
The two factors of low intra-regional official trade and high levels of parallel trade combine with Nigeria’s low political and bureaucratic capabilities for building internationally competitive manufacturing industries. The result is that the Nigerian president is continuously surrounded by interests calling for border closures when external shocks hit that worsen the country’s trade deficits; interests asking for trade barriers and railing against attempts at trade liberalization for industries enjoying protection from foreign trade without positive results; and interests in favour of feet dragging at the implementation stage when trade agreements have been signed.
In other words, Nigeria’s structural peculiarities have created persistent pressures to maintain high trade barriers and repeatedly close its borders; to drag its feet when it comes to Economic Community of West African States Trade Liberalisation Scheme, to delay in signing onto, ratifying and possibly even implementing the AfCFTA.
The Nigerian president-elect will be entering into this pre-existing structural context. The question is: are these problems intractable? If they are not, what could be done for the next four to possibly eight years of his leadership in order to create a more progressive Nigerian foreign economic policy that has real impact?
WHAT IS TO BE DONE?
There are three interrelated classes of solutions. The first class is of solutions to parallel trade. The second is of solutions to low official trade. The third is of solutions to poor industrial policy performance.
For the first class of solutions, national unification (which should unify trade policies and currency zones) among Gulf of Guinea countries is infeasible. This has been the case at least since the non-realization of visions for a West African Federation, the lack of progress on a Benin Union (between Nigeria, Ghana, Togo and Benin) once considered in official circles in 1973, and the collapse of the Senegambia Confederation in 1989.
In light of this, Daniel Bach, one of the scholars at the forefront of studying West Africa’s parallel trade circuits, makes a few softer recommendations. Two of such recommendations are to coordinate macroeconomic policies on a regional basis and to conduct a more systematic assessment of the regional impact of national macroeconomic policies. This should help reduce incentives to develop trans-state parallel trade flows between member states. Yet, although less infeasible than political unification, there are weak incentives for commitments to regional macroeconomic policy coordination among countries, especially those not within a common monetary zone.
For solutions aimed at reducing parallel trade, Africanist historical geographers Olivier Walther, Allen Howard and Denis Retaillé further recommend that, in contrast to the prevailing practice of neglecting local traders in development policy, these actors ‘should be more frequently associated with state and development agencies policies.’ Involving them in regional integration policies would benefit from their ‘deep understanding of how African markets actually work.’
Moreover, I have argued that merchants should be viewed as potential investors in manufacturing since, by having experience, product knowledge, networks and distribution systems for importing a specific class of products, they may be better able in some cases to attempt to produce these products domestically if given state support.
The famed South Korean chaebol, which drove the country’s industrialization from the 1960s on, had its beginnings as small entrepreneurs engaged in import/export trade in the 1940s. The Dangote Group, which began with Aliko Dangote’s cement importation and re-selling enterprise in the late 1970s, has become Nigeria’s largest industrial conglomerate. In fact, a perusal of the biographies of the top ten leading industrialists in Nigeria reveals that 90 per cent of them began as import-oriented marketers and began to produce goods related to what they had built expertise in importing and distributing domestically.
In this case, the novelty would be to also involve Beninese traders in Nigerian industrial policy initiatives, providing support for them to build capabilities in the manufacture of the goods (within Nigeria) that they presently re-export to Nigeria. The goal would be to create a business class with interest and political capabilities in stemming parallel trade through Benin in the particular goods in which they have manufacturing interests within Nigeria and Benin.
By giving Beninese business elites access to and active support in the large Nigerian market to build manufacturing capabilities and creating a conduit through which profits, forward and backward linkages, and subcontracting relationships are created between the two countries, anti-parallel trade coalitions in Benin could be strengthened and official trade could increase. This ‘neighbour-inclusive national industrial policy’ could be more feasible than an attempt at conducting bilateral or multilateral industrial policies, of which the failure of the West African Common Industrial Policy is illustrative; or regional value chains, which require the unattainable precondition of neighbouring governments collaboratively providing effective industrial policy support to industries on their own side of the regional value chain.
On one hand, such an approach could help improve the success of industrial policy by helping to plug the external constraint of smuggling foreign goods, which have trade barriers put on them to promote domestic production. On the other hand, this solution would be futile if Nigeria’s industrial policy implementation capabilities remain weak, since importers could easily undermine such a programme, thereby necessitating the third class of solutions. The president-elect must adopt an ‘experimental governance’ approach in order to discover country, sector and context-specific ways to make Nigeria’s industrial policies more effective. This is so that it could better compete effectively with the superior industrial capabilities of South Africa, Mauritius, Egypt and other African countries.
Innovations made in these three areas could give Nigeria’s leaders a better chance at creating a national economy that sees intra-African trade in a more positive light. This is, however, a multi-decadal issue. Any Nigerian president must therefore, in addition to operationalization in national plans which last for the eight years of their maximum term limits, make the issue permanently enter the public consciousness and embed it in political party discourse⎈
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