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How Nigeria Can Maximise AfCFTA Benefits - Utomi - LEADERSHIP

AUGUST 12, 2019

By Anthony Awunor

Professor Pat Utomi is the founder of Centre for Value in Leadership (CVL). In this interview with ANTHONY AWUNOR, the management expert and professor of political economy explains how Nigeria can maximise the gains of the agreement establishing the African Continental Free Trade Area (AfCFTA) signed by President Mohammadu Buhari recently.

Why did it become expedient for the continent to come together for the African Continental Free Trade Agreement (AfCFTA)?

Somebody once said that you cannot beat an idea whose time has come. I think the time has just come for a variety of reasons. Amongst the very many reasons is that poverty threatens Africa all over the continent; the promise seems to be eluding Africa. One of the things that bring prosperity is trade; trade, rather than aid. Africa had depended more on aid than trade. It becomes increasingly obvious, especially to the more dependent African states, that they are tied to sources of aids.

Aid given are actually doing them more harm in terms of development. I may not agree completely with Udemisa Najo, but she has her print on Dead Aid. I can be very explicit; I think the role of France in Africa, even though it seems paternalistic, has been disruptive of the possibilities of advancing trade and economic development in Africa, including and particularly, the Francophone countries. Suddenly, some Francophone countries are getting aware of that reality.

There is a video that has been trending about the African Union ambassador to the United States, Dr. Arikana Chihombori-Quao. When I saw her in Niamey, I told her, 'I had promised people like the chief economist of Afreximbank, Dr. Hippolyte Fofack, while we were discussing the video, that if I see you, I would give you a hug.' But in many ways, that her video goes back to the partition of Africa, the Berlin Conference and how Africa has fared. She brings out the depth of the crisis of progress in the continent of Africa.

I think that African leaders have suddenly woken up to the fact that Africa constitutes a minuscule part of the global trade, and that Africa's ability to play in global trade is taken away from it by the fractured nature of its economies which is shaped by politics, most of which flow from that Berlin conference. So, African leaders began to think that we need to break these barriers. That is one important thing that drove that.

My own classic example of this is cocoa. Two biggest producers in the world are Côte d'Ivoire and Ghana. Shame, shame, Nigeria used to lead in cocoa, but that is part of what we need to deal with as a damage that oil did to Nigeria. But Côte d'Ivoire and Ghana are the world's biggest producers. Nestle is a big chocolate maker. It buys from Ghana and Côte d'Ivoire and goes to process it in another place.

They then ship back some of the paste to the two biggest chocolate makers in Africa, and they are South Africa and Egypt. And then, they make chocolate and sell. Most of us buy our own from Europe. Nestle makes more profit than the economies of Ghana and Côte d'Ivoire put together from a portion of the chocolate they make from them. So, even when Ghanaians continue with poverty, people from Côte d'Ivoire continue struggling for aids, Nestle is distributing a fortune to its shareholders.

Africa cannot afford to be a commodities continent. It has to add value and dominate certain global value chains. If it is going to do that, Africa cannot afford a fractured economic space. There is the need for aggregation to be able to be a meaningful player in the global arena.

I'll give you an example again. The Americans tried to give Africans some room to play through AGOA (African Growth and Opportunity Act). How many Africans have really profited from the AGOA? Part of it is that if Walmart wants you to supply T-shirts or whatever it is, they will like an assurance that one million pieces will be delivered every Monday evening by 5pm. Which African country, can you get that kind of stuff from? So, you have got to be able to aggregate across borders.

That is one of the big things I am personally promoting. In my role as chairman of the pan African Trade and Investment Committee (AfTRAIC) set up by the African Union, Afreximbank, ADB (African Development Bank) and others. The Council of Ministers have just approved for it now to become the African Business Council.

What is the role of the African Business Council in the new awakening?

My own personal initiative I am driving there is to create a new generation of entrepreneurs who are essentially aggregators that can aggregate across borders. Look at the trade corridor between somewhere in Cameroon and South-East Nigeria and you will see all the challenges and barrier, particularly on the most important corridor of trade, like the Lagos - Abidjan corridor. The non-tariff barriers constitute such disincentive to being able to aggregate. But, if we removed all these barriers and created a generation of entrepreneurs who can aggregate and then create large companies of the Marubeni types that were critical for the ascendance of Japan and South Korea in global trade, then Africa can receive a fairer share of global trade. This is why you see smarter people advising that African leaders can lead this kind of thinking. This is what makes collaborating with the private sector so important. Like the question of what will Nigeria gain or will not gain from it ? I watched with horror the conversation in Nigeria about whether Nigeria has anything to gain from AfCFTA and all of that. That conversation which led to Nigeria's delay was dominated by a few old-styled traditional manufacturers. I sympathise with them. I will not say I do not sympathise with them. One of the things Nigeria's environment has done is to crush people who are trying to invest. And many of these people are bearing scars and wounds of years of their investments. My own investments damaged by policy summersaults proved a good example. But, they don't get redemption by preventing the future from being better. That is the logic we have to deal with here. Perhaps, the system needs to find ways of compensating them for the damage they have suffered and the burden they have been made to bear because of bad government policies through the years. But, to do that at the expense of the future or becoming less competitive and being outside the flow of prosperity, is not the cleverest way to proceed. That was the nature of the argument. Unfortunately, in arguing narrow self-interest, I gave an example in Niamey (at the recent 12th Extra Ordinary Session of the Assembly of African Union Heads of State and Government), talking about this...

As a professor of business, I used to teach a case. The case is titled: 'Nucor At Crossroads.' Nucor was the most successful top performing steel producing company in the United States by the time I used to teach that case. But you know, there is one paradox in the name. Do you know what Nucor stands for? It stands for Nuclear Corporation of America.

I say how come the Nuclear Corporation is the top performing steel producer? I say it is because as markets evolve, as technology evolves and as trends change, the company reprogrammed what its core interest is and adapted. Many of our manufacturers need to adapt. I give example with myself. When I got to Volkswagen, I looked at the situation and I told them that this company has nowhere going. I said that if I had my way, I would shut down the motor industry as it was. Everybody began to abuse me. The only person that came to my aid was the then deputy governor of the Central Bank of Nigeria at that time, Mr. Victor Odozi, who understood the economics I was talking. I said we should shut down the motor industry because it was not competitive and it is not likely to get competitive because of endowment factors and all those issues such as wrong policies and all that.

I said what I would do is to essentially take a company like Volkswagen of Nigeria and make it part of a global supply chain into Volkswagen production worldwide. Now, I will take a factor in Nigeria that we have advantage in and become the least cost and highest quality producer of that product in the world. And I said my favourite product area was rubber.

We could take rubber and just plant it across the southern Nigeria belt; because at that time, Nigeria had the best yield per hectare of rubber in the world. Just take two rubber - based parts in the motor car, and produce them as the best quality and supply the entire global chain of Volkswagen. We will make more money than Nigeria was making in crude oil sales and I assure you that we will create more quality jobs that are lasting and sustainable in Nigeria. And when I first said it, people were thinking I don't want them to own a Nigerian car. Victor Odozi called me and said 'people like you don't come along very often to have the kind of courage or conviction to say what makes sense.'

When I raised the issue, the executive member of the board of Volkswagen Germany who was on the board of Volkswagen of Nigeria, Dr. Peter Frerk, said to me: 'Your country is very lucky to have someone like you. But, let me be frank with you; suppose Volkswagen depended on Volkswagen of Nigeria to supply all the materials to them for global production, and then you people have a coup like you always have and the border is closed for one week. It will disrupt everything. Do you see the dangers in what you have just suggested?' I used this as an example, that Volkswagen of Canada at a time was not a manufacturing company but a sales company. But Volkswagen ceded to them the production of catalytic converters.

That was when cleaner engines were coming into the system. And they ceded it to Volkswagen Canada and they were producing just that to ship into Volkswagen production for cars going to the US. So, I said if that can be done with Nigeria, and we just produce rubber components, then we just get all these values that I have just described. These things are all linked. We have to deal with country risk issues and bring them down. Nigeria has not been competitive for a long time because our political class has not been smart. They have been obsessed with power and politics and forgotten what affects the welfare of the people. We have come to a situation now when Nigeria has to get its acts together and provide leadership for free trade environment and Nigerians will profit from it.

So, what do we do to 'the old-styled manufacturers' who opposed the signing of AfCFTA by the President?

Support them to become more competitive and show them the bigger picture. Look at the legal services, and then ask: Who are the smartest lawyers that we know in Africa? We have been exporting law for a very long time. Go to Cameroun, most of the lawyers went to the Nigerian Law School. Go to Gambia and Sierra Leone, Nigerians are the smartest lawyers there. Go into AfCFTA, Nigerian lawyers will be minting money across the continent. Right now, American, European law firms are now moving into those counties. Nigerian lawyers will make more money on the continent of Africa. They better understand the continent and know the law. In banking, before we made the mistake we made with the ludicrous stress tests. Nigerian banks were going to take over banks in Africa. South African banks were fighting to stop Nigerian banks from entering South Africa. But, suddenly we had that policy misadventure, and South African banks started coming to buy Nigerian banks for peanuts. Still on banking services, imagine what Nigerian software developers can be doing across the continent of Africa. It is not by accident that Mark Zuckerberg came here. The day that young man jogged on the Ikoyi Link Bridge, I called the secretary to the Lagos State Government, and told him that he didn't need any advert. I said that all he had to do was take that photograph and show it to the world. If we just focus on those service areas, we can see the benefits to Nigeria in quantum. There is no doubt about that in my mind; that Nigeria will benefit enormously in AfCFTA. Even those old-styled manufacturers can be given incentives to move like Nucor, from nuclear production to steel production.

But, did government address the fears of the manufacturers and labour before going to sign the agreement?

At least conversation took place. I participated in one of them; the one that the lawyers had in Abuja. Amb. Chiedu Osakwe, and I were on the platform of Nigerian Bar Association Business Section event in Abuja, and it began to be clear to many people that the opportunities for us are plenty. I think it is overwhelming in recognition of these developments that led the government becoming more comfortable.

What would have happened if we didn't sign the agreement?

If we didn't sign, first of all, we wouldn't get the benefits. But the things we feared may even happen to us the more, because they will just be driving through the borders and everything will be coming. We are the ones to bear the pain and losses. Right now, there are many Nigerian manufacturers who have been exporting manufactured products out of Nigeria to West Africa for a very long time. It is because they are looking into an area where we have a latent comparative advantage - what I argued for Volkswagen in those days when I talked about this rubber thing. When everybody was heating up on me in Nigeria, Prof Paul Collier came to Nigeria from Oxford to interview me about this my "crazy" ideas. But, 25 years later, United Nations Industrial Development Organisation (UNIDO) commissioned Collier to study what happened in China because China, which was behind us in manufacturing back then, suddenly became the manufacturer of the world. And when Collier finished his study, he gave one example. He said one local government in China produces about 75 per cent of all the buttons worn on earth. That was what Pat Utomi urged Nigerians to do 25 years ago.

So this discovery, which is now by the way, the person leading the conversation, is Justin Lin, a Chinese professor of economics, who was at the World Bank as vice president for some time. Justin Lin now argues the thesis of latent comparative advantage which basically says that certain industries in which we have factor endowment and we can competitively dominate the value chains, that those kinds of sectors require an industrial policy that gives them a season of protection to develop the muscle to become globally competitive. I agree with that view compared for example, to the view of South Korean economist at Cambridge, Ha-Joon Chang. Chang whose book, the 'Bad Samaritans,' I have recommended to many people. The book deals with industrial policies and protections that led South Korea to its development. We pursued protecting local industries with ISI in Nigeria. I think the approach we should take is the approach that I suggested 30 years ago which Justin Lin essentially codified in structural economics as latent comparative advantage. When manufacturers were mainly losing ground, we saw the food and beverage sector become very strong because we had factor endowment here. With industrial policy which gives some protections and make them become more competitive, we can build up and competitively dominate the value chain and dominate into global markets. I hope and believe that, that is an idea for our manufacturers to see that manufacturing is not necessarily doomed if we are based on certain endowments and are trying to dominate certain value chains competitively.

It is one thing to sign the agreement, and another to take it home and domesticate. Considering that everything in Nigeria is mired in politics and controversy, do you see the ratification happening smoothly here and in other African countries?

Many of the other countries have ratified it across the continent. I think it will be so common sense that any legislator in Nigeria who opposes it will not be taken seriously. It is a simple common sense. It is as easy as that. They can play politics. They always play politics, but it is obvious. I don't have any doubt about that.

We understand that AfCFTA will be implemented in phases. Where are we now?

It is varied in sectors. It is such that you (a member-state) can say 'hold on in this area.' It makes it possible for everyone. And this is the beauty of the work that Amb. Chiedu Osakwe did.

Do you agree with manufacturers that weak institutions poor infrastructure, lack of power and high cost of production will put Nigeria in a position of disadvantage?

Which is why this is a beautiful thing because the less you have those agencies, the better it is. I give an example again. Speaking on another panel in Niamey, I made the point that I used to go to a conference every other year in France in a place called Annency. It is closer to Geneva. In fact, from Annency to Paris is several hours drive, but from Annency to Geneva is few minutes' drive. To go to Paris, people who live in Annency drive into Switzerland and take a flight to Paris. And it occurred to me that most times I crossed from Switzerland into France, you just drive past. The same thing happened when I was in Salzburg, just a few weeks ago in Austria. I took a train from Munich in Germany to Salzburg in Austria. I didn't see a border when I entered another country. Our institutions are critical problems, but it is left for everybody, especially the stakeholders, to put the pressures to make those institutions stronger. The non-tariff barriers they create often do more damage than bad laws and tariffs.

How will the AfCFTA agreement impact on the local auto industry considering that Volkswagen recently announced its plan to return to Nigeria after many years' absence?

It is a very interesting evolution of things and I suspect that there are some reasons why they have evolved. About 30 years ago, I was sure that it didn't make sense any more to try, from the earlier discussion we had based on the area of the latent comparative advantage. But, even though we have to be extremely careful and cautious, it seems clear that the way that the global economy has evolved in the consolidation in the motor industry and the direction of travel of transportation in the world, that last frontier of manufacturers may have began to look like the more competitive terrain of this kind of production. For example, in making soap, you find out that there are no more many people being born in many of those mature economies. They cannot consume more. So the place to sell new soap is the place they have not used soap before in Africa. So you wouldn't be surprised that Johnson and Johnson will locate a major new plant in Africa because that is where the future of the market is. That kind of thing seems to be evolving also in the auto industry and they are beginning to realise that there are places that they have no cars in Africa. Why make the cars and ship to Africa? So, the position that I saw 30 years ago whereby I advised that we just focus on areas of our competitive strength is what is happening today. Demographically, they are now seeing the future of manufacturing cars in Africa. So it requires that we reposition ourselves. In the last year, I had met the CEO of VW South Africa at workshops in South Africa and Niamey. I have found his passion exciting and raised critical issues. However, we should not do that without looking very clearly. The motor car as we all see it today will not be around in 25 years.

First of all, the reliance on fossil fuels will be something we have to now look at with the same latent comparative advantage we are talking about in mind. In 15 years, most cars will be running on battery and not petrol. Fortunately, we have lithium which is the basic input in these batteries and it comes from endowments in the form of mineral deposits in Africa. Maybe we can focus on essentially becoming a world - class producer of the best quality lithium batteries and that becomes our own deal into the motor industry so that we become competitive. It is not that we will begin to make these cars now, and 10 years after we have made all the investments, we realise that that is not where the motor car is any more, only for us to begin to travel again. We have to be futuristic and develop our strategy relating to motor industry in that direction.

The fear of most critics is that Nigeria may end up a dumping ground due to the free trade agreement. What is your reaction?

It is left for our institutions to be stronger and more watchful and to ensure that things whose origins are not 80 per cent from some African countries cannot enter Nigeria. The problem will come when our institutions choose to fail us. If they work well, it will be manageable. In terms of dumping, we have to have our own capabilities to respond to the situation.

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