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International trade in Nigeria Essay

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Updated: Jan 14th, 2020

Introduction

Globalization refers to “the growing interdependence of countries resulting from the increasing integration of trade, finance, people, and ideas in one global marketplace” (Bigman 2002, p. 7).

This paper examines the effect of globalization on Nigeria’s participation in international trade. In particular, it will focus on how trade liberalization, protectionism, BWIs, and MNEs have influenced Nigeria’s imports and exports. The paper will argue that globalization has had more negative than positive effects on international trade in Nigeria.

Impact of Global Governance Agencies

The World Trade Organization (WTO) is one of the agencies that regulate international trade. WTO’s most-favored-nation policy aims at reducing discrimination among trading partners in the international market (Muhammad 2007, pp. 173-182). Similarly, its national treatment policy encourages countries to treat locally produced goods and imports equally (WTO 2013).

Nonetheless, these policies do not always benefit developing countries because they are often manipulated to favor developed countries (Action Aid 2004). Consequently, the WTO provides special considerations to some developing countries to enable them to improve their competitiveness (Raghavan 2013). These include “longer time to implement agreements, support to build infrastructure, and measures to increase trading opportunities” (Frieden & Lake 2000, p. 2110.

For instance, the Cotonou Agreement that was adopted in 2003 allowed Nigeria to export its commodities to the EU without paying any tariff for five years (Michael 2005, pp. 1-200). The resulting increase in exportation enabled Nigeria to maintain an average GDP growth rate of 6.82% in the last seven years.

The structural adjustment programs introduced by the World Bank in Nigeria’s agricultural sector have partly contributed to the reduction in production in the industry. For instance, the removal of subsidies to farmers has increased the cost of production in Nigeria (Dayo, Nkonya and Pender 2009, pp. 1-48). By contrast, the WTO has failed to eliminate or even reduce the subsidies paid to farmers in developed countries (Walker 2011).

These subsidies lower the cost of production in the agricultural sectors of developed countries (UNDP 2005). As a result, developed countries overproduce agricultural commodities such as rice, which they sell at low prices in overseas markets. This reduces the demand for Nigeria’s agricultural commodities such as cotton, which are relatively expensive due to high production costs (CID Harvard University 2013).

Liberalization of exchange rate has led to a systematic reduction of the value of Nigeria’s currency against the dollar. This has led to increased prices of imported machines that Nigerian farmers and industrialists need in order to add value to their products. In this regard, the BWIs should be reformed so that they can benefit developing countries such as Nigeria.

In particular, the IMF and the World Bank should control volatility of exchange rates in international markets (Nayyar 2001, pp. 1-2). A stable exchange rate will enable Nigeria to import machinery at competitive prices in order to increase production in its agricultural and manufacturing sectors.

Access to Foreign Markets and Barriers to Free Trade

In 1970s, Nigeria focused on implementing protectionist policies in order to protect its nascent industries and to improve its balance of payment. This included a general ban on the importation of non-essential goods, high import tariffs, and import quotas (Dappa & Otuya 2012, pp. 23-45).

However, similar trade barriers imposed on Nigeria by Britain limited Nigeria’s ability to access several European markets (Dappa & Otuya 2012, pp. 23-45). Nonetheless, Nigeria had a trade surplus with most western countries due to the increase in its oil exports. Nigeria’s oil exports increased because most western countries had reduced their import duties on imported crude oil (Akinlo 2012, pp. 165-174).

Nigeria began to liberalize its economy in 1986 by removing tariff and non-tariff barriers to trade. During the liberalization period, Nigeria’s agricultural exports such as cocoa and palm kernel grew by between 20 and 30 percent (Ogwumike & Olukayode, pp. 89-95). This is because the depreciation of Nigeria’s currency after the adoption of a flexible exchange rate improved the competitiveness of its commodities in overseas market.

Additionally, the country’s GDP increased from -2 percent in 1985 (before trade liberalization) to 5.5 percent during the SAP period (1986-1993). The increase in economic growth was attributed to the raise in Nigeria’s agricultural exports to Europe and Asian countries. Moreover, Nigeria had a comparative advantage in oil production in 1980s and early 1990s (Miller 2008, p. 71). In this regard, trade liberalization enabled the country to export its oil to developed countries such as the USA at a more competitive price.

However, the improvement in international trade in Nigeria was just a temporary occurrence. In 1990s, Nigeria lacked the technology that it needed in order to add value to its agricultural products and to reduce the costs of its exports (Akinbobola 2001, p. 12). Consequently, its commodities could not compete with those from Asian countries such as India. Additionally, importation of cheap agricultural products such as rice increased tremendously.

During the 1997-1998 Asian financial crisis, most Asian countries banned textile imports from Nigeria, thereby reducing the country’s cotton production by nearly 40% (Dappa & Otuya 2012, pp. 23-45). The decline in production in the cotton sector led to increased poverty and unemployment in the country.

Nigeria’s earnings from agricultural exports have been declining steadily over the years due to high competition in overseas markets. Though exports for some crops such as cocoa have increased since 1990, their earnings have reduced significantly. This is because major export markets such as the European Union have consistently set high import duties (IMF 2001).

Following the discovery of oil in countries such as Mexico and fluctuations in international oil prices, Nigeria lost its comparative advantage in oil production. Moreover, persistent decline in oil prices has significantly reduced the country’s earnings from oil exports. Consequently, Nigeria’s balance of payment has been declining steadily since 1990.

Additionally, unemployment rate has increased considerably, thereby forcing its citizens to search for jobs in European and Asian countries. In this regard, an international economic council should be established to oversee globalization (Nayyar 2001, pp. 1-2). In particular, the council should focus on removing tariff and non-tariff barriers to trade, as well as, providing financial and technical assistance to developing countries such as Nigeria to improve their competitiveness in production.

Impact of Bilateral and Regional Agreements on International Trade

Bilateral and regional agreements improve the export positions of their member countries by providing a large market for their products. The agreements usually promote free movement of goods through removal or reduction of import taxes. Additionally, they promote free movement of persons through removal of migration permits (Phillips & Weaver 2011, p. 67). It is against this backdrop that Nigeria joined ECOWAS in 1975.

ECOWAS is an economic bloc that consists of 15 West African countries. Joining ECOWAS has enabled Nigeria to increase its export of raw materials such as rubber. This is because such products are subject to a low import duty of only 5 percent (ECOWAS Commission 2010). However, final consumption goods are subject to a 20 percent import duty in the region. This has limited Nigeria’s ability to export its final goods to most ECOWAS member countries.

Bilateral and regional trade agreements usually tend to undermine the goals of multilateral agreements. This is because some of their principles are not consistent with those of multilateral agreements (Reuvid & Sherlock 2011, p. 324). For example, the tariffs proposed in a particular regional trade bloc can be different from those proposed by GATT.

Moreover, interest groups usually develop within bilateral and regional trade agreements, thereby discouraging their members from conforming to multilateral agreements (Reuvid & Sherlock 2011, p. 325). In Nigeria, the revision of the common external tariff for the ECOWAS trading bloc led to the adoption of special taxes, which were as high as 50 percent to protect the members from extreme competition from other trading blocs (ECOWAS Commission 2010).

Nonetheless, the high taxes undermined Nigeria’s commitment to ensure free trade as required by the WTO. The high tax increased the prices of imported consumer goods in Nigeria, thereby lowering consumption of imports. Countries that enter bilateral agreements should align their principles to those of the WTO in order to avoid breaching multilateral trade agreements (Reuvid & Sherlock 2011, p. 327).

Powerful Multinational Enterprises

Multinational enterprises promote international trade and export positions of developing countries through technological transfers and provision of ready market for their raw materials (Oghenerobaro & Robaro 2008, pp. 12-16).

MNEs such as Shell dominate the exploration and distribution of oil in Nigeria. These companies introduced advanced technologies for drilling oil, thereby increasing Nigeria’s oil exports (Akinlo 2012, pp. 165-174).

Multinational enterprises in Nigeria’s oil industry have also contributed to environmental degradation through oil spillage. Most of the spillage accidents occur due to the negligence of oil companies such as Shell (Steiner 2008, pp. 131-141). Oil spillage has led to the contamination of over 50,000 square kilometers of farmland in Niger Delta (Kadafa, Zakaria & Othman 2012, pp. 10-30).

Consequently, over 20 million Nigerian famers have been rendered jobless. Furthermore, oil spillage has led to the destruction of mangrove forests in the delta, thereby reducing Nigeria’s timber exports (Zabbey 2005, pp. 7-10). In this regard, the government of Nigeria should strengthen regulation in the oil industry so that MNEs can engage in ethical behaviors.

Conclusion

The aim of this paper was to examine the extent to which globalization has enhanced international trade in Nigeria. Initially, globalization led to increased exportation and balance of payment surplus in Nigeria. However, globalization also exposed Nigeria’s products to high competition in the international market.

Additionally, fluctuation of commodity prices and Nigeria’s inability to add value to its products led to the loss of the competitiveness of its exports. Consequently, Nigeria’s exports have declined and its balance of payment has worsened. Additionally, poverty and unemployment continue to rise in the country. Thus, globalization has had more negative than positive effects on international trade in Nigeria.

References

Action Aid 2004, WTO Unfair to Developing Countries. Web.

Akinbobola, A. 2001, Globalization and its Impact on the Emergent States, Zedek, Lagos.

Akinlo, A. 2012, ‘How Important is Oil in Nigeria’s Economic Growth’, Journal of Sustainable Development, vol. 5 no. 4, pp. 165-174.

Bigman, D. 2002, Globalization and the Developing Countries, Oxford University Press, London.

CID Harvard University 2013, Textiles and Clothing Summary. Web.

Dappa, T. & Otuya, B. 2012, ‘The Effects of Globalization on Developing Economies: The Nigerian Experience’, African Journal of Philosophy, vol. 3 no. 1, pp. 23-45.

Dayo, P., Nkonya, E. & Pender, J. 2009, Constraints to Increasing Agricultural Productivity in Nigeria, International Food Policy Research Institute, Abuja.

ECOWAS Commission 2010, The ECOWAS Common External Tariff and Regional Integration. Web.

Frieden, J. & Lake, D. 2000, International Political Economy, Palgrave, London.

IMF 2001, Global Trade Liberalization and the Developing Countries. Web.

Kadafa, A., Zakaria, M. & Othman, F. 2012, ‘Oil Spillage and Pollution in Nigeria: Organizational Management and Institutional Framework’, Journal of Environmental and Earth Science, vol. 12 no. 4, pp. 10-30.

Michael, L. 2005, Partnership Agreement ACP-EU, European Commission, Luxembourg.

Miller, R. 2008, International Political Economy, McGraw-Hill, New York.

Muhammad, N. 2007, ‘Multilateral Trade Regime: Conflicts between Developed and Developing Nations’, International Review of Business Research Papers, vol. 3 no. 4, pp. 173-182.

Nayyar, D. 2001, Reform the UN and the Bretton Woods Institutions, WIDER, Helsinki.

Oghenerobaro, M. & Robaro, A. 2008, ‘The Impact of Globalization of Entrepreneurship Development in Developing Economies’, Journal of African Economies, vol. 4 no. 2, pp. 12-16.

Ogwumike, F. & Olukayode, E. 2012, ‘Globalization and Economic Growth in Nigeria: A Multidimensional Analysis’, Pakistan Journal of Social Sciences, vol. 9 no. 2, pp. 89-95.

Phillips, N. & Weaver, C. 2011, International Political Economy, John Wiley and Sons, New York.

Raghavan, C. 2013, Globalization Needs International Regulations. Web.

Reuvid, J. & Sherlock, J. 2011, International Trade, Routledge, New York.

Steiner, R. 2008, ‘Double Standards? International Standards to Prevent and Control Pipeline Oil Spills, Compared with Shell Practices in Nigeria’, Journal of Environmental and Earth Science, vol. 8 no. 2, pp. 131-141.

UNDP 2005, High Trade Policies Damaging Growth Prospects in Developing Countries. Web.

Walker, A. 2011, The WTO Has Failed Developing Nations. Web.

WTO 2013, Special and Preferential Treatment for Developing Countries. Web.

Zabbey, N. 2005, ‘Impacts of Extractive Industries on the Biodiversity of the Niger Delta Region’, Journal of Environmental and Earth Science, vol. 3 no. 1, pp. 7-10.

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