Why the Nigeria-China Trade should not become the new normal

Proshare

 

 

Tuesday, June 11, 2013 7:59 PM / FDC
 

The competitive devaluation of some currencies is manifesting in the changing pattern of Nigeria’s international trade. For example, Nigeria now sources 18% of its imports from China and 10% from the US. This trend has possibly led to a call by Mallam Sanusi Lamido who writing in his own personal capacity in a Financial Times article stated, “it is time for Africans to wake up to the realities of their romance with China”. He describes the relationship as a form of imperialism, whereby China buys crude oil and Nigeria imports a wide range of goods and commodities, ranging from textile and fabrics to electronics and building materials.

 

The FDC Monthly Economic Report for May 2013 throws more light on Nigeria’s changing trading pattern and the implications of the new normal on macroeconomic stability and national competitiveness.
 

TRADE BENEFITS: NIGERIA, DON’T WAIT FOR CHINA…
Many Africans were shocked by the article Lamido Sanusi wrote on the existing trade between Nigeria and China. Sanusi suggested that China should be seen as a competitor rather than a saviour or partner that will lead Africa out of the night into dawn. He suggested that Africa was subjecting itself to a new form of imperial-ism by relying on China for development. In a nutshell, African countries were giving more credit to the Chinese than they deserved.
 

To make things clearer, consider this argument in relation to Nigeria.
 

IMPORTS VS. EXPORTS
Diplomatic relations between China and Nigeria began in 1971 and have grown rapidly over time. Nigeria exports mostly crude oil to China and imports a lot of consumer goods such as electronics, clothes, textiles, etc. The Q4‟12 foreign trade statistics report released by the National Bureau of Statistics (NBS) revealed that China ranks 7th on the list of Nigeria’s export destinations but ranks 1st on the import list. Nigeria’s imports from China rose by 10% to N1.21trn in 2012 from N1.1trn in 2010. However, exports to that country increased more than four times to N933.31bn in 2012 from the N216.51bn recorded in 2010. Though these figures show that Nigeria’s exports to China are beginning to catch up with its imports level, one might argue that the increase in ex-ports to China was a result of the decline in oil exports to other countries such as the U.S. Thus, more oil was available to be exported to China. 

 


 

BENEFITS VS. COSTS
Some of the benefits and costs that result from Nigeria’s trade with China are analyzed together as follows:
 

1. Resource transfer; or rather the lack thereof  

Chinese investments can make a positive contribution to Nigeria’s economy by providing employment, technology, management resources, and capital that would otherwise not be available and thus boost our economic growth. Nigerians have benefited from both the direct and indirect employment effects of Chinese subsidiaries located in Nigeria. There are also benefits associated with the inflow of capital from China to Nigeria. As for technology and management resources, they have stimulated economic development and industrialization, and improved efficiency. Although one would assume that this technological and managerial knowledge is passed down to Nigerians by virtue of working with Chinese technology and expatriates, this has not been the case. Most of the key technical and managerial positions are held by Chinese expatriates and the competencies associated with these roles are hardly transferred to Nigerian employees. Nigeria is still having difficulty upgrading and constructing new infrastructure despite our exposure to Chinese technology and our experiences working with them. Hence, the technological expertise and managerial know-how remain with the Chinese, even after they leave Nigeria. In addition, after Chinese companies make profits in Nigeria, a larger portion of it is repatriated to China, though some of it may be invested back into those companies in hopes of producing even greater profits. Very little of these profits are used to help Nigerians.

 

2. Variety at the expense of Local Industries  

The presence of Chinese firms in Nigeria increases the number of players in the local market and thus consumer choice. This increases the level of competition, thereby driving down prices. Additionally, imports from China bring in a variety of products previously unavailable because local manufacturing companies were unable to provide them. This benefits the consumers; as we all know, variety is the spice of life. However, imports from China often promote dumping of cheap products in Nigerian markets, which drive local companies out of business and allow the Chinese to monopolize the market. Moreover, consumers are often quick to buy the imported goods rather than purchase locally made ones, further contributing to the downfall of local industries.
 

Whose fault?

From the above analysis, it appears that every benefit from Nigeria-China trade seems to be associated with some cost. However, this cannot be solely blamed on China.

In our opinion, Nigeria’s inability to fully capitalize on the benefits of its trade relationship with China lies in the initial trade agreement between Nigeria and China, as well as the fact that Nigeria’s resources have yet to be used to adequately develop the country.
 

Bilateral agreements are supposed to be set up in a manner that favors both countries. However, the onus rests on each country to take advantage of the agreement to ensure its prosperity. It is the government that allows China to use predatory pricing methods to dump their goods in Nigeria at the detriment of its local industries. It is Nigeria that doesn’t demand that China transfer more technical expertise. How many Nigerian firms are based in China? Not many. Did China restrict Nigeria from establishing firms in their country? The source of these issues can be traced back to the trade agreement.
 

Furthermore, Nigeria has a huge infrastructure gap. In the global competitiveness report, Nigeria currently ranks 130 out of 144 countries in infrastructural development. Why can’t Nigeria build infrastructure, develop its local industries and increase production levels for goods that give it a competitive advantage over China? Despite its population of 170m, productivity is low because many people remain uneducated. It will take a very long time if Nigeria continues to wait for other counties to provide these essential factors that boost development.
 

In conclusion, we do not oppose Nigerian-Chinese relations. In fact Nigeria’s trading relationships with other countries are beneficial. In this world, no country should be an island especially if there are gains to benefit from multilateral relations. The nature of existence which allows one country to be greater than another should provide an incentive for any country to try to outsmart an-other. In this light, China should not be blamed for trying to take advantage; rather, Nigeria should consider it as a competitor - as was rightly said by Governor Sanusi. Therefore, Nigeria must develop itself if it is to stand a chance at thwarting China’s pseudo-imperialism, because it is only through development that further growth and prosperity can be attained.
 

 

 

Download the FDC May 2013 Economic Report Here

 

 

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