• AfCFTA, local manufacturing risk more setback as China explores new markets
African market, including Nigeria, may be up for a new scramble in months ahead following the brewing tariff war between the United States and its three top trading partners – Canada, China and Mexico.
While opinions are still largely divided on how the rivalry will impact African economies, Nigeria, which is among 48 countries with a trade deficit with the United States, may not be a passive observer of the crisis.
Trump, during his campaign, vowed to close the U.S. trade deficit in his America First Agenda. He has made his promise with the 10 to 25 new tariff impositions on the country’s neighbours – Canada and Mexico – as well as China, a country often described as the global manufacturing machine, taking effect today.
The three countries have also laid out their retaliatory measures even as responses are expected from their allies as well as those of the U.S. Nigeria, gradually, is coming off its non-allegiance posture and beginning to proactively identify its friends in the global order.
For instance, the country recently joined the BRICS+, a bloc President Donald Trump had warned about when he said he would impose 100 per cent tariff sanctions on those who sought to decimate the dollar. BRICS, from inception, made no pretence about its plan to dethrone the dominance of the dollar, which has fallen from 80 per cent to about 40 per cent as a reserve currency.
Nigeria’s flirt with BRICS thus suggests that the country has allied with enemies of Trump’s U.S., which put the country at the centre of the emerging trade. More so, China, the leading promoter of BRICS+, would henceforth see Nigeria as a potential ally for trade and other collaboration.
There are fears that as China gets increasingly cut off from the lush U.S. market, it will become more aggressive in taking over the African market, which Nigeria serves as a gateway. The possibility puts Nigeria manufacturers, which are burdened by inefficiencies imposed by poor infrastructure and higher cost of energy, at the mercy of Chinese goods and makes competition tougher for the local brands.
In similar, the nascent African Continental Free Trade Area (AfCFTA) agreement, has remained inactive four years after it officially took off. In the first nine months of last year, Nigeria exported approximately $5.29 billion in goods to the U.S. while importing about $3.88 billion, resulting in a trade surplus of $1.4 billion in Nigeria’s favour. Total trade as of September 2024 is $9.1 billion.
In 2023, total trade between Nigeria and the U.S. amounted to $8.27 billion. However, Nigeria maintained a trade surplus of $3.1 billion, exporting more to the U.S. than it imported.
If Trump becomes more aggressive in his push for a ‘fairer’ trade with the U.S. and extends to Nigeria, the figures could significantly change. But the bigger concern is that the trade war, which may stoke inflationary pressure and result in keeping interest at a high rate, could leave Nigeria with dire consequences.
A higher interest rate means less capital flow to emerging countries, including Nigeria. Since last year, Nigeria has recorded improved capital flow, leading to reasonable foreign exchange (FX) rate stability. Panic outflow or drop in inflow because of sustained high interest in developed economies could pile pressure on naira and lead to another round of panic.
This policy shift has prompted immediate retaliatory measures. Canada has announced matching 25 per cent tariffs on up to C$155 billion worth of U.S. imports, emphasising the deep historical ties between the two countries.
Mexico, yesterday, reached a temporary agreement with the U.S. leading to the suspension of tariffs for one month, while China has vowed to implement corresponding actions, potentially affecting electronics and apparel markets.
Speaking, the Chief Executive Officer (CEO) of the Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, said there are three dimensions to the implications of the current tariff war.
“There is the trade dimension, investment dimension and currency implications dimension. There is also the dimension of imported inflation. From the point of view of trade, most of the affected countries, including the U.S., would be seeking new trading partners and if that happens, this presents an opportunity for Nigeria to expand its trade relationship with the countries involved in this trade war.
“For instance, for companies looking to export to the U.S., exporting from Nigeria will be better than exporting from China, Canada or Mexico. We are likely to see a trans-shipment of products through third-party countries to the U.S. We are also likely to see the growth of opportunities to export to some of these countries via domestic investors in Nigeria. Exporting from Nigeria to these countries will be cheaper than exporting from the affected countries to the U.S. and vice versa.”
Yusuf said this would open up opportunities to strengthen and deepen Nigeria’s trade with all the affected countries as the tariff imposition will birth import substitution or replacement opportunities for products coming from sanctioned countries.
“We are likely to see a realignment of trade partnership globally as a result of what is happening and that will come with some new trading opportunities for Nigeria as we will offer better markets for them. We can even offer better export opportunities to them as well. This will of course, depend on the products but if they are products and goods that we have an advantage in, it would be cheaper for us to export from Nigeria and take advantage of the high cost of import from the U. S’ three top trading partners.”
He added that aside from bringing fresh opportunities for trade, the situation could potentially birth fresh investment opportunities for exports as well.
“On the flip, however, global supply chains, worth about $36 billion, will be affected and cause the cost of goods and raw materials to go up. We are likely to see a new wave of global inflation as a result of the disruption of supply chains. For many products we use, their raw materials come from different countries and this disruption will affect costs across so many sectors. The global economy will be affected adversely and if it is affected, Nigeria will feel it as well,” he said.
The CPPE boss added that the ongoing tariff war would also fuel imported inflation for products Nigeria imports from the U.S.
“This will trigger inflation in the U.S., meaning whatever we import from there will cost more. Businesses that import machinery, spare parts, raw materials and so on from the U.S., will experience inflation in costs. In relation, if there is high inflation in the U.S., there is likely to be a Central Bank response in the U.S., pushing up interest rates. Once interest rates go up there, it might affect our inflow of portfolio investors or even a reversal of portfolio funds in Nigeria because of the likely interest rate implication of the current policy. This would in turn, further weaken the naira.”
On regional trade, he said the AfCFTA has not properly taken shape but, “what is happening now is more of bilateral trade, not multilateral trade. So, whether you’re exporting from Nigeria or other African countries, it doesn’t make much difference. What applies to Nigeria will mostly apply to other African countries. Even with AfCFTA, trade will take place bilaterally as we are trading with countries only within AfCFTA.”
The Minister of Industry, Trade and Investment, Dr Jumoke Oduwole, had stated that Nigeria was not worried by the trade policies or tariff imposition.
According to her, Nigeria is less concerned about the potential disruptions posed by Trump’s unorthodox foreign policies. With the ongoing trade war between the U.S., China, Mexico and Canada, Oduwole said Nigeria would not engage in any divisive bloc politics as it is open to partnerships with both old and new friends.
She said there are many interests competing for Nigeria and for Africa’s attention, pointing to the country’s wealth in hydrocarbons and critical minerals, like lithium.
“For us, it is Nigeria first, it is Africa first. We see this more in terms of opportunities. We’re not afraid; we’re not panicked. We’ll be listening closely to what our old friends and new friends have to say, and the kinds of partnerships that are on offer,” she said.
Sharing Oduwole’s sentiments, economist and business analyst, Dr Vincent Nwani, said Nigeria does not need to be bothered with the ongoing tariff war as there is little chance of a negative spillover on the local market.
“The truth is that Nigeria would not overnight have more money to buy more goods from China even if China ignores the U.S. and, perhaps, decides to trade more with Africa and Nigeria. In the fear that our local manufacturers would be crowded out, this wouldn’t happen as we export next to nothing to China or other countries in terms of finished goods. Our trade balance with China is very negative. Even looking at our top trade partners, what we export there is little. Sadly, we are importing more sadly.”
Calling for calm, he said Trump is ‘flying the kite’ to see where it would land, predicting that these sanctions would not stay for long. “Conversations would still take place, we saw that with Colombia and the USAID that was restored in 48 hours. Trump’s action is going to cause rapid inflation and increase the price of goods in the next month and will force him to reconsider. Also, the affected countries in question have all slammed retaliatory tariffs so, hopefully, everyone comes to a quick solution soon.”
Stressing that the impact on Nigeria is neither positive nor negative, he said Nigeria’s trade with other countries is already poor and would not suffer much damage.
“Tariff increase or sanctions is not what led to the exit of several multinationals and the demise of thousands of businesses over the last few years, our poor business environment did. The problems that forced them to leave are still very much on the ground and even if we wanted to benefit from this tariff war, with what environment are we going to do so? Let us first of all, clean up our business environment, fix local trade, get electricity into our factories, clean up our export and import processes and fix the ravaging insecurity so that logistics and agriculture can thrive. No serious business will want to come and set up shop here with all these issues on the ground. Let us not burden ourselves with what is going on in other places because charity begins at home. Once we fix our lingering, never-going-away economic challenges, trading with the rest of the world will be easy.
“Trading within Nigeria or with the rest of Africa is already a huge market but look at the poor state of our infrastructure and logistics. It is impossible today, to move goods by rail from Lagos to Abuja and vice versa, talk less of from Lagos to West Africa or the rest of Africa. We cannot move goods by land, rail, air or water seamlessly within Africa and yet, we speak of AfCFTA fondly every time without solving the basic problems. Has Nigeria successfully traded seamlessly with itself? This is a trillion-dollar market of over 200 million people locally and over a billion regionally, we can successfully trade within ourselves without looking to the U.S. or the rest of the world,” he said.
(Guardian)
