Martins Hile, Editor, Financial Nigeria magazine
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Subjects of Interest
- Social Development
Can trade help lift 87 million Nigerians out of extreme poverty? 24 Sep 2018
One of the highlights of Theresa May's Brexit visit to Africa last month was the British Prime Minister's widely-reported remarks about the appalling level of poverty in Nigeria. May visited South Africa, Nigeria and Kenya as part of a grand strategy to reposition the United Kingdom for post-Brexit trade as the UK economy has become more reliant on trade, recording a trade-to-GDP ratio of 62.7 in 2017.
May's proclamation on Nigeria's dilemma of being "the extreme poverty capital of the world" was not news to the world. But something has to be done to salvage the growing poverty situation in the country and remove this ignominious label Nigeria has earned gratuitously. Having explored a number of anti-poverty policies over the past decades without success, one should ask if trade can help lift 87 million Nigerians out of extreme poverty.
The short answer is yes, it can. But there is a long answer that requires closer scrutiny and policy consideration. Looking to China's experience with trade liberalisation provides arguably one of the most remarkable stories in poverty reduction the world has seen. More than 870 million people have escaped poverty in China within the last three decades. The poverty rate in the country fell from 88.3% in 1981 to 1.9% in 2013, and has further dropped below 1% in 2018.
Notably, agriculture development-led industrialisation is the policy that paved the way for this remarkable feat. Much of China's poor were in rural areas where local and foreign companies came to set up processing and assembly operations for exports. This created job opportunities for millions of Chinese workers.
Other Asian economies such as South Korea and Vietnam have replicated China's success in poverty reduction through trade liberalisation. 64% of the Vietnamese population were below the poverty line in 1993. This dropped to 9.8% in 2016. The country's trade-to-GDP ratio in 2017 was over 200%.
Various anti-poverty measures have been proposed and implemented in many countries. Some of these measures include direct cash transfers, skills development, employment creation, and empowering girls and women. But a number of research show that trade may be the most sustainable approach to ending poverty. "Trade-led growth is the most successful development strategy the world has seen." Arancha González, executive director of the International Trade Centre, the joint agency of the United Nations and the World Trade Organisation (WTO), wrote in The Guardian UK on January 20, 2015.
A WTO report published in 1999, titled "Trade, Income Disparity and Poverty," concludes that "trade liberalisation is generally a strongly positive contributor to poverty alleviation – it allows people to exploit their productive potential, assists economic growth, curtails arbitrary policy interventions and helps to insulate against shocks." The developing countries that have experienced convergence with the rich countries in terms of income per capita are those that are open to trade. The research suggests that the more open they are, the faster the convergence.
Nigeria's trade-to-GDP ratio peaked at 81.81% in 2001. The ratio had declined to 64.97% in 2008 and earlier this year, the Minister of Industry, Trade and Investment, Okechukwu Enelamah, said the trade sub-sector accounts for 18% of the country's GDP. Despite this low threshold, President Muhammadu Buhari made an about-face in signing the African Continental Free Trade Area (CFTA) Agreement, stating that, "there is a need to ensure our national interests as well as our regional and international obligations are balanced." But why did the government embark on negotiations with other African nations to establish the CFTA without the due process the president now claims needs to be followed?
The Nigerian Office for Trade Negotiations (NOTN), established last year as a trade negotiations agency of the government, participated in the CFTA negotiations for the same reason Nigeria is part of ECOWAS. In a report published in March 2018, NOTN says the country's "ambitions for ECOWAS are centered on deeper integration in ECOWAS, reducing barriers between and amongst ECOWAS countries, so as to link manufacturing structures, expand opportunities for service providers, which will in turn lead to accelerated economic growth and job opportunities in the ECOWAS sub-region."
The CFTA will provide Nigeria's enterprises a continental market access to further accelerate economic growth and job creation. It makes intuitive sense for Nigeria to have been at the frontlines of the negotiations. While the strategic importance of ECOWAS is understood, Nigeria accounts for 71.9% of the bloc's GDP. Hence a bigger market access is required for Nigeria's trade and development ambitions.
Trade liberalisation is certainly not a magic wand that will address Nigeria's development challenges. There are also unintended consequences of trade policies that a lot of critics have decried. But the benefits of trade liberalisation are greater than the costs. For instance, one analysis of the stalled Doha Round of trade negotiations shows that the proposed trade system would lift 160 million out of poverty and generate more than 3,000 times the value in benefits for developing countries than what it would cost in implementing it.
A strategic trade policy is essential in diversifying the economy, especially since Nigeria has lost the lustre of its previous high economic growth rates due to low oil prices. An effective trade policy will entail improving the business environment to remove many of the challenges of doing business in Nigeria. Part of trade facilitation will involve addressing some of the notorious non-tariff barriers to trade such as lack of power and bad roads, and revamping the seaports and airports. These efforts will help in reducing trade-related costs and optimising the logistics of trade.
Well-executed trade policy initiatives can attract foreign capital in strategic sectors, increase their productivity, expand job opportunities and improve living standards. There is certainly evidence that suggests implementing a coherent trade policy will provide a sustainable path to inclusive economic growth and lift millions of Nigerians out of economic deprivation.