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For a developing country, debt accumulation is inevitable for national governments. Government spending is typically financed by government borrowing – externally and domestically – and by raising taxes. However, it is equally vital to have a sustainable debt management framework so as to avoid over-borrowing. National and sub-national governments must incorporate some kind of inter-temporal framework in their borrowing strategy such that consumption today does not mean liability for tomorrow’s generation.

In Nigeria, the Debt Management Office is the institution saddled with the responsibility of managing the nation’s sovereign debts. Periodically, it conducts stress tests to ascertain the sustainability of the debt stock against the prevailing macroeconomic environment and the scenarios in the domestic (debt) market.

The last Debt Sustainability Analysis conducted in 2017 by the DMO adopted the latest version of the joint World Bank/IMF Debt Sustainability Framework for Low-Income Countries which provides indicative debt thresholds that reflect the quality of a country’s policies and institutions. It is based on the World Bank/IMF’s Country Policy and Institutional Assessment (CPIA) index ranking which classifies countries into one of the three policy performance categories: Weak Policy (CPIA<3.25); Medium Policy (3.25≤CPIA≤3.75) and Strong Policy (CPIA >3.75), and applies different indicative debt thresholds, depending on the performance category. Along with such countries as Ghana, Mozambique, Ethiopia and Sierra Leone, Nigeria is classified as a medium performer on the CPIA index with a score of 3.41.

The 2017 DSA included a stress test for the economy under three scenarios: the baseline scenario which hinges on assumptions of the annual budget and the medium-term expenditure framework (MTEF) 2018-2020; the optimistic scenario anchors on the optimism of the Economic Recovery and Growth Plan (ERGP) with a target growth rate of 4.80% in 2018 and 7% by 2020; while the pessimistic scenario assumes continued shock to the foreign exchange earner – crude oil – at less than $30pbd, deterioration in the external balance and depreciation of the domestic currency.

Total Public debt stock (H1 2019)

However, since the GDP growth rate has hovered below 2 per cent behind the ERGP optimism of 4.80%, but global oil price has hovered around USD60pb, and the naira exchange rates have been stable at N359/USD1; it may be objective to evaluate based on the baseline scenario since the scenarios in the other extremes have not been experienced.

As of June 30 2019, the Debt Management Office (DMO) reported that the debt stock (both national and sub-national) stood at N25.7 trillion (USD83.9 billion)—this represents a 14.6 per cent increase from the preceding year.  Of this total, domestic debt accounts for 67.6 per cent (= N17.38 trillion), while external debt standing at N8.32 trillion (USD27.16 billion) accounted for 32.38 per cent.

In 2018, the Debt Management Office (DMO) proposed an extension of the borrowing threshold from 19.39 per cent to 25 per cent. However, with the addition of N10.7 trillion in 2019, Nigeria already surpassed the 25 per cent threshold (see Table 1). Figure 1 shows that since-after the Paris club debt write off, the nation’s public debt stock has risen by over USD65 billion – more than twice the debt written off. The DMO also adopted a strategy to increase the ratio of domestic to foreign debt as a cushion to external (foreign currency) shocks. Table 1 shows, however, that the rate of change of domestic debt is lower (11 per cent) in terms of the foreign currency than in domestic currency (N43.1 per cent). This would be due to the exchange rate effect. Should the DMO revise or revisit its debt strategy?

Sinking Funds

In the first half of 2019, the total amount of external debt servicing and interest payment on domestic instruments amounted USD 609.56 million and NGN800.11 billion respectively. These values are 2.2 per cent and 4.6 per cent of their corresponding total. Commercial papers and Eurobonds took 62.2 per cent of the total debt service funds while bilateral debts got the least – 3.4 per cent in Q2 2019.

For domestic debts servicing, FGN bonds claimed more than half of the total interest repayment in the first half of 2019; whereas FGN savings bond had the least with NGN658.54 million. From the table, most of the repayments were done in the first quarter of 2019 valued at NGN610.3 billion – representing 76.3 per cent of the total. And the FGN bond took NGN 480.85 billion.

Table 3 External Debt H1 2019 (USD’ 000)

Table 4 Domestic Debt H1 2019

Conclusion

The year 2019 has been an interesting time. Macroeconomic indicators are not impressive: inflation is above 11 per cent, GDP growth less than 2 per cent, unemployment is high above 25 per cent and debt and debt servicing continues to hover over the bars. Increased government presence in the debt market would crowd-out private sector investments and matters would be debilitating. Recently, the Central Bank of Nigeria restricted the purchase of its OMO bills to banking institutions and Foreign Portfolio Investors (FPI) in a bid to re-channel funds away from risk-free assets to real sector investments. This is expected to moderate yield environment and reallocated resources to growth sectors. However, monetary institutions have to be strategic going into the New Year to hedge against external shocks and other fundamental uncertainties.

Not all statistics are worth losing sleep over. Some are just for the informational content. The home-ownership rate is one such: it is a measure of the proportion of people who live in their own houses. It indicates the strength of mortgage market and at best, a measure of aggregate prosperity. When it is low, it implies that something has to be done to increase prosperity – not home-ownership per se – in the expectation that prosperity would bring the wealth and motives to acquire homes. However, at some point in our development path, we took the wrong approach towards increasing the level of home-ownership. The government, instead of investing in housing, conducted ‘fire sales’ of public lands to the highest bidders, increasing the relative scarcity of land and its prices. Soon, everyone wanted to own lands, it had become popular as the ‘best investment’ irrespective of its high capital-output ratio. Private individuals flooded the housing market. The government eventually exited the market as it became difficult to regulate.

Today, the effects of this unstructured deregulation include illegal sales, land grabbing, collapse of urban planning, rise in squatter settlements, unhealthy competition for lands, uncontrolled factor pricing, cost-push inflation, and rising housing deficit. These made other public infrastructure – water, sewage system, and transportation – necessary for urban planning almost impossible to develop. This approach to increase the rate of home-ownership does not reduce the rate of homelessness, rather increases it.

There is a housing deficit of about 17 million. It would take the production of one million units per annum over a 20 year period to close this gap. But overall annual fulfilment is 100,000 units and a corresponding deficit of 900,000 units which carries a potential cost of US$ 16 million. The mortgage market is somewhat labyrinthine with 57 players, but mortgage financing to GDP is 0.58% (South Africa, 31%), home-ownership is 24% (Kenya, 73%). Mortgage conditions are stringent: interest rates are as high as 20% and a 25% down payment on an average mortgage size of US$ 18,000 – in country where 87 million people live below US$ 1/day. The focus should be eradicating extreme poverty not increasing home-ownership.

Presented with evidence of market failure, the visible hand of government is necessary to restore equitable distribution and social optimum in the housing market. But governments too have failed.

A number of state governments have attempted mass housing schemes: it is typically a few blocks of bungalow houses built in remote locations, deserted and often unliveable to those for whom they were intended. And when these governments realize their failures, they enter into a quasi-partnership with government compradors who connive with other individuals, in the guise of estate developers, to off-take the lands being sold out by government ministries and local communities under shady negotiations – with no pretension to transparent market process. These pseudo-developers go on to build luxury houses for themselves and the upper class. No consideration for the vast poorly-housed lower class. Ogun state is a classic case: the government and communities are off-loading the lands to churches, private developers and foreign businesses in a fate of competition with Lagos state, ignorant of the current challenges Lagos state faces. They are losing the opportunity as a sparsely populated state to initiate integrated city development.

So while these estate developers continue to build for the top 1 per cent that could afford home-ownership and already own estates, nobody builds for the ordinary man. A subtle paradox ensues: a simultaneous development of luxury estates and slum estates; whereas the former is largely unoccupied, the latter is overcrowded. The results of markets is not always optimal: no wonder while there are slum cities to revamp, scarce resources were rather directed towards building a new luxurious Eko-Atlantic city despite the number of unoccupied apartments in Ikoyi, Victoria Island and the environs. It was only recently that we realized that these empty buildings served other purposes as cash vaults to hide away stolen monies. This partly explains why rental prices are downwardly rigid in these environs where there is a glut of albeit, luxury homes.

Housing, like education and health is a critical sector in which the government cannot laissez-faire. The high capital-output ratio in housing investments implies that unchecked markets would not yield socially optimum outcome. The visible hand of government is necessary both as a player and regulator to steer the market to desirable outcome. Housing is a major part of household consumption and savings motives in developing countries. Therefore, improving housing conditions would have positive implications for standard of living.

Concluding remarks

Sadly the housing production model continues to be about luxury homes even though it is not working! The diaspora city plan of the Federal Housing Authority to build estates for Nigerians living outside of Nigeria is a case of government betrayal of the majority of Nigerians living in Nigeria with no decent roof over their heads.  Government needs to return to the market: they need to increase the percentage of total land stock in the government’s possession even if it means revoking certain land titles. They need to provide proper incentives to local authorities, housing associations, private establishments and community organizations that have the resources and can endure the long-term risk-return nature of housing investments to produce standard rental units at affordable prices. Housing units could be built and then sold apartment by apartment in which case the overall assets still remains in public ownership, allowing therefore for integrated maintenance and urban planning. This was the Jakande model in 1983 Lagos state. These sorts of collaboration and coordination are necessary to correct the market distortions and provide affordable homes for Nigerians. However, the rhetoric needs to be changed: everybody cannot be homeowners. Therefore, there should be provision of a minimum standard of housing unit for life-starters and those who cannot afford luxury home-ownership.

(First published: https://www.businessdayonline.com/exclusives/analysis-sub/article/need-visible-hands-affordable-housing-market/)

I believe I grew up at a time that saw the last plenitude of quality products in Nigeria. I remember my brothers would jest: “revere that –Scanfrost– fridge before opening it, it’s older than you.” It was the same for the National TV, the SMC ceiling fan, the Kenwood turntable and other home appliances. These devices lasted over a decade without repairs. These products were from Europe and America. Chinese products were thought of as inferior. Then, few individuals could do importation businesses. Titles like “importer-exporter”, “general merchandise” and “international” connoted status in markets and social unions. All that soon changed.

Today, over 18.7% of imports are from China, and it is no coincident that a significant portion of import-goods are inferior products. In fact, in a regular shop, you are typically first offered a substandard item as nearly all original items have their substandard version in competition. Even pharmaceutical products are not spared. The dealers exploit the information asymmetry to create imminent Lemon problem in the import-goods market: fake products crowd-out original products. It is better to pay the minimum price and get the minimum quality than to pay the maximum price and get the minimum quality instead of the maximum quality. Interestingly, the dealers operate brazenly in most markets across the country, they are not in hiding. The war against piracy and watered quality seem to have eluded the regulatory agencies in their duplicative forms – Standard Organisation of Nigeria (SON), National Agency for Food and Drugs Administration and Control (NAFDAC) etcetera.

How did we get here?

1. Historical coincidences

As population increased, it became insufficient for the few importers to meet the import demands of the entire country. At about the same time, the country was making huge petro-dollars in oil revenues. As these monies began trickling into the society, more individuals found it attractive to venture into import businesses. This time may have also coincided with indigenization decree of 1970s when Nigerians began to take positions in the shipping/cargo trades. By this time, China was building its economy towards industrialization, surplus production and export drive. Today, they are the largest economy in the world!

Chinese producers brought greater flexibility in terms of pricing and quality which made them more attractive to many new importers than their European and American counterparts. This price-quality compromise made Chinese imports to Nigeria cheaper relative to others – exploiting the price sensitivity of consumers.  This quality flexibility is most evident when one finds that an item produced in China for European or American markets tend to be more durable than those produced for Nigerian markets.

2. Regulatory lapses

Another explanation for the proliferation of substandard items is weak import regulation amplified by poor border management – corrupt border agents. In Nigeria today, anyone can import almost any item in commercial quantities so long as it is not in the contraband list or the few special goods that require import license. Times changed, the sector evolved but the regulatory framework has not changed. Just anybody should not be able to import goods in commercial quantities: it does not only make regulatory administration difficult especially for a highly populated country where there is personnel shortfall; it makes import demand for foreign currency becomes uncontrollable with attendant depreciation pressure on the local currency. In 2017 alone, import demand was NGN1.79 trillion, dwarfing the NGN720 set aside for Naira/Yuan swap for three years. On the production side, it cripples domestic ability to produce, leading therefore to output decline and unemployment.

3. eCommerce

One last factor was the internet and technology revolution. The development of internet technologies sparked irreversible revolution of trade through eCommerce, facilitating cross-border transactions such that everybody can buy virtually from any part of the world. This reduced the transport costs of business and eroded the market powers of the earlier importers. The importers market today, is purely competitive.

A simple way out

Admittedly, there have been major reforms to stem the tide such as anti-piracy technologies, raising penalties from 50,000 naira to 300,000 naira, and seeking collaborations with governments of trading nations. However, the fight must be strongest at home. It is therefore important to restrict commercial importing to registered importers and trading companies who meet certain criteria. These registration criteria need not be monetary payment but would include minimum capital requirements, loan credibility, storage/warehouse facilities, logistics ability and etcetera. The registration system would allow for efficient administration of regulatory checks on product quality and standards. The registered import businesses would be buoyant enough to issue product warranty and return guarantee should the product not satisfy the customer as against the current practice where consumers are ambushed by petty importers unable to give these assurances. So this would go a long way to ensure consumerism and consumer protection.

By way of trade protection, the registered importers would typically organize themselves into unions according to their respective trade lines and help combat substandard imports so as to protect their market profit and avoid regulators knocking their doors. The intuition is that these importers are better positioned to curb the menace of substandard items, and with the right incentives, would develop the internal interest to do so.

Regulatory agencies can then focus on design standards and compliance. Should any substandard product enter the local market, agencies would know where to begin their investigation. Inter-agency collaboration in order to avoid unhealthy rivalry and stakeholder engagement to bring about synergy in product tracking would help solve the lemons problem. As a final caveat, we are about signing the continental free trade agreement which opens our borders to a flood of importers from across Africa, if we cannot manage our own importers, what is to say we would be able to manage the multitude of African importers? Free trade does not mean dumping of substandard goods. We would more now than before, need a registry of importers.

(First Published: https://www.businessdayonline.com/exclusives/analysis-sub/article/proliferation-substandard-import-products-lemon-problem/)

Urban societies are typically a mix of diverse people and interests that are often interdependent. It is therefore pertinent that urban housing strategies account for social integration of these varied interests. But the ‘affordability’ of housing seems to be an ambiguous subject matter. Definitively, affordability should capture the average income of the people, the design and material costs of building, the underlying costs of lands, maintenance costs and other associated costs that determine the price per unit of the housing structure. In Lagos where the prices of lands, materials and designs are comparatively high, the final price per unit of a decent housing development turns out above the average wage of the people and thus a luxury for the low-middle income groups. A realistic price for low-income resident should derive from the prevailing average income, ranging therefore between N18, 000 and N50, 000. The inflated cost of lands is due mainly to a combination of factors including inflexible land tenure system, land speculation, land grabbing and high incidence of fraud. The result is the manifestation of inequality and segregation in settlement pattern – for which mixed income/class policies are possible solution.

Mixed income/class housing is a strategic co-location of both social housing and market housing designs in an area with shared access to infrastructure in order to ensure social inclusiveness. Given the housing situation in the country, market motivated strategies only worsen inequality and social exclusion. The time is now to grease the stiff necks of the government, call the attention of private developers and community stakeholders towards mixed income/class alternatives. We must build political consensus on housing as a necessary human need for the rich and poor alike.

Challenges to mixed income/class housing policies

1. Market mechanism: where the government has failed to provide the basic infrastructures that ensure social inclusiveness and lacks policies against gentrification of cities, private developers step in to fill the gaps however with a selection strategy that maximizes profits. For instance, if the underlying land is auctioned and developed under market process like in Banana Island, a decent unit in the eventual development becomes too expensive for the common man.
2. Social costs: mixed strategies imply that low income earners live in the same neighbourhood as the wealthy where infrastructures are available. But these infrastructures and utilities such as energy carry costs that may exceed the income levels of the poor. Also, because prices generally tend upwards, the activities of wealthy may drive up prices – of foods, schools – such that the poor may sort themselves out. Example, Amuwo-odofin, FESTAC town.

• Security: the growing disparity between classes has dynamic implication on behavioural patterns and environmental expectations for both classes. This for the wealthy class manifests in perception of insecurity around the poor and class tension. For the poor, it could mean oppression and intimidation.

Policy proposals: case study

Studies show that inclusive, equitable cities are more sustainable. In particular, two international case studies in Vienna, Austria and Maryland, USA show interesting outcome and could serve as guide in the approach to mixed housing strategies. In Vienna, the government drives the construction of most new apartments: land is sold to the winning developer at a subsidized rate, under low interest financing and long-term loan repayment schemes. In conformity with the stipulated design standard, ecological considerations, the developer must then rent half of the new apartments to low-income residents at prices regulated by the government. Today, Vienna is adjudged the world’s most liveable city.

In Maryland, the policy sets aside 15% of housing units over 50 units for affordable housing, of which one third goes to the Public Housing Authority for subsidized low-income housing, while two third goes to the modest income class.  Two approaches were compared thereof in this case study: in Mckendree development, the affordable residences were clustered in one area where there are high income residents as well. There were no shared facilities or community spaces, and maintenance was left to the individual residents. In Timberlawn development, the affordable units were dispersed around the city with the market-rate residences. The units also had shared facilities which were centrally maintained. Comparative surveys showed more satisfaction in Timberlawn than in Mckendree.

We can draw lessons from the successes in the international case studies. Policies can be designed to address the challenges that hinder the implementation of social housing programs across Nigeria. In Lagos for instance, a mixed housing policy could stipulate that 20% of estate development greater than 5 hectares have to be allotted for constructing affordable housing. Of the 20%, 15% may be reserved for moderate income class while 5% would be reserved for the low income category such as artisans, housemaids, and petty traders. These affordable units would be sold only to cooperative groups so as to avert the incidence of speculative reselling – at market values. However, members of the cooperative societies may sell or transfer their block or shareholdings to existing or new members. Rental price in the lower income segment may be a fraction, say 20% of their estimated average income. Government involvement is necessary to keep prices stable.

The design guidelines should follow the distributed-type mixed housing, proximity to social infrastructures such as schools, healthcare centres, parks and markets should be considered. Given the electricity situation, buildings should be at most, 5 storeys with navigable stairwell – without elevators. Kitchen, toilets and bathroom may be shared by optimum number of room/occupants. Designs should adopt simple parameters such as cross ventilation, double roofing and roof overhangs in order to boost environmental performance and reduce maintenance costs. However, these policy suggestions are not conclusive. They are simple, practical steps towards inclusive housing policies and are open to debate and further discussions. It attempts to call the attention of private and community developers, governments and other stakeholders to the possibilities in creating social housing.

(This article is based on the report, Achieving Mixed and Integrative Housing in Lagos by Heinrich Böll Stiftung and Arctic Infrastructure)

First published: https://www.businessdayonline.com/exclusives/analysis-sub/article/affordable-housing-strategies-mixed-income-policies-part/

In part I of this two-part series, I argued that the price of land among other factors is a key driver of variation in price of rental units across location. Therefore, policies and strategies to create and finance affordable, low-income housing should begin from stabilizing the price of lands and managing the distortions inherent in the system. For instance, the report by Heinrich Boell Stiftung (HBS) and Arctic Infrastructure (AI) in 2017 reveals that in Ijora-Badia, Lagos, where the government had evicted over 9000 people (according to Amnesty International) in a bid to construct low-income housing in the area, the government offered the land – in equity – without any development or due diligence as to the soil type and whether further subsidies were necessary to keep the final rental price/unit low. The construction of the foundation and other necessary development to enhance the carrying capacity of the land consequently shot up the price of a simple 2 bedroom to 22 million naira. Under a rent-to-own scheme designed by the developers, it is required to make an initial down payment of 1.1 million naira and a subsequent rent of N 175, 000 to be covered by 33% of monthly income. One would have to earn over N500, 000 monthly to be able to fulfil this obligation.  This automatically changes the equation of the units from low-income to high income.

Speculation is another aspect. Land Speculation creates the distortions in market process that raise the price of lands beyond normal market level. Even worse, given the high demand for housing and other productive demand for lands, speculation prevents the optimum use of land and halts development. Banana Island which was initially government development has seen huge speculative purchases that have driven the prices of properties to one of the most expensive in the world. Interestingly however, little over 50% of the land has been developed (HBS/AI report 2017). It is therefore pertinent to correct for these distortions that push the prices of rental units above the affordability of the common man.

Land subsidies and housing funds

Governments interested in providing low-income housing can hold equities by providing land subsidies to the developers that emerged out of a competitive bidding process. The land should be accessible with developed road network and drainage channels to prevent floods. The winning developers should be given access to low interest financing over a long-term repayment scheme. The government can establish social housing funds from which community developers and private developers interested in social housing investments can draw. A number of proposals on social housing investment funds were suggested in the report that followed the Lagos Development Envision Lab 2017 by Heinrich Boell Foundation and Arctic Infrastructure: Habitat Funds – to be disbursed to mortgage banks for onward lending to households earning monthly incomes between N18, 000 – N40, 000, at 5% interest rate over a 20 year period and a monthly repayment plan ranging N5, 000 – N12, 000. A Loan to Value (LTV) ratio of 85% would apply under this fund with a maximum of 5% initial equity contribution from the beneficiaries. The participating mortgage banks (PMB) would obtain the funds at a 3% interest rate from the state funding institution. A Social Housing Guarantee Fund would guarantee any amount in excess of the 85% LTV extended to households. A Construction Fund, through the PMBs would finance developers interested in social housing at interest rates not exceeding 6% over a 20 year repayment period. Whereas the Habitat fund enables households to buy rental units, the Construction fund incentivizes developers to provide low-costs housing. Other funds may be set aside for innovation and technology that reduces the costs of building materials and construction as well as energy innovation related to housing construction.

Unused land taxes

It is not consistent with common sense to have lands fallowing in speculation when there are prevailing demand for housing units. But land speculation happens to be sound business intuition especially in Lagos where alongside inflexible land tenure system, the process of land acquisition defeats transparent market process and is underlined by high incidence of fraud. It is therefore intuitive to suggest that unused lands be subject to taxation, proportionate to the value of the land after two years of purchase. This is likely to cut short the speculative time window, moderate any value accruable from speculative purchases within the two-year period. It may therefore free up idle lands for productive housing construction at least – if not social housing. Additional incentive may be to offer tax abatement to developers providing mixed income and affordable housing. Developers may also be given density bonuses which allow them to build more units per acre than the permissible level thereby increasing profitability per land area.

Summarily, it may be most effective to collaborate with cooperative housing societies in order to avert likely distortions especially in the disbursement of funds and subsidies. These housing societies, if formed within the community by community members with the sole purpose of providing low-costs housing would be more committed to the welfare and development of their communities than external private developers with profit motives. More so, housing societies optimistically, would be easier to regulate on issues of rental pricing and speculative reselling than private actors. It is also possible to work with the community association of land owners who are willing to surrender their land titles in equity towards the construction of low-costs housing units. Example: Amukoko Community Development Association. This way, the developers need not buy the lands, but issue equities or a fair share of the development units to the original landowners.

(This article is based on the report, Achieving Mixed and Integrative Housing in Lagos by Heinrich Boell Stiftung and Arctic Infrastructure) 

First Published: https://www.businessdayonline.com/exclusives/analysis-sub/article/need-visible-hands-affordable-housing-market/

The Trumpian bias about the US trade deficits and the US-China trade war is beginning to spill over, and we are beginning to see domestic versions of it in Nigeria (and the rest of Africa). The reluctance that trailed the signing and ratification of the African Continental Free Trade Agreement (AfCFTA) was a harbinger; the eventual border closure is exemplary. The argument put forward was that while the nation looks to grow its local industries, entering the agreement would open the economy to presumably uncontrollable volume of imports especially from foreign countries outside the AfCFTA—as Nigeria is thought to be the target market—which could challenge efforts made to develop the cottage industries.

Manufacturing countries in Europe, Asia, and America who have standing arrangements with sovereign states in Africa could exploit the free trade agreement to route their goods to other African countries, enjoying the exemption on tariffs and other benefits of the agreement. This would have a devastating effect on domestic manufacturing: business shutdown, job losses, and the loss of tariff and tax revenues. There would also be some exchange rate effects as the expanding import bill implies depreciation pressure on the naira exchange rate.

Nonetheless, it is also likely that the AfCFTA brings significant welfare benefits that offset the scenario above. For instance, increased imports could lower the prices of goods and services through economies of scale and competitiveness. This could, in turn, imply reduced inflationary pressure. Moreover, there is the “rule of origin” that attempts to checkmate the incidence of foreign goods smuggling.

Yet, faced with a budget deficit of N1.9 trillion in 2019 and planned deficit of N2.18 trillion for 2020, the Nigerian economy is in desperate need of finance and the administration is doing everything it can to increase revenue: we have seen the government raise the VAT from 5 to 7.5 per cent and introduced new tax schemes. The CBN recently enforced the exclusion of 41 import items from accessing foreign exchange (forex) via the official exchange window in a bid to reduce the pressure of import demand on forex. Only three months after signing the AfCFTA in June 2019, the government shuts down all land borders with Niger, Benin and Cameroon in jittery reaction to the likelihood of import binge, and the other consequential issues that may follow the implementation of the AfCFTA in 2020. This, however, is not peculiar to Nigeria alone: in Equatorial Guinea, the government talks about building a wall to prevent illegal immigration from other West African countries. Xenophobia in South Africa is another overt resistance towards factor mobility.

The Nigerian government is under pressure to protect its economy and win in the AfCFTA but its approaches are anti-free trade, protectionist and nearly indigenization of the economy, very similar to the trade ideology of President Trump in the US.

As the government aggressively extracts revenue in tax from the society and prevents cross-border trade transactions, it directly stifles the economy, meting out hardship and misery on its citizens. By these actions, the government overtly reveals its preference for revenues over societal welfare, grossly undermining the continental trade agreement and the essence of regional integration; and by so doing, transmitting negative signals to other countries within the AfCFTA. Since the closure of the border, the consumer price index has gone up; small businesses struggle, hunger and poverty trend upward. Investors have also adopted a wait-and-see approach to the one step forward ten steps backwards pace of the economy.

The economy admits its weak manufacturing and infrastructure base; it would not stand the competition that would come. Uncontrolled import would challenge local manufacturing and ridicule industrial development especially the target on food self-sufficiency in the Economic Recovery and Growth Plan (ERGP).

One way out of the woods

A World Bank data shows that as of 2017, total imports to Nigeria amounted to 13.18 per cent of GDP and trade growth of 11.56 per cent. Even though participation in intra-African trade is relatively low at 4.4 per cent, the AfCTA holds the potential for increased trade. It is therefore important to establish a system of importers registry based on certain stipulated criteria in readiness for the deluge of importation. These registration criteria need not be monetary payment but would include minimum capital requirements, loans credibility, tax returns, storage/warehouse facilities, logistics ability and etcetera. This approach would eliminate the myriads of micro importers—as is the status quo—that contribute to the pressure on forex while broadening the import business by giving a formal structure.

The importers’ registry would complement the implementation of the rule of origin clause to eliminate round-tripping. It would allow for the efficient administration of regulatory checks on product destination, quality standards, and tracking. Other importers from across Africa interested in the Nigerian economy need only comply.

It would engender cooperation among the indigenous importers, the CBN and the Nigerian Customs Service.

The other benefit of the importers’ registry is that the registered import businesses would be buoyant enough to issue product warranty and return guarantee to dealers/retailer should the product not satisfy the customer as against the current practice where consumers are ambushed by petty importers who are unable to give these assurances. This would go a long way to ensure consumerism and consumer protection.

Also, by way of trade protection, the registered importers may organize themselves into unions according to their respective trade lines and help combat the incidences of counterfeit products so as to protect their market share/profit, licenses and avoid regulators knocking their doors. The intuition is that these importers are better positioned to curb the menace of substandard items, and with the right incentives, would develop the internal interest to do so.

We have signed the continental free trade agreement which opens our borders to a flood of importers from across Africa: if we cannot manage our own importers, what is to say we would be able to manage the multitude of importers from all over Africa? Yet we do not need to implement draconian policies that isolate us from the rest of the world. We need rather work towards increasing competitiveness by enhancing productive efficiency through technology and the requisite infrastructure. We have given conditions to reopen the borders; we may need also to build a database or register of importers.