EPA: A disaster waiting to happen

EPA: A disaster waiting to happen
March 16 21:38 2016

By Azuka Benjamin

What appears to be an innocuous call by the European Union (EU) envoy on  the Economic Community of West African States (ECOWAS) and Nigeria, Amb.  Michel Arrion for the country to take advantage of the seeming  ‘handouts’ to be doled out by the economic bloc as the Economic  Partnership Agreement (EPA) comes into effect come 2017.

Arrion said the Agreement will improve Nigeria’s ability to benefit from  opportunities to export to EU and further increase capacity to  participate in global value chains. The envoy submitted  that tariffs on importations  from the EU would be progressively (5-20years) eliminated on goods such  as equipment and other industrial inputs (machinery, spare parts) adding  that these products would contribute to the industrialisation of Nigeria  and Nigerian firms competitiveness while reduction in agro-machinery and  equipment tariffs should help to support diversification and agriculture  efficiency.

While some countries in the subregion notably Ghana and Côte d’Ivoire  have initialed the EPA, Nigeria has stubbornly refused to sign.  According to former Minister of Industries, Trade and Investment, Dr.  Olusegun Aganga, in 2014, Nigeria refused to sign the Agreement because  its terms were not favourable to the country’s overall economic agenda.

He added that agreeing to the terms of the EPA will destroy all the  efforts the government has put into growing the economy.

Deductions from President Muhammadu Buhari’s speech at the European  Parliament in one of his visits, showed that Nigeria was not in a hurry  to sign the Agreement.

According to the President, without the EU doing what it is supposed to  do, the country would not sign the Agreement.

With an economy that is facing its worse ever crisis due to the fall in  global price of crude oil, the EPA might just further bleed it to death.

What Nigeria can ill-afford right now is to open its doors to all type  of foreign goods -all in the name of the EPA, thereby eroding the gains  being made by the government to get the manufacturing sector running  full throttle again.

Considered as the ‘super power of the West African subregion due to its  human resources and its market potential, Nigeria’s with its huge  population has been unable to harness the ECOWAS market to its  advantage.

Seen as having the capacity to pull Nigeria out of the economic woods,  the country’s intra regional trade is still less than 20 percent  compared to trade with other sub-regions of the world especially Asia  and North America which is due to high level of informal trade which  stands at 60 percent.

A Greek Gift

Negotiation for the signing of the EPA between ECOWAS and the European  Union started in 2002 and by 2007,  it ought to have been concluded but  it has experienced controversies, occasioned by contentious  issues and disagreement over some unresolved matters.

But over a decade down the line, and negotiations almost at a concluding  stage, it is becoming obvious that the West Africa sub region may just  be shooting itself in the foot- in the bid to get cheap funds in the  guise of ‘developmental funds’ from the EU.

According to the Economic Partnership Agreement, West Africa is expected  to ease restriction on goods from Europe thus liberalizing access to its  market while Europe on the other hand will reciprocate the gesture by  ECOWAS countries.

By the Agreement, it is expected to grant about 80 percent access to European goods.

In addition to that, the EU was expected to provide €15 billion every  five years till 2034 to cushion the effect of the ‘bombardment of the  subregions’ market with European products and produce.

Analysts have argued that with the European market saturated, the  region’s manufacturers are seeking for new market for the continent’s  ever expanding manufacturing sector.

But with most African countries import defendant, what does the  continent hope to export to Europe in return?

It is no longer news that most African countries thrive on export of raw  materials and even when they do manage to export finished  products/produce to Europe, many of them are rejected for lack of  conformity to EU standards.

Therein lies the trap African countries are  gradually walking into with their eyes wide open.

As former Permanent Secretary in the Ministry of Industries, Trade and  Investment, Muhammad Abdulkadir did observe at the gathering of the  African Standards Organisation (ARSO) in Abuja that many African countries  lack the financial muscle to establish standards laboratories that would  certify products before they are exported.

And with most country’s economies in crisis, that again is one dream  that would beg to be fulfilled.

According to a report by a Non Governmental Organisation, the South  Centre based in Geneva, Switzerland, the commencement of the EPA will  signal doom for the country’s manufacturing sector as it lacks the power  to compete with European goods. South Centre notes that liberalizing  majority of the tariff lines which represents 66.8 percent of production  will be endangered as a result of the Agreement. Also, 54.1 percent of  current production will be at risk when liberalization takes place with  the EPA fully working.

The study pointed out that with ECOWAS competitive in only 6 percent of  total tariff lines than the EU, local manufacturers don’t stand any  chance of survival.

For instance, tariff on Agriculture Value Added between 1994-2000 in  Nigeria declined from 39.63 percent to 39.63 percent while non-oil  export also declined from 4.54 percent in 1994 to 2.33 percent in 2000.

Despite the seeming increase in non-oil export, the situation over the years had worsened due to the penchant of Nigerians for wanting to import  everything under the sun.

The Implication

A major implication of the Agreement when it eventually comes on stream  is the massive job loss that will arise as many factories will close  shop due to a their inability to compete in the market.

This is added to the resultant revenue that will be lost as many tariff  lines would have been liberalized. At a time when Nigeria is fashioning  out ways of increasing its other sources of revenue especially with the  massive plummet in the global price of crude oil in the international  market, this will not be good news.

For Peter Lunenborg of the Geneva-based, South Centre, Nigeria is  expected to experience a revenue loss of $1.1billion annually in tariff  alone which represents about 30 percent revenue loss.

He noted that it would get to a situation where investments into Nigeria  could drop because it will be less interesting to produce in Nigeria and  more interesting to import. Even as he added that on the long run, the  country’s EPA natural resources would lose its value as a result of the EPA.

He added, “if you talk about light manufacturing, if you talk about  paper products, and oil derivatives-and I mean refined oil. If it is  cheap to import, why should you have a refinery in Nigeria?,” he said.

At a time that Nigeria’s economy is bleeding from plummeting global oil  prices, can the country afford anything that would lead to a further loss of revenue on the part of the government?

Some of the current production and tariff lines that the EPA will put at risk include:processed oil products, chemical products, cement trinkets, intermediate industrial products, formal industrial products, parts of  machines, vehicle industry, agricultural products, food processing just to mention a few.

A closer look at these above listed items will reveal that many local  industries which have not only managed to stay afloat over the years but  have began to gain their share of the Nigerian market would begin to struggle due  to the foreign products which would eventually find their way into the Nigerian market  and destroy whatever gains that might have been made over the years.

Take the National Auto Policy as a case in point! Can anyone imagine the  damage that would be done to the fledging industry? To the billions of  Naira that would be lost over time as a result of agreeing to a trade  pact that will do Nigeria’s long-term economic interest no good.

As Assistant Comptroller, Modernisation, Research and Economic Relations  Department, of the Nigeria Customs Service, Mr. Dera Nnadi puts it, the  EPA is a battle for Nigeria’s economic soul and future.

One of the vocal critics of the EPA, the National Association of  Nigerian Traders (NANTS) , notes that it would be foolhardy for the  country to go into the agreement pointing out that Nigeria “is  looking for things that will improve employment” rather than what will make people lose their jobs.

According to NANTS President, Ken Ukaoha, signing the EPA will rubbish Nigeria’s quest to be among the world’s top economies in the future  arguing that Nigeria should thoroughly understand the terms of the  agreement in order to avoid the ‘unequal marriages’ and agreements that  can distort our current home-grown domestic initiatives essentially put  together by Federal Government through the Ministry of Agriculture aimed  at reducing massive and unhindered importation especially of agro food products.”

The NANTS President questioned the sincerity of the European Union (EU)  in the EPA especially with regards to the  thematic issue of market  access and funding coupled with the insistence of the EU that it can  only afford €6.5billion as against the initial €15 billion initially demanded by ECOWAS.

As analysts have questioned: what is €6.5 billion compared to the effect  EU imports will have on the entire West African economy?

In spite of the glaring disadvantages the Economic Partnership Agreement  would have on Nigeria’s economy, it seem the country is walking into the  EPA trap with its eyes wide open.