Economy

Leveraging on Trade Facilitation to Grow the Economy

Published

7 years ago

February 9, 2017

Hakeem Adebayo reasons that the ratification of the Trade Facilitation Agreement by Nigeria is a major step towards diversifying the economy and taking advantage of global trade opportunities

Nigeria took a major step in its commitment to improve ease of doing business through trade facilitation on January 20 2017, when it submitted the instrument of acceptance of World Trade Organisation’s Protocol on Trade Facilitation Agreement (TFA) on the sideline of World Economic Forum in Davos, Switzerland.

Nigeria’s Minister of Industry, Trade and Investment, Dr. Okechukwu Enelamah submitted Nigeria’s instrument to the Director General of WTO, Roberto Azevêdo at an event to mark the deposit. With this, Nigeria became the 107th WTO member state to ratify the agreement, while Nepal submitted its own instrument on January 26, 2017, thus needing just two more ratifications to reach the two-third threshold required for the TFA to come into force. Other African countries that have ratified include Botswana, Niger, Togo, Côte d’Ivoire, Kenya, Zambia, Lesotho, Mali, Senegal, Swaziland, Gabon, Ghana and Mozambique.

According to Enemalah, “Nigeria’s ratification of the Trade Facilitation Agreement is a reflection of our commitment to the WTO and a rules-based economy. It is evidence of President Muhammadu Buhari’s commitment to rapidly implement his presidential initiative on the creation of an enabling environment for business. Nigeria would like to see a strengthened WTO that reflects the development principles of developing countries like Nigeria.”

We believe that the minister and the Nigerian team worked tirelessly to push through the process, which I believe is another milestone for the country. This therefore positions the country on the right pedestal to harness expected gains of the TFA when it fully comes into force. TFA aligns with Nigeria’s objective of deepening the ease of doing business in the country through enabling policy environment.

Reactions continue to pour in since Nigeria submitted the Instrument to the WTO indicating that we are fully on board to harness immense opportunities offered by the protocol to global economy. Trade experts around the world see the ratification by Nigeria as an impressive step given her position in Africa as the continent’s largest economy.

Ease of Doing Business
President Muhammadu Buhari in October last year approved the establishment of the Presidential Council on Ease of -Doing Business to further strengthen the administration’s resolve to enhance ease of doing business. And in addition to correct the perception that Nigeria is a tough environment to do business. This will attract the much-needed foreign direct investment and local direct investment in Nigeria. Trade facilitation is a tool for economic development, inclusive growth and job creation. It is also in tandem with the policy of diversifying the economy from oil.

The WTO’s General Council adopted the resolution on protocol on Trade Facilitation Agreement at its summit in November 2014 to address challenges posed by barriers and constrains to trade across the member-states by the customs services. WTO during its 20th anniversary noted thus; “Under current border procedures, the average transaction can involve numerous steps. The Trade Facilitation Agreement (TFA) sets forth a series of measures for expeditiously moving goods across borders inspired by the best practices from around the world. The Agreement is ground-breaking in that, for the first time in WTO history, the commitments of developing and least-developed countries are linked to their capacity to implement the TFA. In addition, the Agreement states that assistance and support should be provided to help countries achieve that capacity.”

“An amendment protocol for the Trade Facilitation Agreement was adopted by the General Council in November 2014 to bring the TFA into the WTO’s legal framework. The Agreement will enter into force when two-thirds of WTO members ratify the TFA and deposit their instruments of acceptance with the WTO Secretariat. Hong Kong, China, became the first member to do so in December 2014.”

Domestication
The protocol on TFA was ratified by Nigeria’s National Assembly and subsequently assented to by President Buhari. The process for its domestication by Nigeria began in 2014, when the country submitted its Category A notification to the WTO outlining substantive provisions of the TFA it intends to implement upon entry into force of the Agreement. Observers see this as a good sign that the country is ready to align her economic strategic objectives and goals with results.

The protocol on Trade Facilitation Agreement aims to ease the flow of goods across the borders through removing several barriers that inhibits movement of goods across borders. Developing and least developed countries are beneficiaries of the TFA as it supports them to overcome seamlessly, several barriers and constraints that affect import and export across their borders. The immediate impact is that ease of doing business will improve by a wide margin resulting in improved revenue, reduction in customs processes as well as income for producers and traders. The TFA protocol is expected to usher in an era of ease of doing business by shortening requirements for documentations and number of days required to process them.

A WTO publication, Easing Flow of Goods Across Border: Trade Facilitation Agreement published to mark its 20th anniversary, notes that as at 2014, customs transactions from country to country records the following requirements for export and import respectively. For export, there are between two to eleven documentations, which span from six days to eight-six days to be concluded. While for import transactions, two to 17 documentations are required which span from four days to 130 days before finalization. The protocol on Trade Facilitation Agreement aims to ease the flow of goods across the borders through removing several barriers that inhibits movement of goods across borders.

Nigeria will benefit immensely from TFA in terms of inflow of foreign direct investment, job creation, capacity utilization in view of emerging investment friendly policy framework it will usher in. The evolving opportunities through FDIs, technology transfer it creates in return would boost the economy. There is consensus among experts that the size of Nigeria’s market makes it the most lucrative investment destinations in sub-Sahara Africa with a high return on investment. Nigeria is an emerging market, which makes it one of the new frontiers for investment considerations.

The key thing Nigeria must do now is how to leverage on the TFA to grow her economy. There is no better time than now to explore the opportunities inherent in the WTO to grow our economy by positioning the country to reap benefits from other global pool of investments. Additionally, Nigerians still stands to gain from the export of its products to other countries within the WTO framework, which aims to increase opportunities for businesses in Nigeria. The recognition this brings to Nigeria to the world stage is immense. It could not have come at better time than now that every effort is geared towards increasing Nigeria’s share of non-oil revenue sectors of the economy.
– Adebayo, a trade expert, writes from Abuja

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Samed Olukoya

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Economy

Goldman Sachs Urges Bold Rate Hike as Naira Weakens and Inflation Soars

Published

4 days ago

July 23, 2024

Samed Olukoya

As Nigeria grapples with soaring inflation and a faltering naira, Goldman Sachs is calling for a substantial increase in interest rates to stabilize the economy and restore investor confidence.

The global investment bank’s recommendation comes ahead of the Central Bank of Nigeria’s (CBN) key monetary policy decision, set to be announced on Tuesday.

Goldman Sachs economists, including Andrew Matheny, argue that incremental rate adjustments will not be sufficient to address the country’s deepening economic challenges.

“Another 50 or 100 basis points is certainly not going to move the needle in the eyes of an investor,” Matheny stated. “Nigeria needs a bold, decisive move to curb inflation and regain investor trust.”

The CBN, under the leadership of Governor Olayemi Cardoso, is anticipated to raise interest rates by 75 basis points to 27% in its upcoming meeting.

This would mark a continuation of the aggressive tightening campaign that began in May 2022, which has seen rates increase by 14.75 percentage points.

Despite this, inflation has remained stubbornly high, highlighting the need for more substantial measures.

The current economic landscape is marked by severe challenges. The naira’s depreciation has led to higher import costs, fueling inflation and eroding consumer purchasing power.

The CBN has attempted to ease the currency’s scarcity by selling dollars to local foreign exchange bureaus, but these efforts have yet to stabilize the naira significantly.

“Developments since the last meeting have definitely been hawkish,” noted Matheny. “The naira has weakened further, exacerbating inflationary pressures. The CBN’s policy needs to reflect this reality more aggressively.”

In response to the persistent inflation and naira weakness, analysts are urging the central bank to implement a more coherent strategy to manage the currency and inflation.

James Marshall of Promeritum Investment Management LLP suggested that the CBN should actively participate in the foreign exchange market to mitigate the naira’s volatility and restore market confidence.

“The central bank needs to be a more consistent and active participant in the forex market,” Marshall said. “A clear strategy to address the naira’s weakness is crucial for stabilizing the economy.”

The CBN’s decision will come as the country faces a critical period. With inflation expected to slow due to favorable comparisons with the previous year and new measures to reduce food costs, including a temporary import duty waiver on wheat and corn, there is hope that the economic situation may improve.

However, analysts anticipate that the CBN will need to implement one final rate hike to solidify inflation’s slowdown and restore positive real rates.

Economy

Currency Drop Spurs Discount Dilemma in Cairo’s Markets

Published

4 days ago

July 23, 2024

Samed Olukoya

Under Cairo’s scorching sun, the bustling streets reveal an unexpected twist in dramatic price drops on big-ticket items like cars and appliances.

Following March’s significant currency devaluation, prices for these goods have plunged, leaving consumers hesitant to make purchases amid hopes for even better deals.

Mohamed Yassin, a furniture store vendor, said “People just inquire about prices. They’re afraid to buy in case prices drop further.” This cautious consumer behavior is posing challenges for Egypt’s consumer-driven economy.

In March, Egyptian authorities devalued the pound by nearly 40% to stabilize an economy teetering on the edge. While such moves often lead to inflation spikes, Egypt’s case has been unusual.

Unlike other nations like Nigeria or Argentina, where costs soared post-devaluation, Egypt is witnessing falling prices for high-value items.

Previously inflated prices were driven by a black market in foreign currency, where importers secured dollars at exorbitant rates, passing costs onto consumers.

Now, with the pound stabilizing and foreign currency more accessible, retailers are struggling to sell inventory at pre-devaluation prices.

Despite price reductions, the overall consumer market remains sluggish. The automotive sector has seen a near 75% drop in sales compared to pre-crisis levels.

Major brands like Hyundai and Volkswagen have slashed prices by about a quarter, yet buyers remain cautious.

The economic strain is not limited to luxury items. Everyday expenses continue to rise, albeit more slowly, with anticipated hikes in electricity and fuel prices adding to the pressure.

Experts highlight a period of adjustment as both consumers and traders navigate the volatile exchange-rate environment. Mohamed Abu Basha, head of research at EFG Hermes, explains, “The market is taking time to absorb recent fluctuations.”

Meanwhile, businesses face declining sales, impacting their ability to manage operating costs. Yassin’s store has offered discounts of up to 50% yet remains quiet. “We’ve tried everything, but everyone is waiting,” he laments.

The devaluation has spurred a shift in economic dynamics. Inflation has eased, but the pace varies across sectors. Clothing and transportation costs are up, while food prices fluctuate.

With the phasing out of fuel subsidies and potential electricity price increases, Egyptians are bracing for further financial strain. The recent 300% rise in subsidized bread prices adds another layer of concern.

The situation underscores the balancing act between maintaining consumer confidence and attracting foreign investment.

Economists suggest potential stimulus measures, such as lowering interest rates or increasing public spending, to boost demand.

Economy

MPC Meeting on July 22-23 to Tackle Inflation as Rates Set to Rise Again

Published

5 days ago

July 22, 2024

Samed Olukoya

The Monetary Policy Committee (MPC) is set to convene on July 22-23, 2024, amid soaring inflation and economic challenges in Nigeria.

Led by Olayemi Cardoso, the committee has already increased interest rates three times this year, raising them by 750 basis points to 26.25 percent.

Nigeria’s annual inflation rate climbed to 34.19 percent in June, driven by rising food prices. Despite these pressures, the Central Bank of Nigeria (CBN) projects that inflation will moderate to around 21.40 percent by year-end.

Market analysts expect a further rate hike as the committee seeks to rein in inflation. Nabila Mohammed from Chapel Hill Denham anticipates a 50–75 basis point increase.

Similarly, Coronation Research forecasts a potential rise of 50 to 100 basis points, given the recent uptick in inflation.

The food inflation rate reached 40.87 percent in June, exacerbated by security issues in key agricultural regions.

Essential commodities such as millet, garri, and yams have seen significant price hikes, impacting household budgets and savings.

As the MPC meets, the National Bureau of Statistics is set to release data on selected food prices for June, providing further insights into the inflationary trends affecting Nigerians.

The upcoming MPC meeting will be crucial in determining the trajectory of Nigeria’s monetary policy as the government grapples with economic instability.

The focus remains on balancing inflation control with economic growth to ensure stability in Africa’s largest economy.